An accountant, a financial analyst, and a cost estimator walk into a bar. They sit down on the stools at the counter.

Knowledge is power, but how would you know whether more or new knowledge is needed? What if you were convinced that the knowledge you had was, in fact, the best and only knowledge you needed? Would you refuse to seek new knowledge and resist its merits? Based on human history, the answer is probably yes. As much as human civilization has advanced in the last several thousand years, change has always been resisted with fervor. From the advent of cars over horse buggies to the recent advent of AI, most people have always preferred to stay within their comfort zone of well-established social and technological structure. Costing has not been any different.

For those lucky enough to have had careers in the automotive industry, Long-Term Agreements (LTAs) are as common as cars themselves. Most consider them a normal part of doing business. They are meant to provide suppliers with assurances of volumes over the full life of the program in exchange for steady supply and cost reductions for the customers. It’s standard practice for the suppliers to offer customers LTAs in the form of annual price reductions (or rebates) over program life and/or an upfront lump sum payment before the start of production (SOP). The larger the price decreases or lump sum payments, the better for the customers. The supplier sales team is happy to win the business, and the customer purchasing team is happy to bring savings to their company every year. Except that none of it is real.