Executive Management Leadership Ver13. “How to Survive in an Inflationary Era — The Key Is Price Pass-Through, and Its Foundation Is Cost Accuracy”
- shigenoritanaka3
- 5月16日
- 読了時間: 3分
May 16, 2026
Thank you for reading.
Today, I would like to discuss how companies can survive in this prolonged inflationary environment.
■ INTRODUCTION
As inflation continues, companies are now clearly divided into those that can pass on costs and those that cannot. This is the dividing line between survival and decline. With material costs, logistics, energy, and labor all rising, companies that cannot raise prices will see their profits evaporate and eventually be forced out of the market.
In Europe and the U.S., price pass-through has long been standard practice. In Japan, however, it was considered taboo for many years simply because Europe and the U.S. experienced inflation while Japan remained in deflation.
Now that Japan has also entered an inflationary phase, Japanese companies can no longer survive without passing on costs.
■ NEGOTIATION DYNAMICS TODAY ARE COMPLETELY DIFFERENT
Past: Customer: “Price increase? Impossible. Leave.” Supplier: “…”
Today: Customers are now obligated to engage in price negotiations. However, this does not mean they are obligated to approve a price increase.
Customers will always say:
“Show me the cost breakdown. That’s where the conversation starts.”
If a company cannot present an accurate breakdown, the negotiation ends immediately. In other words, the company cannot even step onto the field of price pass-through.
■ COMPANIES WITH VAGUE COSTS CANNOT SURVIVE IN AN INFLATIONARY ERA
Customers do not want “rough estimates.”
They want:
Material cost
Processing cost
Labor hours
Overhead allocation
Yield
Lot size
Process-level actuals
Only companies that can explain these product-level costs with numbers will have their price increases accepted.
Conversely, companies that cannot explain their costs will be eliminated.
■ THE PREREQUISITE FOR PRICE PASS-THROUGH IS “ONE TRUTH”
To achieve price pass-through, companies must present a cost breakdown that customers can trust.
This requires financial accounting totals and product-level costs (managerial accounting) to match as “One Truth.”
If the numbers do not match, no matter how hard the factory works or how sophisticated the managerial accounting becomes, customers will not trust the figures presented.
■ INCORRECT COST SETTINGS WILL ALWAYS ERODE PROFITS
Labor-hour rates, allocation bases, process-level labor hours, overhead treatment— If any of these are incorrect, product-level costs will inevitably be distorted, and profits will be reduced.
As stated in the past blog: Executive Management_Leadership_Ver04. _ “Business Turnaround Case 01- Fixing a Mispriced Labor Rate”, “Errors in cost settings cannot be corrected by effort.”
■ CONTROLLERS CANNOT FULFILL THEIR ROLE BY SITTING INSIDE THE COMPANY
Controllers must be able to stand in front of customers together with the CEO and sales team and explain the cost basis in their own words.
Equally important is this:
Controllers must verify whether the product-level costs used by sales and manufacturing on the front lines are actually correct.
In many companies:
Sales and manufacturing do not use accurate managerial accounting data. Instead, they rely on incomplete and inaccurate costs extracted from the core system, and use those numbers to prepare quotations or negotiate with customers.
In this state, no matter how strongly the company argues for a price increase, it cannot present credible cost grounds, and negotiations will fail.
Understanding the reality of the shop floor, being able to explain accounting figures, and answering customer questions on the spot—
Whether a controller can do these three things determines the accuracy of product-level costs and the success of price pass-through.
In short, a company’s survival in an inflationary era depends on the controller’s ability to operate on the front line.
■ SUMMARY
The key to surviving an inflationary era is the success of price pass-through. And the foundation of price pass-through is the accuracy of product-level costs.
To achieve this, companies need:
Controllers who verify that the costs used on the front lines are correct
Financial and managerial accounting that match as One Truth
Correct cost settings
Controllers who stand with the CEO and sales team and explain the numbers to customers
Only when these four conditions are met can a company sit confidently at the negotiation table when a customer says, “Show me the cost breakdown.”
■ CONTACT
For support with product-level costing, cost visualization, or building cost grounds for price pass-through, please contact: info@metricjapan.com
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