A first venture into the world of suppliers and manufacturers can be jarring. For many companies, this foray into the nuts and bolts of bringing a product to market at scale can be completely overwhelming. One of the factors contributing to this sense of overwhelm is the slew of new jargon you will encounter. We can act as translators for you by helping to explain terminology and identifying the most important variables at play.
MOQ is a very important variable. MOQ stands for Minimum Order Quantity, and it means exactly that: the minimum number of widgets you must order from a supplier for them accept your order. At first blush it seems like a no-brainer (you just accept the cheapest price from the supplier with the lowest MOQ). However, MOQ can have a great impact on which supplier ultimately offers you the best value. And make no mistake—value is king. When you are bulk manufacturing an item, a few cents saved here and there can really add up.
Before we discuss the nuances of MOQ, we should first establish why they exist, and what factors affect them. MOQs exist because suppliers need to produce a certain number of widgets before their costs are recouped and a deal becomes profitable for them. Oftentimes, when we seek out a supplier we do so with our customers seeking in search of the lowest price. Many of the manufacturers who produce inexpensive products are only able to accept the correspondingly thin profit margins because they can compensate with large volume. They do some math to see at what point the deal makes sense, and the MOQ is born.
For those with little experience with manufacturing, MOQs can seem unreasonably high. It is important to remember that many manufacturers, particularly in competitive markets, need to keep their overhead low. In order to do this, they typically do not manufacture a widget until an order for that widget has been placed. When they begin the process of manufacturing the widget, they order the exact amount of materials they need from local subcontractors. This helps the supplier to minimize waste (and keep costs low). Additionally, many subcontractors set MOQs of their own, which may factor into the MOQ of your potential supplier.
So why shouldn’t you simply always choose the company with the lowest MOQ? The simple answer is that value exists at a complex intersection between various factors, which a sourcing agent is experienced in navigating. For example, a company may offer a ridiculously low MOQ, but fail to meet product safety requirements in your market, leaving you with a cache of useless products (and possibly with heavy fines). Or maybe your company can save money somewhere else, and maximize profits by ordering from a manufacturer with a higher MOQ. It might even make sense to offer a reputable small manufacturer a slightly higher price to lower their MOQ to ensure the highest quality.
In any case, understanding MOQ is essential to finding the best value when sourcing products from overseas. We are happy to help you navigate this issue and find the sweet spot for your company.