Price Indexing Instead of Flat Price Increases

The problem starts after signing

The purchase price is hard-fought — once, at signing. After that, a price-adjustment clause takes over: it governs how the price moves with the market over the contract term. Almost every contract has one. And it is here, in the running contract, that far more money moves over the years than in the original negotiation — yet hardly anyone looks.

That the topic is acute right now shows in the commodity markets: in early 2026 kraftliner quotations rose sharply, and in March logistics reported diesel surcharges of around 28% — “industries at their limit” ran the headline. When the market swings this much, the clause kicks in constantly. And every adjustment that isn’t fair costs you.

Why the clause is almost always too simple

The matter is overwhelming: raw-material grades, energy, logistics, dozens of indices, reference months, thresholds — a parameter overload. The natural reaction in the contract is to simplify radically: a single index, a vague formula, at worst a sentence like “in the event of rising raw-material costs.”

That simplicity feels pragmatic — but it is the real design flaw. A clause that doesn’t reflect the true cost structure can be interpreted in any direction. And it is interpreted by the party that knows the market better.

The information asymmetry — and how it plays out

Your supplier sells corrugated board, films and labels full-time and knows the raw-material and energy cycles to the day. In the mid-market, procurement owns packaging as one of many categories. This gap decides how a simple clause works in practice:

• Increases come promptly and in full — well justified by the current market.
• Decreases come late, weakened or not at all — a falling index is rarely passed on by itself.
• Verifiability is missing: you barely have the data to judge whether an increase is justified at all — and by how much.

Over the term, a systematic drift to your disadvantage emerges — not because anyone is cheating, but because the clause allows it and only one side has the information.

What a bad adjustment costs

Just how large the effect is shows in practice. From around five years of projects, a solid figure: per adjustment, the delta between a typical and a cleanly done indexing averages about 2.5% — to your disadvantage. That sounds small, but it isn’t.

How price indexing works

However you implement it technically — a fair adjustment stands or falls on four principles (the webinar’s conclusion):

The more detailed the cost structure, the less room for interpretation — and the faster you can react in volatile phases or adjust fully automatically. The basis: recognised, publicly verifiable market indices — such as the official producer-price indices from Destatis and standard industry commodity quotations.

Mastering complexity, not simplifying it away

This is the real crux. Clauses become simple because the matter otherwise seems unmanageable — that very parameter overload is what makes people cut it down. But the right answer isn’t to simplify the model; it is to master the complexity and make it invisible to both sides.

An item-level, multi-component, automated indexing can’t be maintained by hand — but it can with a system. That is exactly what technical solutions like PAXLY’s automatic price maintenance are for: it maps the true cost structure, couples it to recognised indices and adjusts fairly in both directions — without anyone maintaining spreadsheets each month, and without error-proneness costing you money.

And the tender? A different moment

Finally, a clean separation of two things that are often conflated. The tender — is my price competitive, should I switch suppliers? — is the buying moment: one-off, at the start. Price indexing is what runs afterwards, over the years. Confuse the two and you optimise the wrong lever.

In the webinar, exactly this question came up: “Does that mean I no longer need to tender?” The answer: yes and no. Initially a tender remains advisable — it gauges the price level and provides the data a good indexing builds on. Once the indexing is cleanly in place, it carries you two to three years without re-tendering. You only tender again when the market opportunity changes fundamentally. In short: buy well once — then have it adjusted fairly.

Outlook: the pitfalls

What matters in detail lies in the clause’s methodology: the right reference-month basis, the choice of underlying indices, sensible thresholds — and the bias that arises when the supplier sets the adjustment model itself. We go deeper into these practical questions in part two of the series: “Best Practices in Price Indexing”, with examples from five years of tender data.