Recognize that this is a planned strategy of an aggressive supply chain management program and not necessarily rooted in logical analysis. Its purpose is to grab more and more of your margin.

You should strongly resist long-term price reduction commitments where you really don’t have visibility of your costs. Focus instead on value payoffs to the customer.

If the customer refuses to go forward without cost reductions, change the discussion word from “cost” to “price.” Say “We would like to help you with that. To set long-term prices requires extensive knowledge and iron-clad purchase commitments from you. If the purchase commitments aren’t met, then the price commitments are automatically void. Do you agree?” Make price reduction contingent (and back-end loaded) on volume purchased and reciprocal value to you. Go back to value, take discussion off of cost. Try to offer other commercial incentives for volume purchased rather than price. )