MANAGING VOLATILE EXCHANGE RATES IN GLOBAL SOURCING

IMPORTANCE OF EXCHANGE RATES IN INTERNATIONAL SOURCING EXAMPLE: U.S. Firm |Japanese Supplier 12 equal payments of M Yen each Current Rate: Yen/$

IMPORTANCE OF EXCHANGE RATES IN INTERNATIONAL SOURCING (cont) WITHIN A YEAR THE APPRECIATED YEN INCREASED SOURCING COST BY ~ 20%

APPROACHES FOR MANAGING EXCHANGE RATES FLUCTUATIONS IN GLOBAL SOURCING MACRO-LEVEL STRATEGIES Affect the Sourcing Decision itself or Pertain to the Volume-Timing of Purchase MICRO-LEVEL STRATEGIES Employed after the source has been selected and are used to protect the buyer from the risk of exchange rate fluctuations

MICRO-STRATEGIES

COMPARISON OF APPROACHES: COST IN U.S. DOLLARS FOR THREE PLANNING CASES

MACRO-LEVEL STRATEGIES 1. USING EXCHANGE RATES IN THE SUPPLIER SELECTION DECISION 2. USING EXCHANGE RATES IN THE VOLUME- TIMING OF PURCHASES DEVELOP A PORTFOLIO OF GLOBAL SUPPLIERS PROPORTION OF USE 0.20 N/A 0.10

SUPPLIER SELECTION JAPANESE YEN CONTRACT: M KOREAN WON CONTRACT: M

VOLUME-TIMING PURCHASES (EXAMPLE) USE FORWARD BUYING POLICY WHEN THE VALUE OF THE YEN IS INCREASING USE SHORT-TERM PURCHASING POLICY WHEN THE VALUE OF THE YEN IS DECREASING