Screening location strategies to reduce exchange rate risk

Screening location strategies to reduce exchange rate risk

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Article ID: iaor20022679
Country: Netherlands
Volume: 136
Issue: 3
Start Page Number: 573
End Page Number: 590
Publication Date: Feb 2002
Journal: European Journal of Operational Research
Authors: , ,
Keywords: programming: multiple criteria
Abstract:

A firm that markets its products and services world-wide may face significant financial risk due to exchange rate fluctuations unless it maintains an international sourcing/production network. Thus, the firm must evaluate various sourcing/production network designs. The selection of the appropriate design is not straight-forward since decisions are made in an environment of uncertainty and involve multiple time periods. We propose a two-phase approach to screen various alternative designs (configurations) utilizing a number of criteria, and illustrate it using a popular Harvard Business School case. As by-products, we introduce a new criterion for making a pairwise stochastic comparison of alternatives and demonstrate the value of maintaining excess geographically-dispersed production capacity.

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