A Supplier Just Announced a Price Increase: The Five-Step Response

"Effective the 1st of next month, prices across our range will increase by an average of 7%." The letter is deliberately vague, the file attached to it is not, and the difference between those two things is where your money is. Here's the sequence that turns an announcement into a decision.

Step 1 — Quantify it before you feel anything about it

"Average 7%" is close to meaningless. Averages hide the shape: a file can average 7% while your top-selling line moves 22% and half the catalog doesn't move at all. What you need is the dollar impact on your sales mix.

For every changed line: (new cost − old cost) × units you sell per month. Sort descending. In almost every case a handful of SKUs will account for the majority of the damage, and that short list is the only thing worth spending your week on.

Step 2 — Verify the letter against the actual file

Announcement letters and price files disagree more often than you'd think. Diff the new file against the previous one line by line and check for:

• Lines that moved more than announced. The average can conceal 25% jumps on specific parts.
• Lines that were already increased last quarter. Two consecutive rises on the same SKU is a trend, and worth naming out loud with your rep.
• Quiet unit-of-measure changes. A part moving from "each" to "box of 5" without a SKU change looks like a 400% increase and isn't one. Check the pack column before you escalate — see reading supplier price lists.
• Tier changes. Confirm you're still being quoted the column you were on last time. Account tiers get reviewed, and the file won't tell you.
• Discontinued lines. SKUs that vanished from the file are an operational problem hiding inside a pricing email.

Step 3 — Pull the levers that actually exist

Most increases are real and industry-wide; you rarely get them reversed. What you can often move is the shape of the deal:

• Volume commitment. A committed quarterly quantity on your top lines in exchange for holding the old price, or a smaller increase. Costs you nothing if you were going to buy it anyway.
• Timing. Ask to be invoiced at old pricing for orders placed before the effective date, and for a defined grace window on open POs.
• Payment terms. A shorter payment window or prepayment traded for a better price is genuinely valuable to a distributor, and it's cash-flow arithmetic you can evaluate precisely.
• Freight. If the price won't move, free freight or a lower threshold can be worth several points — and reps often have more latitude on freight than on price.
• A competing quote. The strongest lever, and the one that requires having a second source. Even a partial alternate supply on your top five lines changes the tone permanently.
• Forward buying. Buy ahead at the old price — but do the math first.

The forward-buy math

Buying ahead trades cash and shelf space for a locked-in price. It's worth it when the saving beats the carrying cost:

saving      = (new cost − old cost) × units bought ahead
carrying    = old cost × units × (annual carrying rate × months held ÷ 12)

Say 500 units at $6.00 going to $6.60, six months of stock, carrying cost 20% a year (capital, storage, risk):

• Saving: $0.60 × 500 = $300
• Carrying: $6.00 × 500 × (0.20 × 6 ÷ 12) = $300

A wash — and that's before the risk that the part gets superseded, damaged, or simply doesn't sell as fast as last year. Forward buying pays on fast-moving, non-perishable, non-obsolescing lines with a steep increase. It quietly destroys cash on everything else, which is why the "buy a year's worth" instinct deserves a spreadsheet before it gets a purchase order.

Step 4 — Reprice selectively, not across the board

A flat "everything up 7%" is the easy move and usually the wrong one. It raises prices on items that are already price-visible to shoppers while under-correcting the products that took the real hit.

Segment instead:

• Below your margin floor, high volume → reprice now, to new cost ÷ (1 − target margin). (The arithmetic.)
• Price-visible bestsellers → check the market before moving. These are the SKUs shoppers compare, where a change is most likely to cost you units.
• Long tail, rarely compared → the easiest place to recover margin. Nobody is price-shopping an obscure clip, and these lines absorb an increase without a murmur.
• Deliberate loss leaders → leave them, knowingly. Just make sure you know how much the decision now costs.
• MAP-restricted lines → check the brand's policy before advertising a new price; in auto parts and tools this constrains the display price, not just your intentions.

Two things worth remembering while you do this. First, a price increase gives you far more headroom than it feels like: if a reprice takes your unit profit from $5.00 to $7.36, you can lose nearly a third of your units and still be ahead. Second, round numbers and psychological price points matter more than perfect margin math — $16.36 and $16.99 are the same decision to your P&L and different decisions to a shopper.

Step 5 — Make the check automatic, so the next one isn't a surprise

Here's the uncomfortable part: the announced increase you just handled is the easy case. Someone told you it was coming. The expensive ones are the increases nobody announces — a single line that moves 40% in a routine monthly file, a pack-size change, a tier adjustment after an account review. Those arrive as a spreadsheet attachment among forty other emails, and they get noticed a quarter later, if at all.

The fix isn't discipline, it's routine. Whatever your tooling, guarantee three things happen every time a supplier file arrives:

1. It gets archived, dated, before anyone edits it. Your archive is the only cost history you'll have.
2. It gets diffed against the previous version — increases, decreases, new lines, vanished lines.
3. Margin gets recomputed at your current retail, and anything below your floor lands in front of a human.

Done by hand that's an hour per supplier per month, and it's the first task to get skipped in a busy week — which is precisely why it's worth taking off the human's plate entirely.