You want to buy directly from China but don’t have the means and cash flow for big orders. You don’t want to place huge orders at once. Many buyers from China face MOQ difficulties in that case. Suppliers require you to place bigger orders than you can handle at that moment. This article will describe what MOQ is, and how to deal with it when sourcing from China.
A few takeaways:
- MOQs impact cash flow, inventory, flexibility – negotiating reductions can help your company
- Trading companies offer lower MOQs but higher costs
- Build relationships over time to gradually reduce MOQs through commitment and collaboration
- Understand factory constraints to identify creative solutions to lower MOQ
MOQ stands for “Minimum Order Quantity.” Minimum Order Quantity refers to the lowest quantity of products a buyer must purchase from a supplier or manufacturer in a single order. MOQ is often a big deal when sourcing in China, especially as a starter or an e-commerce company.
The supplier sets a requirement to ensure that their internal production or procurement process is cost-effective. They are not interested in providing you with amounts that are not interesting and profitable for them. Because of economies of scale, the bigger the order, the lower the cost per item for the factory. Therefore, the more profitable your order becomes for them. MOQs are there to cover their manufacturing costs.
For example, if a supplier sets an MOQ of 500 units for a particular product, it means that you must order at least 500 units to proceed with the purchase. If you need a quantity lower than the MOQ, the supplier will not be willing to fulfil your order.
MOQs vary significantly depending on the product, supplier, and industry. For readily available or standardised products, MOQs are relatively low. For complex and customised items, they are usually much higher.
Considering the MOQ when sourcing from China and selecting suppliers is important to ensure it aligns with your business needs and budget. The MOQ can affect your business when sourcing products.
Some potential consequences of a high MOQ are:
- Cash flow impact
- Storage difficulties
- Operational challenges
The cash flow impact of high MOQs
A high MOQ can negatively impact costs and cash flow. If you must purchase more products than needed within a given timeframe, excess inventory that cannot be sold leads to work capital tied up in inventory purchases. Therefore, it is not available to reinvest in other parts of the business. Smaller companies are especially impacted by a high MOQ. The increased costs and cash flow burden of maintaining excess inventory pose operational challenges.
Cash flow is an extra big deal when sourcing from China. When ordering, your work capital is already partly invested before production begins. Then there is time for shipping, and only after the goods arrive, the first income can be generated. We have worked with companies that took more than half a year to earn the invested costs of an order back.
High MOQs bring storage difficulties
Managing and storing a large quantity of inventory can be challenging. You may have limited storage space or if the products have a limited shelf life. When using storage space on Amazon or another e-commerce platform, using more space brings along lots of additional costs. Small companies would have to find additional resources to handle and store all the excess inventory.
Operational challenges of high minimum order quantities
A high MOQ can limit flexibility, which is increasingly important for sellers who want to test products on the market. This is especially true in today’s fast-adapting e-commerce world. High MOQs restrict you from taking advantage of the variety offered by suppliers seeking higher volumes. Additionally, if market trends change, this may leave you with large quantities of outdated inventory that is difficult to sell. This brings a lot of additional costs. The lack of flexibility from a high MOQ makes it challenging for businesses to adapt or capitalise on new opportunities quickly.
What is MOQ in manufacturing
MOQ represents the lowest production quantity that is economically viable for the manufacturer. The manufacturer usually determines the MOQ on factors such as the production process, machinery setup, raw material sourcing, and production costs. Manufacturers set MOQs to optimise production efficiency, minimise costs, and ensure profitability.
Suppliers and manufacturers impose a minimum order quantity (MOQ) for several important reasons, including production efficiency, costs, economies of scale, and supply chain management. MOQs allow manufacturers to optimise their production runs and spread fixed costs across a higher volume of products.
They may, for example, need a lot of time to prepare the correct colour to add to certain plastic items. After the preparation, they can adjust this to 1000 items for the same costs as 10.000.
They can also negotiate volume discounts with their suppliers of components and materials to reduce per-unit costs. Usually, the manufacturer procures the materials and components only after you confirm the order. So they can order higher demands and manage their supply chains more effectively, limiting the complexity of small orders. In this way, MOQs are important for manufacturers to maximise operational efficiency, minimise production costs, and maintain financial profitability.
Manufacturers determine the minimum order quantity based on factors related to their production process, equipment and costs. They consider the nature of the manufacturing process and the setup time of machinery and assembly lines in one order to optimise efficiency. The MOQ is typically set to meet standardised batch sizes for fulfilment. Additional cost factors like materials procurement, warehousing, order packing and shipping influence the MOQ to help spread fixed costs across higher volumes.
Negotiating MOQs in practice
It may sound as if the MOQ of Chinese manufacturers is a precisely calculated and absolute number. However, more often than not, this is not the case. The MOQ quoted to you is not more than a rough estimate and is very flexible and negotiable in practice. So, don’t see the MOQ as a number set in stone but as a start for further negotiations. We have for example seen instances where an order of 300 units was accepted, after the manufacturer asked for an MOQ of 1000 at first.
