Many organizations are exposed to Foreign Exchange (FX) risk in their global supply chains, which can significantly affect a firm’s ability to competitively price products and wreak havoc on net cash flow and profitability. Beside accounting and financial approaches for managing the effects of fluctuations in currency valuations, organizations may also consider investing in supply chain flexibility through operational (e.g. production flexibility, sourcing flexibility, natural hedging) and/or contractual (e.g. escalation clauses, payment terms) strategies for mitigating this form of risk. The purpose of our research is to understand if and how firms invest in supply chain flexibility for mitigating the effects of FX risk. Our study is utilizing historic company data for simulating the financial effects of creating supply chain flexibility in response to unfavorable FX valuation changes. Our research will provide CSCMP members with an analytic approach for determining how to best invest resources and create options for supporting their global supply chain strategies given their exposure to FX risk.
SUPPLY CHAIN APPROACHES AND STRATEGIES FOR MITIGATING FOREIGN EXCHANGE (FX) RISK
Zsidisin, G. A.;Gaudenzi, B.;
2019-01-01
Abstract
Many organizations are exposed to Foreign Exchange (FX) risk in their global supply chains, which can significantly affect a firm’s ability to competitively price products and wreak havoc on net cash flow and profitability. Beside accounting and financial approaches for managing the effects of fluctuations in currency valuations, organizations may also consider investing in supply chain flexibility through operational (e.g. production flexibility, sourcing flexibility, natural hedging) and/or contractual (e.g. escalation clauses, payment terms) strategies for mitigating this form of risk. The purpose of our research is to understand if and how firms invest in supply chain flexibility for mitigating the effects of FX risk. Our study is utilizing historic company data for simulating the financial effects of creating supply chain flexibility in response to unfavorable FX valuation changes. Our research will provide CSCMP members with an analytic approach for determining how to best invest resources and create options for supporting their global supply chain strategies given their exposure to FX risk.
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