Sunset Portfolio: How to Negotiate When Volumes Are Disappearing

During a recent negotiation training for a group of experienced Commodity Managers in China, one discussion turned out to be particularly challenging and particularly familiar to many of the participants. It's a situation that keeps showing up after mergers, acquisitions, or make-or-buy decisions: volumes are going down because production is being insourced, the supplier knows exactly why, and procurement is still expected to deliver annual cost reductions.

This situation can be described as a Sunset Portfolio.

What is a Sunset Portfolio?

A Sunset Portfolio can usually be recognised by three characteristics, sometimes appearing together:

• declining volumes,
• insourcing in progress,
• limited future business.

In such a situation, no supplier has a reason to invest in VA/VE workshops or productivity initiatives. They know the business will soon disappear. Traditional cost negotiation approaches simply stop working because their entire logic is based on the assumption that both parties are interested in a long-term business relationship.

Why traditional approaches fail?

The traditional cost negotiation scenario assumes a shared interest: the supplier invests time and resources in process improvements, expecting to maintain or increase volumes in the years ahead. In a Sunset Portfolio, this mechanism breaks down. A supplier who knows that the business relationship is coming to an end has no reason to play the same game, and it is difficult to blame them.

What options do buyers actually have?

During the workshop in China, participants worked through a list of approaches worth considering in this type of situation:

• Challenge the supplier's alternative:it's worth checking whether the scenario the supplier refers to is really a viable alternative for them.

• Use portfolio rationalization as leverage:decisions about transferring production from other suppliers can become part of the negotiation.

• Use contribution margin as leverage:a supplier for whom even a shrinking volume still covers fixed costs has a different reference point than buyers often assume.

• Negotiate the phase-out conditions, not only piece price:timeline, minimum order quantities, line-maintenance costs – all of this is negotiable, just like price.

• Consider aftermarket options for the supplier:what looks like a decline to us may open up a different sales channel for them.

• Escalate the conversation above sales level:in a Sunset Portfolio, the person on the sales side often has very limited room to manoeuvre.

Building a better playbook together

The Sunset Portfolio keeps coming back in negotiation trainings with buyers, regardless of industry or region – supply chain shifts, insourcing, and supplier portfolio consolidation mean more and more procurement teams are facing a similar challenge. If you've managed a portfolio like this before – what worked, and what didn't? Experiences like these, put together, are exactly the material the best practical negotiation playbooks are built from.