In this article, we will first focus on the impact of MOQ on different types of Chinese buyers. Then, we will come up with solutions to deal with MOQs that are too high.
The flexibility of suppliers in helping their customers with the order amounts is considered relatively high in China. This means that China offers plenty of opportunities to buy small order amounts. This is one of the reasons that many buyers prefer to buy from China over, for example, Mexico or Vietnam, where flexibility in MOQs and scalability is often less.
Dealing with the MOQ when sourcing from Alibaba for a small (e-commerce) business
The MOQ on Alibaba can vary significantly depending on the product and supplier. It can range from as low as 1 unit for certain products to several hundreds or even thousands of units for others. When browsing product listings on Alibaba, you will often find the MOQ mentioned alongside the pricing and other details. In practice, this is nothing more than an indication and often not more than a number to attract you to their page.
To understand the real MOQ requirements, you’d better discuss and negotiate with the supplier. You can discuss this directly with suppliers via the Alibaba platform. In our experience, you get a better answer and result if you contact them via phone or WeChat.
Understand that the MOQ is negotiable and that the first MOQ mentioned is not always a fixed number. You can negotiate an MOQ that works for your company.
MOQs when dropshipping?
Are searching for suppliers in China for dropshipping [1]? The definition of MOQ for dropshipping is an MOQ of 1. You may consider two primary options:
Look for dropshipping suppliers that are factories experienced in directly supplying goods to the consumer. In recent years, more and more Chinese factories have changed their business model away from only delivering bigger amounts to B2B customers. Now, many factories produce stock and deliver the goods directly to consumers directly instead. In China, it is already very common for factories to advertise their products directly to the consumer on platforms like Pingduoduo and Douyin. Factories that are often used to working this way can also send their goods directly to consumers abroad. This means an MOQ of 1.
You can also find wholesalers or distributors who cater to small businesses and individual consumers. The MOQ for wholesale and distributors often provide a diverse product range with lower MOQs suitable for dropshipping.
Strategic solutions when facing MOQs that are too high
Negotiating the minimum order quantity with your Chinese supplier for the first order can be crucial in establishing a successful business partnership. Effective communication, thorough research, and strategic communication can work to achieve favourable MOQ terms. But in some instances, the MOQs are still too high to work with.
We will discuss four options to consider when :
– Working with trading companies
– Find constructive solutions when understanding the underlying reasons for a high MOQ.
Why is the minimum order quantity smaller for trading companies than for manufacturers?
The first option for getting a low MOQ is working with trading companies instead of factories. Trading companies are often able to deliver smaller order amounts. They act as intermediaries between buyers and manufacturers.
Trading companies have relationships with a network of manufacturers, allowing them to offer a wider range of products and variations. Their ability to source from different suppliers gives them more flexibility in working with factories with lower MOQs or using their buying power and experience to negotiate lower MOQs.
They typically source products from multiple manufacturers and aggregate orders to meet the MOQ requirements set by manufacturers. Many trading companies also maintain their own inventory, allowing them to store and manage products from various manufacturers.
This inventory flexibility enables them to offer smaller quantities to buyers, as they can distribute the products from their inventory without affecting the manufacturer’s production processes. As they consolidate orders, they can offer smaller quantities to buyers, combining various products from different manufacturers to meet the MOQ.
If your business requires smaller order quantities that may not meet the minimum order quantity set by manufacturers, a trading company can be a solution to consider. This allows you to access a wider range of products and suppliers without placing larger orders individually. It can help you to offer a more diverse range of products and variations than when you work with single manufacturers.
Why does working with the manufacturer offer advantages in the end?
When having difficulties finding the MOQs needed, working with trading companies can be an attractive option. It often has many disadvantages, making it important to consider ways to work directly with manufacturers, even though it may be more difficult.
Working directly with manufacturers offers several advantages. Most importantly, it can save costs by eliminating intermediaries and negotiating directly with the manufacturer for better pricing and terms. Direct contact also enables better transparency and quality control, as you can monitor the production process and ensure adherence to desired standards. It can also offer customisation options, allowing you to communicate your specific requirements, make adjustments, and ensure the product aligns with your specifications.
Additionally, building a direct relationship with the manufacturer fosters trust and understanding, opening doors for long-term partnerships and more favourable conditions in the future. You also gain access to their manufacturing expertise and access their knowledge and insights for product improvement.
The flexibility and scalability manufacturers offer are beneficial, particularly if your business is growing or has fluctuating demands. Finally, direct communication streamlines decision-making enhances efficiency and facilitates effective problem-solving.
Overall, working directly with manufacturers provides numerous benefits in cost savings, control, customisation, relationship building, expertise, transparency, flexibility, and communication efficiency. Therefore, finding measures to lower MOQs while working with manufacturers is often better than simply contacting trading companies.
How to negotiate a minimum order quantity with your Chinese manufacturer for the first order strategically?
