The role of supply chain management on the exposure to exchange rate

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  • Publicado : 16 de noviembre de 2010
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This paper investigates the direct connections between supply chain management scope and the exposure of firms to exchange rate changes. It takes into consideration the configuration of the supply chain as a direct hey driver over the endogenous exposure of companies andintends to categorize them according to the nature of their operations. In addition, it explores the role of supply chain management over the application of operational hedging and the implications financial hedging decision over supply chain management departments. In any case, it remarks that the collaboration between decisions makers of financial and supply chain departments must be close in orderto effectively hedge the firm with leaving aside their respective objective

Keywords: Exchange rate exposure, supply chain, operational hedging, financial hedging

Purchasing goods abroad as well as transnational sales has become much more a common practice for achieving and maintaining a competitive position and there are many financial aspects underlying beneath thesurface of this trade environment that must be taken into count by decision makers when planning supply chain strategies. At the same time many authors have discussed the dynamics between finance-oriented and operative oriented strategies to reduce the exposure of the company exchange rate risks (Hommel, 2003 )
Multinational Corporations are addressing this exchange rate exposure challenge by usingboth financial hedging and operative hedging but most of the times this decisions had come as result of the rationality of the managers (Bartram & Bodnar, 2007) and several studies has addressed their individual and combined impact over the value of the firms (Kim et al, 2006) (Wong, 2007). There is also a lack of studies linking this operative-oriented strategies to manage exposure to exchangerate fluctuations directly to supply chain management field of study even though it is well document that this exposure has direct relationship with the operations on the supply side and on the demand side (Shapiro, 1975).
In the literature regarding the exposure to exchange rates of MNC, has been defined two different dimensions of exposure. First, by operating in globalized market there exist anendogenous exposure to exchange rate changes. Secondly, there is a net exposure two exchange rates that refer to the exposure of the company after hedging activities both financial and operational and this exposure is the one largely study and correlated with the value of firms. However, this paper will be referring mainly to the first one as this is the one which depends on how the operations ofthe company are structured from a supply chain perspective are and where supply chain strategies can impact to lead to a lower level of net exposure. The purpose then is to expose and analyze the linkers between the management of exchange rate exposure and the operations and strategies of supply chain management.
The first part of the paper focus on the operative configuration of the supply chainand shows the connections between such configurations and the exposure level to exchange rate that the firms must consider. This serves as a framework to relate supply chain operations and exchange rate risks. The second part address this connections in order to unveiled and analyze that supply chains strategies and exchange rates risk management must be aligned and coordinated to handle in aproper way the transactional and economic exposures.
In the purpose of the understanding the role of supply chain management over the exchange rate risks derived from global operations, it is required at first to have a deep knowledge about the impacts that currency markets volatility may have over a given supply chain.....
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