Integrating Operational Hedging of Exchange Rate Risk in the Optimal Design of Global Supply Chain Networks

Abstract

Supply chain network (SCN) design and operation is a strategic and value adding process for all synchronous companies. In the face of globalization, several issues should be contemplated and incorporated in decision support systems in order to assist toward effective decision making in this area. Exchange rate risk is one such issue as more and more SCNs are becoming global in order to benefit from cost efficiencies in their inputs and seize upon revenue opportunities for their outputs. This work aims to enrich the SCN design and operation literature by introducing a Mixed-Integer Non Linear Programming (MINLP) model that integrates operational hedging against exchange rate risk within SCN design and operation decisions. By exploiting the properties of the MINLP model, it is reformulated into an exact Mixed-Integer Linear Programming (MILP) model that is solved to global optimality. A real case study from a consumer goods company is utilized in order to show the models functionality and benefit. The model could assist and support SCN managers in effective decision making at the strategic level.