Why Chinese Suppliers Require MOQ and What Can You Do?
Minimum Order Quantity (MOQ) requirement specifies the lowest quantity of a certain product that a supplier is willing to sell. If the importer cannot reach the MOQ requirement, then the supplier is not willing to enter production. Suppliers in China tend to have fairly high MOQ requirements. Why Chinese Suppliers Require MOQ? What can you do about it?
Reason 1 - Low Profit Margins Require Large Volumes
Chinese suppliers tend to have very low profit margins, as low as 2-3% is common. Price competition is fierce and Chinese businesses in general tend to be focused on keeping a low price rather than improving product quality and service level. Low profit margins require the supplier to produce a large quantity of products in order to break even.
Reason 2 - Material Suppliers also Require MOQ
I'm sure most Chinese suppliers would be happy to do business with smaller buyers if they could. In fact, I know that many of them dislike the fact that a high MOQ requirement forces the suppliers to rely on a smaller number of large companies that could walk away with their business without notice. The problem is that the MOQ is not decided by the supplier alone, but also by its subcontractors. Every supplier need to purchase materials and components from local subcontractors, and every subcontractor requires the supplier to purchase a certain quantity. The supplier’s MOQ requirement is thus a reflection of the MOQ requirements imposed by its subcontractors.
Reason 3 - China Suppliers Rarely Keep Stock
A common misunderstanding is that Chinese suppliers have warehouses filled with export quality products ready to be shipped to the next buyer. It's not true. In fact, most Chinese suppliers don't even purchase materials and components until an order has been placed. Below I explain why:
Storage is not free and keeping a large stock would force the supplier to increase the prices. Empty shelves helps the suppliers to keep costs down and stay competitive.
European and American product standards (i.e. CE, RoHS and FCC) don’t apply in the other parts of the world. While many Chinese suppliers are manufacturing products that are in compliance with Western product standards, they are certainly not mass-producing them before they receive an order from an American or European buyer. Product standard compliance comes at a cost (more expensive material and components) and it would leave the supplier at a disadvantage if they mass-produced products that are compliant with Western standards.
How can you lower MOQ?
The MOQ requirement cannot simply be negotiated away or vanish. While some suppliers may accept a slightly lowered MOQ, requesting it to be removed completely is the same as asking your supplier to lose money for the sake of your business. Many importers try to play the "my orders will be larger in the future" card, but most suppliers hear this on an almost daily basis and only a fraction of their buyers can back up the claim in the end.
However, there are ways that can satisfy the supplier at the same time as you can order a smaller quantity:
Use components, materials and colors on several products. This way the supplier can limit the number of subcontractors involved.
Coordinate your orders with those of other buyers.
Import products that are not regulated in your country and/or market. This way you can purchase products that are originally produced for the Chinese market.