When communicating with suppliers on Alibaba, it’s best to be strategic when asking about MOQ. You may just be starting, have limited experience with a certain product or only deal with small order amounts. This may be true, but by being too honest about this, the supplier may have limited interest in working with you or quote you a higher price. The following advice may help you for lowering MOQs:
1—Build trust and communicate professionally: Before initiating negotiations, research industry standards and typical MOQs for similar products in the market. This information will give you a benchmark and help you determine a reasonable starting point and present yourself as more knowledgeable. If you understand the product and the market better, the supplier will have more confidence that you are a professional buyer and can develop bigger orders in the future.
2—Build incentives for the supplier: Emphasize the potential for future business growth, your commitment to the supplier’s products, and the value you can bring to their business. Show that you have concrete plans for bigger orders in the future. As much as possible, show that you have plans to increase orders after the first (test) order. This way, you create higher trust and a higher financial incentive.
Negotiating and finding win-win solutions
Negotiation and creating win-win situations are often a must to make cooperation with your supplier workable. For example, you could propose to pay a slightly higher price to make a smaller MOQ possible. Another potential solution is waiting until the factory is already planning to produce the item that you want, making it possible for them to produce additional items for a low price for your order as well.
We often use these tricks when we ask for a test order. When we recently contacted a factory for household electronic products, they were not at all impressed with the quantities of orders we had planned for our first order. However, after visiting the factory and showing them the plans to buy more different items and bigger quantities in the future, the supplier realised that there was much more interest from their side, and they made the project work for the order quantities that we needed.
Understand the supplier’s MOQ Requirements for Solutions
A high MOQ is sometimes set due to specific manufacturing or supply chain factors.
For example, preparing a particular colour requires an MCQ (meaning minimum colour quantity), affecting the overall MOQ. Packaging may also require a minimum quantity, increasing the minimum order quantity. MOQ can also be influenced by the factory’s need to procure a specific material or component in large quantities for your order.
Understanding the exact reason for a higher MOQ can be beneficial in finding solutions for your situation. By knowing the specific factors contributing to the high MOQ, you can explore alternative approaches to address them.
Ask questions and discuss openly
It is always good to engage in open discussions with the supplier and try to negotiate a lower MOQ. If you can explain your business needs, demonstrate potential growth, and emphasise the mutual benefits, the supplier may be willing to reconsider the MOQ.
You can try to align with their production plans: Inquire if aligning your order with the factory’s existing production plans is possible. By fitting your requirements into their production schedule, the supplier may be more inclined to accept a lower MOQ.
You may also find flexible solutions for your specific situation. For example, you may consider the standard colour. If the packaging is the reason for the higher MOQ, you may order larger amounts of packaging and let the manufacturer keep the unused packaging in stock while ordering smaller amounts of the product itself.
Ask specifically for these reasons and think about the solutions yourself. In practice, these solutions are straightforward and have no issues for the factory, but they are not open-minded enough to think about these kinds of practical solutions by themselves.
By identifying the specific reason for a higher MOQ and implementing these strategies, you can potentially find solutions that help lower the MOQ and meet your business needs more effectively.
How can MOQs be lowered over time with the same supplier?
Lowering MOQs with the same supplier over time requires patience and a strategic approach. Establish a strong relationship by placing consistent and reliable orders, demonstrating your reliability and value as a customer. Engage openly with the supplier, discussing your long-term growth plans and how reducing MOQs can benefit both parties.
Trust in China doesn’t come quickly, and there may be a lot of distrust initially. When the supplier trusts you more, and you show more commitment over time, the supplier will be more open to finding solutions that work for your company. Offer volume commitments as your business expands. This encourages them to be flexible with MOQs.
Another strategy is to explore opportunities to consolidate orders. If you source multiple products from the same supplier, consider combining orders with other customers or within your business. This allows you to reach higher quantities collectively. You can use the factory’s growing financial interests as leverage to negotiate lower MOQs.
By implementing these strategies, you can gradually work towards reducing MOQs with the same supplier over time and a mutually beneficial relationship.
Conclusion
So what is MOQ when sourcing from China and how to deal with it?
MOQ is an important definition when sourcing from China, especially for small businesses and e-commerce sellers. Manufacturers set minimum order quantities to optimise production efficiencies by achieving adequate order volumes. For you as a buyer, MOQs can negatively impact cash flow, inventory management, and operational flexibility.
You can take various strategic approaches to deal with MOQs effectively.
- Negotiating directly with manufacturers to better understand the reasoning behind MOQs allows for creative solutions tailored to a company’s specific needs.
- Working with trading companies that aggregate orders is also an option allowing for lower MOQs.
- Building strong, long-term relationships with suppliers through open communication, incremental order growth commitments and order consolidation can help reduce MOQs over time.
Adopting a collaborative approach emphasising mutual understanding and benefits will help businesses establish productive cooperation. With patience and consistent effort, you can find solutions to deal with MOQ and find the best sourcing partners that can help you realise your business needs.
