What is sensitivity analysis?
The analysis shows how purchase cost changes when one or more cost drivers move. Exposure should reflect the actual share of price affected by currency and commodities.
Avoid double counting
A commodity may be priced in the same currency as the supplier quotation. Ensure the FX effect is not applied twice and that exposure shares do not exceed the whole price.
Example
If 40% of a price of 100 is currency-exposed and the currency rises 10%, the FX effect is 4. If 30% is commodity-exposed and the commodity rises 20%, another 6 is added. The calculated new cost is 110.
Use in negotiation
Document base date, index source, exchange rate, time lag and thresholds. Agree that adjustment mechanisms should work both upwards and downwards.
Calculate your own scenario
Use the free PurchaseKPI calculator and get the result immediately.
Currency and commodity sensitivity calculator