A few months back, I wrote about how some buyers can no longer put up with their suppliers’ quality issues. And I often lament on the poor state of quality systems here.

In this article I’d like to mention the other enormous source of frustration for foreign buyers: the high minimum order quantities (MOQs) and the long lead times.

High MOQs and long lead times are tightly linked

They come from the same underlying issue: the “big batch & long queue” mentality.

Industrial engineers, as well as financial controllers, are taught that, under a certain lot quantity, it becomes uneconomical to produce. (This, and much more, is explained in depth in the book Factory Physics.) And most manufacturing managers believe this.

Therefore, they follow this approach:

• Buy large batches of components, to negotiate the best deal possible with suppliers (or to get a nice kickback)
• Have a large warehouse to store all this ‘stuff’
• Only deal with a few production orders, as massive batches are released on the shop floor (which, mathematically, lengthens the time to finish production)
• Hope that no quality issue comes up because they might be found days after they appeared and they might affect thousands of pieces

On the other side, what does ‘world class manufacturing’ look like?

Let’s look at one of the most advanced industries, from a process excellence standpoint: the car industry. In pretty much all Toyota plants, each car on the line is different. Think of the advances it required:

• Very fast changeovers in the body shop
• Ability to paint a car in red and the next car in white, without having to flush paint out of the tubes
• Access to the right tooling, parts, etc. in function of the vehicle currently being assembled

Is this only possible for making cars? Of course not. Your products probably don’t have 6,000 parts. If it is possible with cars, it is for most other goods.

For example, David Collins (now CEO of CMC), after 20+ years spent working in auto plants, applied this approach to a Foxconn production facility, with these results for for computers:

• MOQ went from 500+ pieces to 1 piece.
• Lead time from order receipt to the dock for delivery went from 103 hours down to 48 hours

You can read about three examples of Chinese factories that went in the direction of ‘flexible manufacturing’ here (on the CMC website).

What can you expect from your Chinese supplier?

If they do mass production (many identical pieces), don’t mention that they should have an MOQ of 1. They will laugh or be offended. It’s just not something they can imagine.

However, they can work on these types of improvements:

• A strong planning system that only releases what is needed onto the shop floor
• Purchasers who consider the fully loaded cost of what they buy, and who never try to buy more ‘just to make a good deal’
• Try and keep inventory low, especially work-in-process inventory
• Make materials ‘flow’ as much as possible throughout the processes
• Reduce changeover time by applying the SMED principles
• Do the process engineering needed to enable the downstream processes (usually assembly, testing, and packing) to switch effortlessly from 1 type of product to the next. In some cases, it requires operators to move from one line/cell to another. But remember, less inventory will mean much more space for transformation activities!

If new products are developed routinely, what I listed above is not sufficient. There are a lot of best practices for the new product development process too, and they tend to be totally ignored in China.

What are the benefits for importers?

Shorter lead times and lower MOQs mean orders can be given later (with less risk, which means a lower safety stock). It makes a big difference to cash flow for the buyer, and it reduces the risk of unsold inventory.

I am not talking about a few more days of cash flow. In some cases, an operation organized for speed can deliver goods 2 months earlier than most local competitors. I have seen it.

It also means more reactivity. When an unforeseen sale opportunity arises, there is a greater chance to grab it and satisfy it in time.

If you are in certain industries, it makes for a powerful competitive advantage. Think fashion accessories (eyewear, watches…). A designer can finalize a new concept and have it in stores much faster.

I remember touring the Dongguan Luxottica plant and hearing them boast about their 19-day production lead time (for acetate glasses, if my memory is correct).

Does it also help with quality?

Definitely. This is basically a set of moves in the direction of lean manufacturing, which is known to drive the proportion of defective parts very, very low over time.

Why is that? Here are a few ways this happens:

• When a high quantity of components is purchased well in advance of real needs, and quality issues are found 3 months later, the supplier generally won’t take them back. If a smaller quantity is purchased and used right away, the supplier is more inclined to replace bad parts.
• If quality issues appeared 5 weeks ago on the stamping machine, it is probably too late to do anything. On the other hand, when batches of work-in-process materials move fast through the processes, it is easier to investigate quality issues, find their root causes, and implement countermeasures.
• All the process engineering work I mentioned above tends to generate standards, and workers who follow standards are less likely to cause quality issues.

My conclusion is, high MOQs and long lead times are only the result of your suppliers’ poor organization and bad habits. The hard part is to get them to open their eyes…