Natural hedging as a risk prophylaxis and supplier financing instrument in automotive supply chains
Journal
Supply Chain Management: An International Journal
ISSN
1359-8546
ISSN-Digital
1758-6852
Type
journal article
Date Issued
2011-03
Author(s)
Hofmann, Erik
Abstract
Purpose - Supply chain risks significantly endanger small and medium-sized enterprise (SME-) suppliers in different currency areas in purchasing and sales. The purpose of this paper is twofold: to describe the concept of natural hedging in supply chains, and to highlight the potentials of natural hedging as a risk prophylaxis and a supplier financing approach.
Design/methodology/approach - The paper uses a brief literature review and a conceptual research design, taking the financial and physical component of natural hedging (in this case between an OEM and its SME-suppliers in the automotive industry) into consideration.
Findings - Natural hedging of currency and commodity price fluctuations can contribute to the reduction of SME-suppliers' supply chain vulnerability, also benefitting an OEM.
Research limitations/implications - This research focuses exclusively on relationships between SME-suppliers and large OEMs in the automotive industry. Studies of other types of companies and industries, such as the capital goods industry, might reveal divergent practices.
Practical implications - With the natural hedging approach, the paper promotes an innovative concept for better managing risks in supply chains, especially in recessionary times. The concept is a source for supplier financing.
Originality/value - This research shows that a globally active focal firm - an OEM in the automotive industry, for instance - can hedge currency and commodity price risks (financial components), as well as operational supply risks (physical components), by centralizing commodity supply with its SME-suppliers. It can serve as a base for future research.
Design/methodology/approach - The paper uses a brief literature review and a conceptual research design, taking the financial and physical component of natural hedging (in this case between an OEM and its SME-suppliers in the automotive industry) into consideration.
Findings - Natural hedging of currency and commodity price fluctuations can contribute to the reduction of SME-suppliers' supply chain vulnerability, also benefitting an OEM.
Research limitations/implications - This research focuses exclusively on relationships between SME-suppliers and large OEMs in the automotive industry. Studies of other types of companies and industries, such as the capital goods industry, might reveal divergent practices.
Practical implications - With the natural hedging approach, the paper promotes an innovative concept for better managing risks in supply chains, especially in recessionary times. The concept is a source for supplier financing.
Originality/value - This research shows that a globally active focal firm - an OEM in the automotive industry, for instance - can hedge currency and commodity price risks (financial components), as well as operational supply risks (physical components), by centralizing commodity supply with its SME-suppliers. It can serve as a base for future research.
Language
English
Keywords
Automotive industry
Supply chain management
Risk management
Small-to medium-sized enterprises
Financial performance
Collaboration.
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Emerald
Publisher place
Bingley UK
Volume
16
Number
2
Start page
128
End page
141
Pages
14
Subject(s)
Eprints ID
72720