The letter arrives on a Tuesday. Your corrugated packing supplier in Pathum Thani is "regretfully" raising prices by 12% for the next month, citing oil, electricity, the minimum wage, and "global uncertainty". It is polite, two paragraphs long, and contains no numbers.
Most buyers do one of two things: they accept it because everyone knows costs are up, or they push back with, "We can only take 5%" because that is what the budget allows. Both responses are guesses. Neither tells you whether 12% is what the supplier actually needs, or what he thinks he can get.
There is a third way, and it takes about 2 hours.
Why is every supplier writing this letter?
The requests are not imaginary. Thailand's producer price index, which tracks what domestic producers receive before retail margins, rose 7.3% year on year in July 2026. Consumer prices rose 1.95% over the same period. That five-point gap is the space in which your supply is being squeezed and it is the space his letter is trying to close.
The drivers they name are real. Brent crude was around $99 a barrel in early September, up close to 50% on the year earlier. Bangkok's minimum wage moved from THB 372 to THB 400 a day in July 2025. The Energy Regulatory Commission set the average electricity tariff for September to December at THB 3.89 per unit.
The question is not "are the are cots up?" The question is: How much of the supply cost is actually exposed to those drivers and does 12% match the exposure?
The four step audit
Step 1: ask for the cost breakdown not the reason.
Reply with one request' please send the cost structure of this part as a percentage: materials, energy, direct labor, overhead, logistics, margin . The supplier has done his homework on one page. The supplier that cannot produce it and has not costed the increase either, they priced what they hope you will pay.
Step 2: Build your own shoot cost-model.
a Should-cost model is a bottoms-up estimate of what a part should cost to make from its materials, labor, machine time, overhead, logistics, and fair margin.
For corrugated packaging you need: roughly 6-numbers: paperweight per unit and the Kraft liner price, machine cycle time and an hourly rate, direct labor minutes at the local wage, an overhead allocation, freight, and an EBIT margin of around 8% to 10%. You will not get it exactly right. You don't need to. You need to know whether the part is 40% material or 70% material because that determines everything that follows.
Step 3: apply the driver to the exposed cost only.
JUSTIFIED INCREASE = Σ (cost element weight X change in the elements driver)
say the breakdown comes back as:
- 55% paper
- 8% energy
- 12% labour
- 15% overhead
- 5% freight
- 5% margin
Suppose for this example:
- Kraft liner is up 6% on the year
- Electricity is up 4%
- The minimum wage rose 7.5% , that is, 372 to 400
- Diesel is up 20%
The justifiable increase is:
Cost element | % Of Cost | Market adjustment | Increase Justified |
Paper (Kraft) | 55 % | 6% | 3.3% |
Energy | 8 % | 4% | 0.32% |
Labour | 12% | 7.5% | 0.9% |
Overhead | 15% | ||
Freight | 5% | 20% | 1.0% |
Margin | 5% | ||
Justifiable increase | 5.52% |
Overhead margin do not get a cost driver, it gets a conversion.
12% - 5.5% = 6.5% of something else. It may be a recovery of margin they gave away in 2024. It may be an attempt to cover up a bad contract with another customer. It may just be a random number. Now you can ask.
Step 4: Convert the answer into a mechanism not a number.
A one of 12% locks in today's oil price for a year. If Brent falls back to $75 you will not get a letter about that.
The better outcome of the audit is an index-linked clause, priced against the published Kraft index, energy against the ERC tariff, reviewed quarterly both ways. The supplier gets protection, which is what they actually wanted. You get the price that comes down when the costs come down, which is what he was hoping you would not ask for.
What to concede and what to trade
An audited 5.5% is a fair ask and we would pay it. Fighting a supply below his real cost, in the year when SME bad loans are above 10%. It buys you a cheaper part for 6 months and a supplier failure in the seventh.
The other 6.5 points are negotiable and this is where the audit pays for itself. Trade them for something:
- a longer contract that lets them plan capacity
- a volume commitment,
- faster payment, which in the current credit market is worth a great deal to them
- a joint project on board grade or pallet configuration that takes real cost down
Every one of those is worth more to a stressed supplier than a margin grab they expected to lose anyway.
Is it worth doing on every letter?
No, wait on the supplier where a wrong answer hurts:
- the top 20 by spend
- anything single-sourced
- anything where switching takes more than a quarter
For the long tail a standing policy of cost breakdown or no increase filters out most of the round numbers on its own.
We have watched buyers accept increases for two years because "costs are up" and then wonder why margins are gone. We have also watched buyers refuse every increase and then wonder why delivery slipped. A two hour should-cost puts a number between those two mistakes and the number is usually smaller than the later and larger than the budget.