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The Background
Harboro fully appreciates the need to absorb cost increases that the business incurs. The company has been doing this successfully for 10 years and has not increased prices over this time. Harboro has absorbed costs by growing efficiency, improving technology and compounds and increasing the volume of business.
However the last 18 months has seen such a rapid escalation in costs such as commodities (natural rubber is up 70%), oils (up 80%) and energy (up 100%) that the company is unable to absorb the costs. In 2004 Harboro's energy costs were 2.5% of sales but in 2006 energy costs have has risen to an average 6.5% of sales. The company is therefore in the position of having to increase its prices on business placed more than 2 years ago.
Some data is provided that illustrates the increased costs. These are much greater than the price increases the company is seeking since it continues to absorb what costs it can.
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