When running a business, the goal is always to reduce costs and increase profit. One way that many businesses do this is to save on production costs by outsourcing their manufacturing to countries like China, where production costs are much lower than in other countries. However, companies may run into a potential snag when it comes to ordering products from these countries, namely the Minimum Order Quantity, or MOQ. This indicates the lowest quantity of a product that a supplier will sell, and if an importer doesn’t place an order that reaches that requirement, they won’t start to produce the product. Here, we’ll discuss why countries like China have this requirement, and what it might mean for your business.
Low profit margins need higher volumes
Because these countries produce products inexpensively, they don’t tend to have high profit margins. The way they make money is by requiring companies to order a minimum quantity.
Subcontractors also have MOQs
Remember that when you work with a supplier that has an MOQ, they also have subcontractors for components, etc. that may also have MOQs. When your supplier has to order a minimum quantity of components, they’ll require you to order a corresponding minimum quantity of items, too. Be aware that the MOQ required by your supplier may simply be a product of the fact that they, too, are subject to minimum requirements.
In some cases, it’s possible to lower the minimum order quantity required by some suppliers. Companies like Ideasources can work with suppliers to help negotiate a lower MOQ. This can be accomplished by helping to identify which component parts the supplier keeps on hand (and can therefore be ordered in lower numbers) and those that may have higher minimum order requirements, so that businesses like you can strategize which products you will order to maximize your buying dollars. Remember that it’s not always possible to lower the MOQ for you without taking a loss, however – and you can’t expect your supplier to do that!
(Note that there are some regulations that require that certain materials, such as certain chemicals, must be ordered in a larger volume).
It’s also important to understand that in many cases suppliers in China don’t keep stock on hand. They make things to order. In most cases, products that are ready to sell (in stock) are only destined for the domestic market because they may not necessarily comply with the labelling requirements or safety standards of other markets.
If you are looking to order promotional products or other items from countries like China, y ou may run into the problem of the minimum order quantity. In case this happens, it’s a good idea to align yourself with a company that has experience in this matter. They can advocate for you and serve as a liaison between your company and the overseas supplier to try to work something out in your favour.
