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MANAGING VOLATILE EXCHANGE RATES IN GLOBAL SOURCING

MANAGING VOLATILE EXCHANGE RATES IN GLOBAL SOURCING. IMPORTANCE OF EXCHANGE RATES IN INTERNATIONAL SOURCING. EXAMPLE: U.S. Firm |Japanese Supplier 12 equal payments of 20.248 M Yen each Current Rate: 202.48 Yen/$. IMPORTANCE OF EXCHANGE RATES IN INTERNATIONAL SOURCING (cont).

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MANAGING VOLATILE EXCHANGE RATES IN GLOBAL SOURCING

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  1. MANAGING VOLATILE EXCHANGE RATES IN GLOBAL SOURCING

  2. IMPORTANCE OF EXCHANGE RATES IN INTERNATIONAL SOURCING • EXAMPLE: U.S. Firm |Japanese Supplier • 12 equal payments of 20.248 M Yen each • Current Rate: 202.48 Yen/$

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

  4. 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

  5. MICRO-STRATEGIES

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

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

  8. SUPPLIER SELECTION JAPANESE YEN CONTRACT: 15.365 M KOREAN WON CONTRACT: 88.41 M

  9. 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

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