Why Small Quantities Don’t Work When Sourcing in Asia
One of the most common requests we receive are from entrepreneurs and other start-ups who have an idea, but they only want a small quantity to test the viability of their concept. They may have tried sourcing domestically but found the pricing to be too high. They expect the costs to be less from a China factory because of the lower wages. That is true – but not with small quantities.
Each shipment (LCL “Less than container load”) has approximately $400.00 in fixed costs associated with the shipment. It doesn’t matter if the shipment is for 10 pieces, 1,000 pieces – or even 10,000 pieces, the processing charges are the same. These costs include:
- Customs Entry
- Courier Fees
- Handing Charges
- Pallet Fees
- Wire Fees
- $400/250 units =$1.60 per unit for fixed costs only.
- If you ordered 800 units, the cost per unit decreases to $.80 a unit.
- Order 2,500 units and the unit burden is just $.16
The same principles apply to the China factories being asked to make small quantities. Consider; the factory must still acquire the materials and accessories… they must make patterns… they need to set up the line and they must wire monies and communicate with the customer. So just as in the “Fixed Quantiles” paragraph above, the factory will take all the same steps and procedures for an order of 250 pieces as they would for 2,500 pieces. And those costs must be spread over the number of units being produced.
Everyone throughout the process needs to make a profit, and when the quantiles are small there is just no place to make any profit. Say, for instance, the factory doesn’t consider any job where they can’t make a $1,000 to not be worth their time. In the case of an order for 250 units they would need to add $4.00 per unit in margin to make it worth their time ($1,000/250 = $4.00). But if you ordered 2,500 units they might say $1,500 would be a reasonable profit. Now the profit per unit they add to their quote is just $.60 each
Hopefully this sheds some light on the difficulties in working with small quantities. It’s not that anyone is being difficult, but instead they are making sound business decisions.