How to deal with unreasonable MOQ?
Ask and understand why MOQ so high
Define uncommon part that unique to the required version of product
IF uncommon part(s) are cheap, buy in/invest all of them => Greatly reduce MOQ of variation
IF uncommon part(s) are expensive, then it might not be “unreasonable MOQ”
When we source new product, MOQ (Minimum Order Quantity) could be as important as price, if not more. When I am asked by supplier “how much would be your quantity?” (one of the worst question I really hate), I usually response as “your MOQ”. It is a safe strategy to answer like this since you could get their bottom line of expectation which you could start negotiate from there. Here is an example, assuming that I plan to buy 500pcs of certain product:
S: How much qty you will buy?
B: Your MOQ please?
S: $10, 100pcs, FOB Shenzhen
B: Great. Our demand could be easily cover 100pcs. How much you could go lower if I double my qty?
See? Thats the strategy. You build up your leverage power gradually. Avoid starting too big at the beginning (unless your order are really really big that you really need to impress your supplier). I am pretty sure you will get the price same as MOQ if you start by 500pcs. However if you go slow, that you could likely work out something from it.
But thats not my topic today. I am going to talk about one of my experience when OEM-ing a product for my client. For privacy reason I am not going to mention the product name but I can safely say it is a high value electronic consumer product which MOQ IS big a concern, for the cash and risk it might carry. So we started buying 2000 pcs of a configuration that comply with US standard, and we would like to also apply EU and Japanese standard since we know those are also good market for this product to target. Guess how much MOQ the factory quote me? 2000. Yes, as if it is a brand new product. And when I complain about this, the factory sales simply say that we should aim higher and don’t just care about MOQ.
Well, yes, they got a point here. I am not developing a product just for MOQ. I am of course aiming for much higher expectation. But that is not something the OEM factory should concern. When I ask a MOQ, I mean risk and cash, and I have my own calculation and agenda here. So I just simply push on my argument for this negotiation. First I started by understanding what is really different when building a EU configuration. I ask them to put all those change in detail. While most change involve merely changing certain electronic component, the plug socket involve change of tooling and that part complicating everything. Still I push for all the cost involved to make such a change. The key point here is that “if we buyer, by all mean, able to absorb all those costs, the factory shouldn’t have a problem with ZERO MOQ”. A fair enough statement to negotiate
Let’s study the following case. Below I listed out the 2 new components that need to be purchased for EU configuration (let's just call them uncommon parts)
For this situation, most of the suppliers will just told you a new version involve a MOQ of 2000 (mean, $300 x 2000pcs = $600K!) - directly follow the fact that they need to purchase 2000pcs of component B in order to make the EU config. Does it make sense? Obviously no. Component B is a very low value component, and in this case I would rather buy in all those 2000 pcs by cash ($0.05 x 2000 = $100) and ask the supplier to use it slowly. This way the next MOQ bottleneck is component A, which is 200pcs only — Ten times less. Yes, supplier try to fool you in this case.
Tooling cost could manage more or less the same. You can pay off the tooling cost and ask them stock up all the injected/casted/stamped component for future use. You pay everything in advance. However, the could be tricky in practical since it usually much more expensive when tooling is involved. A detail calculation is needed.
That is it. The more of your understanding in an negotiation the more your ability to open for possibility. Don’t forget this golden rule of negotiation.