The message arrives in the same words every time: raw material has increased, we must adjust the price. It is the most reasonable sounding demand in the whole relationship, and the hardest to argue with, because it points at something outside both of you. That is exactly why it also serves as a wrapper for increases that have nothing to do with material.
The share of material is the whole argument
A price contains material, labour, energy, amortised tooling, overhead and margin. A movement in one metal moves the part of the price that metal occupies, and nothing else. If the material is a modest part of the total, a visible rise in the metal is a small movement on your price; if the product is essentially shaped metal, it is most of it. Without that share, you cannot tell whether the increase you are being asked for is proportionate — and neither can the person asking, which is often the real situation.
Which is why the question belongs on the first quotation, when nothing is at stake and it reads as diligence rather than suspicion: what does this product contain, in weight, of the materials whose price moves, and what share of the price do they represent today? A factory that can answer has costed its own product. A factory that cannot is telling you something useful about how the price was set.
Telling a real increase from a reopened negotiation
- Which material exactly, and is it the one your product actually uses? A price list moves for a grade, not for a family.
- Against which reference, and between which two dates? An increase with no period attached is a feeling, not a figure.
- Does the proposed increase apply to the material share or to the whole price? This one question resolves a large part of these conversations on its own.
- When was the material for this order bought? Metal purchased before the rise is not affected by it, and a factory that buys ahead knows this.
- Is anything offered in the other direction? A supplier who has never once proposed a reduction is not tracking the market, only one side of it.
The answers are as informative as the numbers. A factory that has the weights, names a quotation, gives dates and applies the increase to the material share alone is doing legitimate work and deserves the adjustment. A factory that answers in generalities, or applies a flat rise to the whole price, is renegotiating — and the polite way to say so is to ask for the calculation again, more precisely.
What an indexation clause has to name
The solution to a recurring argument is to decide it once, in writing, before it happens. An indexation clause turns an annual confrontation into an arithmetic operation that either side can run. It only works if it names five things — a clause that names four is a clause you will still be arguing about.
| Element | What it has to say |
|---|---|
| The reference | A published quotation both sides can read, named precisely — exchange, grade, currency. For copper and the main metals a public exchange price exists; for many plastics and for finished components it does not, and saying so is more useful than inventing a proxy |
| The base | The quantity of material per unit, and the reference level and date from which any movement is measured. Without a base, every calculation restarts from the last increase |
| The periodicity | When the clause is applied — quarterly, half-yearly, at each order — and on which orders the new price bites. A clause that can be invoked at any moment is not a clause |
| The trigger | The movement below which nothing happens, which spares both sides a permanent recalculation over noise |
| The symmetry | That the same calculation, the same trigger and the same periodicity apply when the reference falls — and who has to raise it, because a clause nobody is obliged to invoke only gets invoked upwards |
Symmetry is easier to obtain than it looks
Buyers hesitate to ask for the downward half, expecting a fight. There usually is not one, for a simple reason: the factory wants the upward half, and a one-way clause is visibly a one-way clause. Asking for symmetry is not a concession you extract, it is the condition that makes the mechanism acceptable — and a supplier who refuses it has told you that the clause was never about material.
Two practical additions make the symmetric version work in real life. Give the falling side the same automatic character as the rising one, so that neither party has to ask; and agree that the evidence is the published reference itself rather than a supplier invoice, which nobody will show and which would be a different argument anyway.
An indexation clause is only worth having where a public reference exists. For a product whose cost sits mostly in labour, in a component nobody quotes publicly, or in a material with no usable index, the honest answer is a fixed price for a stated period with a named review date — and that answer is better than a clause pointing at an index that does not describe your product.