What is the MOQ in international trade and why is it important?

If your company is involved in the import of products or you are at least thinking about doing so, the term ‘MOQ’ might sound familiar. Let’s see what it refers to and why it is important in international trade operations.

MOQ is the acronym for Minimum Order Quantity and it is directly related to the flexibility (or the lack of flexibility) that suppliers can offer when accepting new orders and, as such, it can be a major headache when thinking about import or sourcing activities.

As can be expected, the MOQ is usually directly linked to the type of products we wish to buy.  The same minimum order quantity will not be requested when placing an order for smartphones as for forks and, although it might sound strange, there are definitely a number of reasons why pretty much each supplier or manufacturer will request a specific minimum quantity for a customer to order.

Why does a supplier ask for an MOQ in import activities?

The MOQ will inevitably vary depending on the type of supplier we are dealing with: it is not the same to place an order with a manufacturer as with a distributor.

Manufacturers will demand a certain MOQ, because, usually when ordering the raw materials and/or components to produce our order, they will also have to comply with a certain MOQ while negotiating with their respective suppliers.

Additionally, it is worthwhile to take into account that the low prices in countries like China often imply low sales margins.  For this reason, the supplier will establish an MOQ that allows them to assure a minimum level of overall profit in order to make the deal worth their time and effort.

All products that are imported from Asia have an MOQ?

The quick and simple answer would be no. But we should consider the reasons why in reality the answer is rather yes…

When a small company starts dealing on international markets for import operations, without any previous experience, very often they will choose platforms like Alibaba or Aliexpress, where quite likely the suppliers won’t establish any MOQ.  This is due to the fact that, in reality, they are intermediaries who buy the products on wholesale markets in order to later on resell the goods.

On the other hand, when companies get involved in more conventional import operations (buying directly from manufacturers, e.g.), there will always be a minimum order, which, as commented before, will largely depend on the product involved.

We ought to specifically take into account situations whereby we wish to source a personalized product, e.g., with our own brand.  In this case, these being OEM or ODM products, the MOQ will be even higher, since the raw materials and/or components used for production will be very specific.

How to negotiate a lower MOQ?

Many companies are eager to know how to lower the MOQ when negotiating with suppliers, since this may allow them to reduce the overall expense involved in the import operation.

There are a number of ways to reduce the MOQ for any given product, but it should be noted that any import operation, by itself, is a sort of investment (in goods) and that, as such, it is should be dealt with in the most optimal way (in other words: it might be worthwhile to invest more money to buy products at a lower unit price).

One of the most common ways to achieve a lower MOQ is by grouping together the purchases of several buyers that wish to source the same product. But… this option clearly involves a number of risks, since at a certain point our fellow purchasers might be or become our competition.

Another option to lower the MOQ is by negotiating with the supplier anything related to the raw materials. In a variety of products, we may wish to purchase a simpler product, made in a less complex way, therefore making it cheaper, allowing us to reduce the MOQ.

In case we do not need a lot of urgent stock and, of course, in case the supplier would accept such a proposal, we may negotiate that the delivery of our order would happen in two or more phases, e.g., with an interval of several months. This will improve our cash position and, although it doesn’t technically lower the MOQ, at last our cash will stretch further in time.

Finally, the option we most recommend in order to lower the MOQ and achieve better prices, is to leave the import process up to specialists.  In this context, the sourcing partner is a fundamental element in order to manage a great business operation, since they can help us with the supplier research and selection process, as well as with the negotiation and other aspects in the entire purchasing operation.

At S3 Group we have been managing imports from China and other Asian countries for over 15 years.  The overall negotiation process, as well as the tasks to e.g., achieve better purchasing conditions (MOQ, unit price, etc.) are some of our specialties.  As sourcing partner, our objective is to obtain the best conditions, so the import process is not only a true success for our customers, but it also will allow them to gain competitiveness in the market.