Consumer prices in the United States rose at their fastest annual rate since 1982 in the figures published last month. Euro area inflation is running near five per cent. Container freight on the main east-west lanes still costs several times what it did two years ago, semiconductor lead times are measured in quarters, and steel, resin, aluminium and energy have all repriced upward in a way that has not happened during the working lifetime of most finance teams. The interesting question for anyone running an enterprise system is not whether this shows up in the management accounts. It will. The question is whether the system can reprice — quickly, selectively, with an audit trail, and without breaking the open order book. Most cannot, because they were configured on an assumption that nobody wrote down: that input costs move once a year, if at all.
Nobody knows where the prices are
The first discovery in any repricing exercise is that the price list in the enterprise system is not the only price list. There is the standard list. There are customer-specific prices, negotiated by salespeople and stored as overrides. There are contract annexes in the legal folder with agreed schedules. There is the distributor's own sheet. There is a quotation template in someone's documents folder. There is the online catalogue, and the marketplace feed, and the printed brochure the trade counter still hands out. A price increase has to reach all of them, and the ones that do not live in the system will be found by a customer rather than by you. So the first deliverable is a census: every place a price is stored, who owns it, and how it gets changed. Companies that skip this step discover three months later that a quarter of their revenue is still flowing at last year's numbers.
Standard cost has become a work of fiction
If you cost inventory at a standard set during last year's budget, the gap between that number and what you are actually paying is now sitting in purchase price variance, and it is probably the largest unexplained line in your reconciliation. There are three honest responses. Reset standards more frequently — quarterly, or monthly for volatile categories — and accept the revaluation entries and the reporting discontinuity. Move to actual costing, moving average or first-in-first-out, and accept noisier unit margins and a harder conversation with the auditor about valuation. Or keep annual standards and manage the variance analytically, which is defensible only if somebody is genuinely analysing it rather than posting it to a catch-all account. What is not defensible is the fourth option, which is what most organisations are doing: keeping last year's standard, watching variance accumulate, and reporting gross margins that are wrong at the product level while being roughly right in total.
Six decisions your system has to support
Repricing is not one capability. It is six, and the gaps tend to be in the last three. Granularity. Which prices move — the list, customer-specific overrides, contract schedules, channel prices — and whether an increase to the list automatically flows to overrides or leaves them stranded. Stranded overrides are the most common failure. Trigger. Whether prices are recalculated from cost plus a target margin, linked to a published index, or reviewed on a calendar. Cost-plus needs a reliable landed cost, which is exactly what freight volatility has broken. Effective dating. The ability to enter a future price that activates on a date, and a clear rule for what happens to quotations already issued, orders already accepted, and backlog not yet shipped. Surcharges versus increases. A separately named freight, fuel or energy surcharge line is easier to justify, easier to withdraw later, and more palatable to a customer than a permanent list increase. It also has consequences most teams discover late: how it is taxed, whether commission is paid on it, whether it appears on a credit note correctly, and whether the customer's procurement system will accept an unexpected line at all. Guardrails. A minimum margin block, an approval threshold when a discount takes a line below current cost, and an alert when a quotation is built on a cost older than a defined number of days. Without these, your own sales team will keep selling at yesterday's economics in good faith. Communication. Notice periods in customer contracts, the template letter, the evidence pack, and the version history showing what was charged when. A price increase you cannot document is a dispute you will lose.
The backlog is where the money leaks
The most expensive consequence of inflation plus long lead times is a simple arithmetic one. You accepted an order at a price derived from a cost, and you will ship it four or six months later at a cost that has risen twice since. Every week of backlog at a fixed price is margin transferred to your customer. There is one report worth building before anything else: open orders and unshipped backlog, valued at the promised price against current replacement cost, sorted by exposure. Then a rule for what happens to the worst of it — which orders carry a repricing or material-cost clause, which can be renegotiated commercially, which must simply be honoured and absorbed, and which should be reprioritised so the loss-making items are not the ones you expedite. That report is usually assembled in a spreadsheet in a week and then never institutionalised, which is a mistake, because this situation will recur.
Indexation only works if somebody holds the diary
The fashionable remedy this quarter is the index-linked contract, and it is a good remedy. But an indexation clause is a data requirement disguised as legal drafting. Somebody has to store the named index, the base date, the base value, the review frequency, the cap and floor, the lag, and the calculation method — and then act on it. The reason indexation clauses go unexercised is almost never legal. It is that the clause lives in a signed document nobody reads again, no diary entry exists, and the person who negotiated it has moved on. Put the parameters in the system next to the contract, generate the review task automatically, and treat a missed indexation review as the revenue leak it is.
Find every price source
Identify lists, overrides, contracts and channel copies with their owners.
Review current exposure
Compare accepted backlog with current cost evidence without changing accounting valuation by default.
Approve the treatment
Check contract rights, surcharge tax treatment and required approvals.
