Suppliers are asking for more this month than at any point in four years. Most of those requests deserve a question before they get an answer.
What happened
The Institute for Supply Management’s September surveys told one story from two sectors. The manufacturing Prices Index reached 77.9. The services Prices Index reached 74, the highest reading since July 2022. Aluminum, copper, steel, resins, freight, fuel and memory components were all reported up in price. Software licensing has been on the services list for eight months.
Fuel is the loudest input. The Energy Information Administration put retail diesel at $6.29 a gallon in September and expects it to stay above $6 through the fourth quarter. The same outlook has diesel easing to about $4.50 in 2027.
Those two facts belong together. Suppliers are quoting at the top of the curve. The forecast says the curve comes down.
Why this matters
An increase letter usually carries a true statement and an untested conclusion. The true statement is that the supplier’s costs are up. The conclusion is that your price rises by eight percent. The letter rarely shows how one leads to the other.
Three things get lost in between.
- The share. A supplier whose cost is 20 percent copper does not need a 15 percent increase when copper moves. An index belongs on the part of the price it affects.
- The direction. A clause that raises price when fuel rises must lower it when fuel falls, on the same trigger and with the same lag. Increases with no reverse gear are the most common value leakage we find.
- The invoice. An increase agreed at the table arrives on the invoice in its own form. Minimums, rounding and surcharges stack on top of the headline rate.
Software deserves its own note. Licensing increases arrive at renewal, and last week’s issue covered why that is where they are most often waved through.
What to do with the stack on your desk
- Ask for the breakdown before the meeting. Labor, materials, fuel, overhead and margin, as shares of price. A supplier who cannot produce it is asking you to take the increase on trust.
- Apply the index to its share. Published indices exist for most inputs. Move the affected share and hold the rest.
- Trade acceptance for a mechanism. Where an increase is justified, agree how it reverses: the index, the peg price, the step size and the review date. The EIA forecast is your evidence that the mechanism will be used.
- Put the review date in the renewal calendar. A price that rose with an index and stayed when it dropped was never contested. It was forgotten.
- Check the first three invoices. The agreed rate and the billed rate drift apart quietly. Catch it in the first quarter.
One idea to act on
List every price increase request received since July. For each, record the stated reason, the percentage asked, the percentage agreed, and whether any reverse mechanism exists. Count the requests with no cost breakdown and no reverse. Those are the ones to reopen first, and the forecast decline in fuel gives you the opening.
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