The 4% increase and the warehouse ceiling
You handle purchasing for a components manufacturer. On a call this morning your resin supplier's representative says raw-material costs force a 4% price increase from April 1 on part R-220, "so please expect a revised quote." Last Thursday the same supplier emailed: "prices held for all orders confirmed by March 31." R-220's current price is 250 yen per unit; annual usage is 12,000 units in fixed lots of 3,000. Your warehouse holds 1,500 units and has room for 2,500 more. Company policy: any price increase above 3% needs division-manager approval; increases of 3% or less may be accepted by purchasing. You must decide what to propose before March 31.
1. Does the 4% increase need approval, and what is the value at stake?
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Yes. Purchasing may accept increases of 3% or less; 4% exceeds that, so division-manager approval is required for any volume bought at the new price. Value: 4% of 250 yen is 10 yen per unit. At 12,000 units a year that is 120,000 yen annually, or 30,000 yen per 3,000-unit lot. The March 31 email does not remove the approval requirement - the new price still needs sign-off - but it opens a window in which a confirmed order stays at 250 yen. Volume confirmed before March 31 therefore carries no increase and removes that exposure on the portion you can actually take.
2. How much can you actually order before March 31, and what do you propose?
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The binding limit is storage, not budget: capacity for 2,500 more units against fixed lots of 3,000, so a standard lot does not fit. Propose a 3,000-unit order confirmed by March 31 with split delivery - 2,500 into the warehouse in late March, 500 held at the supplier for April delivery at the confirmed old price. Before sending, verify in writing that "orders confirmed by March 31" covers delivery after March 31; that single clause decides whether the split works. In parallel, start division-manager approval for the remaining 9,000 units at 260 yen so the increase is either accepted with authority or renegotiated with data.
3. Your manager asks, "can't we just wait and see?" What is the answer?
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Waiting costs 10 yen per unit on everything bought after the deadline. On the 9,000 units that cannot be stored, that is 90,000 yen a year - precisely the size of exposure a 3% threshold exists to force a decision on. Waiting also risks the increase being applied to the full year's volume if approval slips past April 1. The defensible position: lock what the warehouse can physically absorb plus the 500 held at the supplier, and put the approval paper in front of the division manager this week so the remaining volume is either accepted at 4% with authority or renegotiated.