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Companies across the globe agree that China has the best production facilities, manufacturing premium quality goods and charging pretty affordable prices. If you have a history of buying from a Chinese supplier, then the term 'minimum order quantity may not be new.' Even if you haven't done any business with an exporter in China, it is advisable to learn this phrase to complete the procurement process effectively.
Minimum order quantity (MOQ) refers to the least amount of products you need to order when dealing with suppliers in China. Manufacturers in other regions are also familiar with this terminology, and they follow it as per their preference. However, for a Chinese manufacturing company, MOQ holds far greater importance if you compare. The sellers can fix MOQ according to the following aspects;
The minimum order quantity for clothes is in meters, while it is based on numbers for something like bottles. Similarly, suppliers may set a lower MOQ for a buyer from an underdeveloped country whose economic condition is not pleasant. Experts suggest acquiring such information before starting the communication process with a Chinese supplier to avoid time wastage. If the MOQ suits you, then go ahead with the negotiations. One can easily find a sellers' MOQ through their company website. You can also learn about it by reviewing the supplier's profile on a foreign trade B2B platform if they are registered at one.
In the beginning, I mentioned how the manufacturers and suppliers in China demand reasonable rates. They are working with notably low-profit margins. Imagine what would happen if a buyer comes in to purchase only a couple hundred goods. The profit earned on such orders would not be enough to make up for the production costs.
A fixed minimum order quantity of 1000 or 1500 products means the supplier can pay their expenses, keep the business cash flow from adverse effects, and take home acceptable returns. Working with narrow profit margins while ensuring the quality of the goods is promising and standardized is also true for the multinationals who have production factories in China. Suppliers belonging to this region dispatch bulk consignments only as catering to those interested in paying for small quantities does not agree with their finances.
For those thinking that profit is the only driving force used to lock the MOQ by Chinese suppliers, there is more to what meets the eye. Here's what you need to know;
Manufacturers in China sign subcontracts with the producers of raw materials used in the production of the goods. The producers of inputs utilized in the manufacturing process also have MOQs that inevitably influence the decision of the manufacturers of finished goods.
China is a place employing technologically advanced machinery within the manufacturing departments. It is safe to say that the best custom goods are produced there. However, the MOQ is directly proportional to how much customization you need.
Popular manufacturers cater to large orders and set high MOQs compared to those with smaller operations. The explanation for this one is pretty apparent as big manufacturers incur more costs and have a massive clientele to satisfy.
Some products that are not so hard and costly to manufacture have higher MOQs. On the other hand, products with higher production costs, such as industrial equipment, vehicles, etc., have low MOQ. Quality is also a critical determinant as the best products often have inflated MOQs.
It is vital for every importer of Chinese products to be aware of all this information. It is going to prove significantly helpful while negotiating the terms of the agreement with the suppliers.
If you own a start-up or small business lacking financial investments to procure goods from a supplier that offers high MOQ, don't turn away yet. You can negotiate the MOQ with the manufacturers to an extent where your benefit increases and the other party does not incur a loss. Here's how to do it;
You can pay the supplier in installments. Most of them will agree upon such a condition if it does not adversely affect their company's cash flow.
This option is only worthwhile if you can afford high prices. Increased rates per unit will allow the manufacturers to cover the production costs while fulfilling small orders effectively.
As stated earlier, such suppliers operate through smaller factories and tend to be more flexible in deciding the minimum order quantity. Buying from them enables you to stick to the devised budget and complete the procurement procedure successfully.
If you ask for a lot of customizations, then the supplier will quote a higher MOQ. Hence, avoid such demands if you are working with a limited budget.
Communicate your business plans to the supplier and affirm that you plan to become their regular client. You have to make the supplier see that a long-term commitment is going to be extensively beneficial for them. This can drive a supplier to lower the MOQ.
This is called working as part of joint orders with buyers purchasing the same products. A joint order is when multiple orders of various buyers are executed as a single one. Importers who become part of combined orders get to enjoy low MOQs and prices.
There's another idea that might turn out to be rewarding. You can ask the supplier if they have any leftover raw materials that can be used to manufacture the products as per your order. You could get lucky because if the manufacturer does not have to procure more raw materials to complete your order, the MOQ goes down. It is important to note that the option of making payments in installments gives you additional time to arrange more money. It does not always lead to a lowered MOQ.
Experienced business people suggest not to buy from suppliers in China that offer low MOQs as the quality may not be up to your expectations. Similarly, avoid those who don't have an MOQ altogether. Such people work as wholesalers who buy from manufacturers and supply goods to the local markets. The products they sell do not follow the quality standards and other rules, making them unqualified for import and export.
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