Price Increase

by J.D. Roth

Owning a small manufacturing business is interesting. Mostly, Nick and Jeff and I have things in-hand. We’ve been doing this for too many years, and we know how things work. (One reason we have so much slack time in our jobs is because of this: we’re familiar with them, and we’ve built our own little systems to handle formerly-lengthy chores quickly.)

There are times, however, that we don’t know what to do, times when we’re out of our element. There are times I feel like a minor league player who’s making a brief appearance with the big league affiliate because the star catcher has broken his thumb.

For example, I often feel out of my element where pricing is concerned.

Our company doesn’t play games with prices. Our prices are based on how much our material costs, how much labor goes into producing a box, and then a certain (smallish) set profit for each order based on a variety of factors. We don’t arbitrarily raise and lower prices for individual customers. Our prices are fair, and a reflection of the cost of doing business.

Our suppliers, however, do not seem to operate on the same principles. Their pricing schemes are often baffling, whimsical even. Why does one particular grade of corrugated cost more than another? Why this much more? Why does one supplier charge 20% less for this grade but 10% more for that grade? Why will another supplier refuse to ship us board specified in the traditional manner, only shipping us new-fangled board? Why can this supplier get us material overnight, but that supplier takes a week?

More to the point (and the reason for this entry), why does one supplier increase its prices (citing market conditions), while two competitors do not? What do we do when our primary supplier is suddenly charging ten percent more for material than its competitors? Do we just ditch our primary supplier, a supplier with which we’ve had a strong relationship for twenty years? Do we begin to spread things around to the alternate suppliers? What happens when our primary supplier then responds by lowering prices? Do we suddenly drop all the business we’ve moved to secondary suppliers?

I am not fond of price whores, businesses who shift from one company to another based solely on pricing, and I don’t want ours to be that sort of company. Good business is based on more than just the lowest price. On the other hand, I don’t want to pay too much; paying too much takes money out of my pocket and out of the pockets of my customers.

Mostly I am able to make quick business decisions. That’s one of my roles here, I think. But the Big Stuff — stuff like price increases, and new buildings, and equipment purchases — that stuff freezes me in my tracks. I play dozens of scenarios over in my mind, trying to predict every possible outcome, both the good and the bad. What is best for the business? That’s the question I’m always trying to answer.

I don’t have to deal with these sorts of situations often. When I do, they’re perplexing.

Updated: 30 March 2006

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