Understanding Minimum Order Quantities – What it is and Why it Matters

Product Sourcing

Large quantity order on a conveyor belt in China

Many Chinese manufacturers aren’t interested in small orders. As a result, they'll have a minimum order quantity (or MOQ) in place to ensure that an order is worth fulfilling. This is because there are many moving parts involved in each order - the cost of setting up machinery, as well as dealing with order management, planning and admin tasks. The time it takes to design, setup and complete admin is basically the same, whether the facility has an order for 100, 1,000 or 10,000 units. Therefore, a small order can become a tough business case as it's hard for manufacturing facilities to make a good profit margin.

How Are MOQs Determined?

There isn't a one-size-fits-all approach to determining minimum order quantities, though there are several factors that are taken into consideration during the process. From understanding products and industries, to planning and inventory management, down to the relationship between manufacturing facilities and their customers - finding the sweet spot can be an extensive operation.

Type of Product Being Manufactured

The manufacturing process plays a large part in determining minimum order quantities. This is because the number of goods required to fulfill an order will generally be determined on the specific good itself. For example, a custom product that may require materials outside of a manufacturing facility's standard inventory will generally have a higher MOQ than a more generic product. The manufacturing of the generic product will be undertaken using materials within the factory's standard inventory, whereas custom products may require more planning and management, hence the importance of setting an appropriate MOQ.

Relationship Between Manufacturer & Customer

A factory may determine the terms of a minimum order quantity agreement on a case-by-case basis. Factories are more likely to accommodate the minimum order quantity if the request comes from an agent they deal with regularly, compared to a small business they have no previous history with. The agent may be able to ask a favour and lower the MOQ because of the long-standing relationship between the two organisations.

Supply & Demand

Supply and demand also plays a role in determining minimum order quantity. The MOQ may be higher at different times of the year - for example, if a factory is flat-out trying to fulfill orders before the Chinese New Year, it’s unlikely they will be generous with lowering their MOQ for a new order. However, if the factory is quiet and they’re keen to get more work, the factory manager might be more willing to take on a smaller order.

What to Do if You Can’t Meet the Minimum Order Requirement

If you don’t meet the minimum order requirements, you’ll need to make some decisions. You can increase the order size, find a new supplier that will accept a smaller minimum order quantity, or offer to pay a higher price per unit.

Make a Wholesale Order and Improve Inventory Management

If you want to work within a factory's minimum order quantity, you may need to consider increasing your order size to meet the factory's magic number. Depending on the amount you would like to order, this might be a small increase to meet the number, or a large increase which would result in a bulk purchase (otherwise known as wholesale). Selecting either of these options means you'll need to keep more stock on hand than usual, which will require an added emphasis on inventory management. One advantage of a high MOQ is a reduced unit price, so you can increase your profit margin when you sell the stock. However, if the wholesale or higher MOQ solution isn’t an option for you, you’ll need to look for another factory.

Find a Supplier with a Smaller Minimum Order Quantity

While Chinese factories deal in bigger quantities, there will be some manufacturing facilities that will be willing to accept a lower MOQ than the majority of others. It’s a matter of finding the right factory, but that’s not an easy task.

Using an Australian import agent can help, as they have regular dealings with factories and can easily take on the challenge to find suitable suppliers. Just like factories, agents have MOQs too. So, if you only have a small order, you may have trouble finding an agent who can take you on as a client.

Offer to Pay a Higher Unit Price with a Lower MOQ

If you’re struggling to find a manufacturing facility that will meet your minimum order requirements, you could try offering to pay a premium on the unit price and keep the quantity the same, or be willing to negotiate on the MOQ. The increase in price or MOQ may be just enough to help get the deal over the line.

If you need assistance with sourcing a reputable factory to manufacture your products in China, call Vara Allied on 6115 0118 or contact us online.