MOQ, lead time, OEM: what the words in a plant's reply mean

A Chinese plant answers an inquiry with a short email full of Latin abbreviations. MOQ is the minimum lot: the plant will not make less. Lead time is the time from order to readiness for shipment. OEM means the item is made to your drawings or with your marking. All these words describe the terms on which the plant is ready to work. But they bind only when they are written into a contract, a specification or a signed proforma. Below is what each word means and what to ask about.

Words about quantity and time

MOQ (minimum order quantity) is the minimum quantity in one order. It is counted in pieces, meters, kilograms or the order value. What it applies to matters: the whole order, each model, each size or color. MOQ appears where the plant has start-up costs: resetting a machine, making tooling, buying raw material by the lot. For serial parts from stock there is often no MOQ, or it is small. For an item in your own size it is higher.

MOQ can be negotiated. It is usually an exchange: a smaller lot against a different price per piece or against a choice from the standard range.

Lead time is the production lead time. It is usually counted from order confirmation and receipt of the advance payment until the cargo is ready for shipment at the plant. The road is not included. If the email says "lead time 30 days", ask three things: whether the days are calendar or working, from which event the count starts, and what "ready" means: assembled, tested or packed.

Delivery time is sometimes a synonym for lead time and sometimes the time to the port or station. Without clarification do not compare it with another plant's answer.

Words about the goods

In spare parts the word OEM has one more meaning. An "OEM part" is a part from the manufacturer that fitted it to the machine at assembly. An equivalent from another plant is called aftermarket. If a plant writes "OEM quality", that is not the same as "OEM part": it is its own assessment of quality, not the origin of the part.

Words about money

PI (proforma invoice) is a preliminary bill. It contains the items, quantity, price, delivery and payment terms, and bank details. The plant issues it before payment. A proforma signed by both sides often serves as a simplified contract. So check it line by line against what was agreed in the correspondence.

T/T (telegraphic transfer) is a bank transfer. The entry "30% T/T in advance, 70% before shipment" means: 30% advance payment, 70% before shipment. More on payment schemes is in the article on paying the plant.

FOB price, EXW price is a price with a delivery term. The three letters say up to which place the price includes the plant's costs. FOB is an Incoterms rule for sea transport: the plant loads the goods onto the ship at the port. For cargo going to Uzbekistan by train or truck the rules for any mode of transport are more suitable: EXW, FCA, CPT, CIP, DAP. A price "FOB Shanghai" and a price "EXW" are not compared directly.

Price valid / validity is the period during which the plant holds the price. "Price valid 15 days" means: after that period the plant may name a new price. The reason is usually the cost of metal and exchange rates.

What binds the plant and what does not

An email with a price is not yet a contract. Under the Vienna Convention on Contracts for the International Sale of Goods (CISG), which applies in both Uzbekistan and China, an offer that states a time for reply usually cannot be withdrawn before that time ends. But a dispute over whether an email was such an offer is a matter for lawyers. It is safer to move everything important into a signed document.

What is worth writing into the contract or the signed proforma rather than leaving in the correspondence:

1. The model, version and marking of each item.
2. The quantity and what the MOQ applies to.
3. The production lead time: from which event to which.
4. The Incoterms delivery term with the place named.
5. The payment procedure.
6. What counts as the sample and how the lot is accepted against it.

The phrases "best quality", "high quality", "factory price" bind nothing. They are advertising words, not technical conditions.

Common traps

• MOQ per size. The plant agrees to 50 pieces, and then it turns out to be 50 for each of five sizes.
• Lead time with no start date. The period starts not with the email but with payment or drawing approval.
• Spot goods at a middleman. "In stock" may mean a trading company's warehouse, not the plant's. That is not bad, but then the manufacturer is another company.
• Customized with no description. "We can make to order" is not a description. Dimensions, material and voltage are needed in writing.

How we do it

• We conduct the correspondence with the plant ourselves and translate the answer into plain language: what the plant offers and on what terms.
• We send what we find, with price, photos and specifications, before the order. Your "yes" on each line is the order command.
• We conclude the contract with the manufacturing plant: part number and version, quantity, terms — on paper.