Korea’s new supply price adjustment system helps stabilize supply chain

Minister of SMEs and Startups Lee Young [Photo by Kim Si-gyun]

The supply price adjustment system, which came into effect on October 4, has been implemented swiftly and bringing positive impact on businesses, according to Lee Young, Minister of SMEs and Startups.

“The system allows a fair trading culture that fosters the growth of both large and small businesses,” Lee said, in a recent interview with Maeil Business Newspaper.

The supply price adjustment system is an agreement that allows supplier companies to adjust delivery prices when the cost of essential raw materials for their products experiences significant fluctuations.

The adjustments are based on pre-agreed terms, allowing for more equitable and stable business transactions with their clients.

“Ensuring fair payment for supplied goods is not a one-sided advantage for either party, it’s about fairly sharing the risks associated with fluctuations in raw material prices,” Lee said.

Historically, smaller Korean businesses have disproportionately borne the burden of rising raw material prices, with events like the Covid-19 pandemic and the Ukraine-Russia war leading to substantial price increases, often resulting in operational disruptions and closures.

Last year, Lee headed the supply price adjustment system task force, a group composed of representatives from both large and small businesses.

After several meetings, in August of the same year, the task force introduced a special agreement. To evaluate the real-world impact, a pilot program was launched.

According to a survey conducted by the Ministry of SMEs and Startups on 389 participating companies, 67 percent of the supplier firms responded that they had benefited from the adjustment system, contributing to improved business operations.

Furthermore, 76 percent of respondents said that the burden of raw material price fluctuations had decreased, with 86 percent noting that they did not encounter adverse effects such as reduced delivery quantities during this process.

“The companies that participated in the pilot program expressed positive feedback, emphasizing the contribution of the system to supply chain stability,” Lee said.

To solidify the system’s presence and ensure widespread adoption, the ministry initiated a partnership project with companies experienced in similar price adjustment systems.

In February, the ministry set a target to hold more than 30 roadshows and recruit 6,000 partners by the end of the end of this year.

As of Tuesday, the ministry has already recruited 7,511 partners.

“Achieving the goal of 6,000 partner companies ahead of schedule reflects the unanimous understanding of the importance of the price adjustment system, not only among small and medium-sized enterprises but also among large corporations,” Lee said.