How Exchange Rates Can Impact Supply Chains.
Global product distribution is a reality hard to avoid this days, as procurement departments continually source for goods and services suppliers internationally. Consequently, currency fluctuation is one of the major impediments to global sourcing strategies to achieve cost savings to the supply chain. Procurement strategies aiming help getting the best deal may represent zero or even negative results if currency exchange rates are neglected. One of the main problems for exporters is when buying in a currency with a high valuation and then selling in a weaker currency. Any strong changes affecting either currency will impact profit margins So what can procurement do?
Exchange rate fluctuations should be part of any organization risk assessment plan. It is important that companies keep ahead and understand the impact of currency fluctuations.
Primarily, you should have fair idea of your organization risk level; procurement departments should work closely with finance departments to help better understand the level of risk. And find out how to reduce the currency aggregated risk cost. In other hand understanding and hedging the currency risk. Also, figure out if you can implement a system that will minimise your risk.
“Oscar Salehi, Global Head of Supply Chain for Technology & Consumer Goods at Thomson Reuters points out that in the past, corporate treasury had a very different agenda to that of the organization’s supply chain professionals. Treasurers were solely concerned about cost, while supply chain executives were more concerned with production and building long term relationships with suppliers. Echoing Henson’s views on greater collaboration, Salehi says that this dynamic is now changing and companies are realizing that finance and supply chain teams must work together to achieve their objectives. Salehi comments, ‘Historically we have seen a lack of common metrics along the supply chain. It is time for treasury to think out of the box and take cognizance of long term supplier relationships. The same is true for supply chain professionals, who have not previously been concerned about, for example, hedging. This must change and there must be mutual objectives and extensive collaboration at all levels of the supply chain. There is no room for the silo thinking that we saw in the past.’…” Thomson Reuters
Economic uncertainty sometimes is hard to plan against. But Procurement professionals recognise the negative repercussions that unplanned economic uncertainty can have on an organization supply chain and that is why it is important to have a global overview of economic environments. Economic uncertainty in one country can have an impact effect to another country, as debt issues and currency devaluations can occur. What organizations need to understand is that all supply chains are global these days.
Understanding your suppliers’ modus operadi can also help to plan better your buying strategy. Purchasing from a UK supplier today could be expensive, but knowing that the supplier is buying from non-UK manufacturer or distributor and paying them in their foreign currency for example Euros can work in your advantage when negotiating paying currencies with your supplier.
The effective management of supply risk involves partnering with suppliers and working internally with other departments for mutual long-term benefit and managing expectations to achieve the best results.
Global Synergy Resources supply chain considers currency fluctuation and economic changes with a planned and adaptable approach to our clients’ needs internationally. Check daily currency exchange rates on our website.
By Sergio A. M. Chiteculo – Global Synergy Resources – London, 16/10/17