A predictive global sensitivity analysis approach to monitoring and modifying operational hedging positions Online publication date: Tue, 17-Mar-2015
by Chieh Lee; Charles L. Munson
International Journal of Integrated Supply Management (IJISM), Vol. 9, No. 3, 2015
Abstract: Managers around the world face increasing challenges of managing the supply chain network risks that span overseas locations. In addition to typical uncertainties such as stochastic demand that any firm faces, a global company must also contend with exchange rate risk. Operational hedging represents one of the techniques to manage this risk. Operational hedging is different from the traditional financial hedging that involves purchasing currency options. Operational hedging establishes excess capacity around the world and then shifts production to favourable countries as exchange rate fluctuations dictate. In this paper, predictive global sensitivity analysis is invoked to seek a set of operational rules that are simple enough for managers to conveniently analyse the effects of economic changes on the production levels of their plants. The rules enable managers to recommend production reallocation levels while remaining accurate enough to make sound decisions.
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