Title: A predictive global sensitivity analysis approach to monitoring and modifying operational hedging positions

Authors: Chieh Lee; Charles L. Munson

Addresses: Department of Industrial Engineering and Management, Yuan Ze University, No. 135 Yuan-Tung Road, Chungli, Taoyuan 111, Taiwan ' Department of Finance and Management Science, Carson College of Business, Washington State University, P.O. Box 644746, Pullman, WA 99164-4746, USA

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.

Keywords: operational hedging; sensitivity analysis; stepwise regression; supply chain networks; supply chain risk; exchange rate risk; capacity management; linear programming; international operations; global sourcing; supply chain management; SCM; overseas locations; exchange rate fluctuations; production reallocation levels.

DOI: 10.1504/IJISM.2015.068102

International Journal of Integrated Supply Management, 2015 Vol.9 No.3, pp.178 - 201

Received: 26 Sep 2013
Accepted: 18 Sep 2014
Published online: 17 Mar 2015 *

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