We made the Wall Street Journal today in an article discussing recent efforts by suppliers to provide for greater price flexibility in their supply chain contracts, quoting supply chain partner Sarah Rathke. While price escalation clauses are well known in some industries (for instance, energy) and in some geographical markets (for instance, at times, in Latin America), US-based manufacturing supply chain contracts largely do not address price adjustment to account for scarcity and/or inflation – which sometimes are one and the same thing. Contracting 101 might suggest that if suppliers fear inflationary risk, it might be sensible to include a price escalation clause tied to a well known index, such as the US Consumer Price Index. More often, however, it is better and more precise to use a published index used for the specific industry or product in question. Other important questions when considering price escalation clauses include how often pricing should be re-examined, whether prices can be adjusted down as well as up, and whether to include pricing caps.
Read the article here.