The United States and the rest of the West’s economy has benefited from overseas manufacturing for decades. Outsourcing production has helped create larger profit margins and increased production capabilities with less capital investment. Unfortunately, differences in Chinese and western business perspectives occasionally make understanding China’s manufacturers a bit difficult, to say the least. One area of confusion is the Minimum Order Quantity or MOQ.
Negotiating a Lower Minimum Order Quantity (MOQ)
The MOQ can severely impact offshore manufacturing by making it so buyers have no choice but to order a set quantity or greater if they want their production partner(s) to manufacture units for them. Of course, you can not blame the manufacturers for these requirements as it would not make financial or logistical sense for them to take on. The majority of manufacturers make a small margin across a large amount of units so it doesn’t make sense for them to tie up their capabilities making only a few units. That being said, there are ways to reduce MOQs.
Strategies to Reduce MOQs
1) Find the Right Factory
One way you may be able to reduce the MOQ you are forced to work with is to match your quantity needed to the size of the factory that you work with, if you are able to. Generally speaking, smaller manufacturers are more amenable to lower MOQs both because they may prioritize smaller clients and do not need the same quantity to justify their time. Larger manufacturers often have invested in powerful machinery and tools which can make smaller product runs impractical. This makes it much more difficult to frequently adjust the machine settings which smaller runs may necessitate, and large manufacturers don’t like to do as it costs them time and money. On the other hand, smaller production partners often have to ability to respond more nimbly to smaller production runs because they do not employ the same tools.
2) Order at the Right Time
Just like any other industry, manufacturers have busy and slow times. If you are not going to be a huge client for a manufacturer, be a timely one. Carefully planning when you place your orders can go a long way in reducing not only the MOQ of an order but also the price just because of simple supply and demand. Make sure to avoid ordering around major Chinese or American holidays so you aren’t just one small order in a sea of larger orders.
3) Use the Right Materials
The MOQ that your manufacturer gives you is a reflection of the price and the MOQ of the materials that the manufacturer has to purchase from their suppliers to make your product. This means that using rarer materials or materials with a high MOQ can drive up your MOQ, so if able, use common materials or better yet use what your manufacturer has on hand. If you can be flexible with your production partner and help them move their sunk costs in excess materials, they will work with you on MOQ.
4) Build Relationships
Just like in any other component, building relationships is key. Your manufacturing partner can make or break your business. Make sure that you develop a strong working relationship with them just like you would any other business partner. One advantage of working with an experienced production management and sourcing team like Rad Sourcing is the long-standing relationships we have cultivated with manufacturers and their personnel.
How Rad Sourcing Can Help
Our team members abroad are natives of the markets the work in which means they understand the ins and outs of business custom where they are stationed. This makes negotiating lower MOQs or prices much easier and can expedite and simplify the production process.
The production process can be exceedingly complex and navigating it is essential to growing a successful business. Applying these and other strategies can help reduce costs and lead time while leading to larger profit margins and success.
The Rad Sourcing team has managed the production process for successful companies in a variety of industries across a wide range of products. MOQ is one of many details that you will have to navigate when setting up production abroad so please reach out to us for a helping hand.
If you have any questions, please feel free to email Rad Sourcing at Taylor@radsourcing.com or give them a call at 805-319-9221.
That's all for this week's edition of The New Yak Times! Thanks to Rad Sourcing for the guest blog post and for giving us some insight into negotiating lower MOQs. Tune into next week's New Yak Times and subscribe below!