Apply and document
Set effective dates, update permitted channels and retain the version history.
Qualitative summary of this article's source text, not a measured outcome or performance estimate.
Practical Guidance for Pricing Systems Review
- Run a price census first — every location where a price is stored, with a named owner.
- Decide your costing basis deliberately rather than letting last year's standard become policy by inertia.
- Build the margin-at-risk-in-backlog report and review it weekly while lead times stay long.
- Use future effective dates so increases are entered once and activate cleanly.
- Prefer named surcharges for volatile inputs, and check their tax, commission and credit-note treatment before launching.
- Add a stale-cost warning to quotations, so nobody quotes from a cost that predates the last two increases.
- Store indexation parameters as data, with an automatic review task, not only as contract language.
- Keep an evidence pack of cost movements supporting each increase, because customers and regulators will ask.
The Regional Angle
Three things make this materially harder for a group operating from the Gulf, and the first is already causing real distress. Regional contracting is built on lump-sum fixed-price agreements running two to four years, and price adjustment provisions are routinely struck out during negotiation because the client has the leverage to strike them. Contractors and fit-out firms who priced work in 2020 and early 2021 are now buying steel, cement, copper, cable and mechanical equipment at prices that have moved well beyond their tender assumptions, with no contractual route to recover. The systems consequence is specific: you need committed cost against contracted revenue at project level, refreshed with current market prices rather than tender rates, so you can see which projects are now loss-making and by how much. That number drives everything else — which claims to prepare, which variation orders to pursue aggressively, whether to slow a programme, and whether a project should be handed back. Most contracting businesses here cannot produce it, because their project costing still shows budget versus committed rather than committed versus replacement. The second is a constraint that catches consumer businesses by surprise. Prices of certain basic commodities are not yours to set freely; increases require regulatory approval, and the approval arrives on its own timetable. Your system can compute a perfectly correct new price that you are not permitted to charge. That needs an explicit approved-price concept with its own effective date, driven by an external decision rather than by your costing engine, plus retention of the submission and approval documents. Retailers who simply pushed a global percentage increase through the catalogue have spent this quarter unwinding it. The third is the agency and distribution structure that shapes so much regional trade. Where you hold an exclusive agency, your resale margin is defined by an agreement with a principal, and where you are the principal, your route to market runs through an agent with meaningful statutory protection against termination. Repricing in that world is not a system change, it is a negotiation with a counterparty who cannot easily be replaced — and the negotiation is far more persuasive when you can show landed cost movement by product line, with freight, duty and currency separated out, than when you assert that costs have gone up. The data is the argument.
The objection worth taking seriously
The strongest objection is that this is a commercial problem wearing a systems costume. Raising prices does not require a configuration project; it requires nerve. Plenty of companies with immaculate pricing engines are quietly absorbing cost increases because nobody wants to make the call, and plenty of companies with a spreadsheet have repriced three times since September. Adding surcharge logic, guardrails and indexation parameters to an enterprise system is a six-month exercise that competes with the decision you could take this afternoon. There is also a real commercial cost to repricing frequently. Customers plan against your prices, procurement teams are measured on avoiding increases, and a supplier who changes terms every quarter becomes the supplier being replaced. Sometimes absorbing is the right answer, and the system cannot tell you that. But the system determines two things the nerve depends on. It determines the lag between deciding and charging — and in a year where input costs move monthly, a six-week lag on a portfolio of any size costs more than the entire configuration effort. And it determines whether you know which customers, products and contracts are unprofitable now, at today's replacement cost, rather than finding out in a quarterly review after the damage is booked. Courage applied to bad data produces confident mistakes: across-the-board increases that lose your best-margin accounts while leaving the loss-making ones untouched. Fix the visibility, then have the conversation.
Common Questions
Surcharge or price increase?
Surcharge for genuinely volatile pass-through costs you may want to withdraw; permanent increase for structural cost shifts. Check tax, commission and customer-system acceptance before you launch either.
How often should standards be reset?
Quarterly is a reasonable compromise for most, monthly for volatile input categories. The test is whether purchase price variance stays small enough to be explainable.
What about existing long-term contracts?
Read them for material-cost, force majeure and review clauses before assuming you are stuck, and quantify the exposure per contract so the renegotiation is prioritised by money rather than by relationship.
What should we expect over the next twelve months?
Expect interest rates to rise — the Federal Reserve has signalled several increases this year — which raises the cost of the working capital that inflation has already inflated. Expect input costs to stay elevated through at least the first half, with freight easing before materials do. Expect surcharges to become normalised and then contested, and expect index-linked pricing to spread from energy and construction into ordinary supply agreements. And expect a difficult year-end for businesses still valuing inventory at early-2021 standards, because the variance does not disappear; it just waits for the audit.
Pricing Systems Review — we find every place a price is stored, build the margin-at-risk view across your open backlog, and make repricing a routine your system executes rather than a project you dread.