Leak 07 · Pricing & Margin - Poor handling of manufacturer price increases
The increase notice arrives sixty days ahead. Nobody buys ahead, the cost file updates late, and customers are told after the fact. Each step leaves money on the table.
Diagnostic note. Symptoms, required records, an initial check, and possible fixes. This shorter note does not include a full worked example.
What is it?
A manufacturer price increase is a sequence of decisions: whether to buy ahead of the effective date, when to update item cost, when and how to notify customers, and how to handle open quotes and orders that straddle the date. Handled well, the increase is neutral or slightly positive for the distributor. Handled late or piecemeal, it costs margin at every step.
- Family
- Pricing & Margin
- Primary owner
- Purchasing Manager
- Secondary owners
- Pricing Manager, CFO
- Primary impact
- Gross margin
- Typical data source
- Supplier price notices, ERP cost records, purchase orders
- Detection difficulty
- 30-day measurability
Ask yourself
When a manufacturer announces an increase, is there a written procedure for the buy-ahead, the cost update, and the customer notice, with dates?
Yes, partially, no, or don’t know. “Don’t know” is the most useful answer, because it points at the test below.
What does it look like?
Warning signs. None of these proves the leak exists. They tell you where to look.
- Item costs updated weeks after the supplier’s effective date, so sales are priced on stale cost.
- No buy-ahead analysis, or buy-ahead decisions made by feel.
- Customers notified of increases inconsistently, or not at all, on standard price lists.
- Open quotes honored at old prices long after the increase.
What data do I need?
The minimum viable set. Most of it is already in your ERP.
| Field |
|---|
| Increase notice: supplier, items or lines, percentage, effective date |
| Date item cost was actually updated |
| Purchases in the 60 days before and after the effective date |
| Customer price change dates on affected items |
The initial check
Start with a small sample. Gathering the exports, agreements, or observations is separate from running the check; agree that work with the person who owns the records.
- 1Take the last three manufacturer increase notices you received.
- 2For each, find the effective date, the date item cost was updated in the ERP, and the date customer prices moved.
- 3Note the gap in days at each step and the sales volume on affected items during the gap.
Margin leaked = increase % × cost of goods sold on affected items during the gap between supplier effective date and customer price change
Then ask one question: Who owned each step, and did they know the date?
How much could it be costing us?
A conservative range, not a headline. The goal is a number management can trust enough to investigate.
Σ over increases of (increase % × affected COGS during the lag) plus forgone buy-ahead savings, × realistic recovery rate
Common root causes
Fixes fall into three layers. Not every problem needs software, and almost none needs AI first.
- Process
- No standard procedure and no calendar for handling increase notices.
- Data
- Notices arrive as PDFs and emails and are not captured in a system with dates.
- Technology
- Cost updates are manual and item-by-item, so they lag the effective date.
What should we do?
Start with the simplest intervention that could solve it. Move down the list only if the one above is not enough.
Level 1
Procedure
A one-page increase procedure with owners and lead times for each step.
Level 2
Data capture
Log every notice with items, percentage, and effective date the day it arrives.
Level 3
Workflow
Automatically calculate the buy-ahead case and the affected customer lines from the logged notice, and schedule the cost and price updates.
Where AI helps
- Extracting items, percentages, and effective dates from notices in any format.
- Matching supplier part numbers to your item master.
Where AI probably doesn’t
Buy-ahead math and price updates are deterministic. The first improvement is a procedure with dates, not software.
Before you call it a leak
- Buy-ahead ties up cash and warehouse space. Compare the saving to carrying cost and obsolescence risk before buying.
Think this might be happening in your business?
Turn the finding into a next step.
If the numbers say there is something there, send us what you found and we will help you decide whether it is worth a full investigation. No transaction files needed for that conversation.
Related leaks
- Leak 02 · PricingCost increases not reaching customer pricesA supplier raises cost. The customer price stays where it was. Margin on that item quietly compresses until someone notices, often a year later.
- Leak 18 · SuppliersBuying the same product at inconsistent costsBranch A pays $14.20. Branch B pays $15.60 for the same item from the same supplier. Or the invoice says $15.60 and the PO said $14.20, and nobody checked.
- Leak 19 · SuppliersSupplier terms not being capturedA 2% discount for paying in 10 days is a 36% annualized return. Paying on day 30 anyway, or paying on day 12 and missing it, throws that away.
Let’s start with one thing.
What would better performance look like?
Bring a result you want to improve, a symptom, or a workflow you already understand. You do not need to know the bottleneck yet. We’ll help choose what to investigate first.
No transaction files needed for the first conversation.