Globalization is a reality, but the effectiveness of current supply chain practices is constantly being challenged. The volatility of various economies, coupled with cultural issues, demands companies with wide-ranging supply chains continually re-evaluate their business models.
A Variety of Factors Impact Currency Exchange Volatility.
Because factors influencing the volatility of currencies around the world are constantly evolving, organizations are now forced to explore a variety of situations to better evaluate their exposures. However, there are specific issues experienced within the past few years that top the list. According to OPS Rules (, those factors include:
- Natural disasters
- Extremely volatile oil prices
- Changing attitudes toward service and quality
- Geo-political issues
While these factors alone complicate supply chain economics, there is another issue that many organizations consider even more important.
Cultural differences create unique problems for supply chains.
Because cultures in global supply chains do not necessarily share the same beliefs, supply chains with elements spread across continents must be prepared to make adjustments that accommodate other business environments. The Ivey Business Journal (, for example, sites a key difference between China’s business philosophy and that of North American companies. The article suggests China’s appreciation for a clear business hierarchy and authority is in conflict with the business culture in North America. That type of cultural difference can easily create significant issues that threaten an organizations currency risk projections.
Regional economic issues have global impacts.
Recent developments in China, for example, reinforce the concept that supply chain economics must consider economic situations in other parts of the world. CNN Money (, in an August 21, 2015 article reported Chinese stocks crashed more than 11% in one week. That type of activity impacts markets around the world, forcing companies to carefully evaluate their current supply sources, as the changes in China can significantly impact the cost of goods.
Currency exchange rates are always in flux, but the significant changes in recent years demands organizations take steps to reduce the risks associated with rapidly changing rates. Industry Week ( writer Jeff Wallingford suggests there are three basic goals to successfully manage volatile exchange rates. They include allocating the risks of short-term fluctuations, achieving price stability within a reasonable period of time, and understanding the actual risks posed to form strategic plans.
Wallingford’s article goes on to state every organization must have a basic understanding of each supplier’s exposure to truly grasp the level of risk. In high-risk situations, organizations must be flexible enough to alter the supply chain dynamics quickly when necessary.
A Successful Future Demands Making Tough Decisions Today
While fluctuations in global stock markets may not directly impact currency issues, they are certainly a contributing factor. China’s recent devaluation of its currency does, however, directly impacts the supply chain. Does that devaluation represent an opportunity for organizations, or does it portend other changes in world currencies?
As Sumeet Majahan suggests in the OPS Rules article, organizations must constantly monitor the exchange rates related to their supply chain and make strategic decisions to take advantage of fluctuations. Majahan states, “Based on how frequently you can negotiate contracts and quantities with your suppliers, ever-shifting exchange rates could provide hidden opportunities to leverage a lower-cost supplier.”
Currency fluctuations can, indeed, impact an organization’s bottom line, but those fluctuations are only a part of the puzzle and must be put into proper perspective when making decisions. While it’s likely currency fluctuations will continue to be a component of future decisions, maybe even a more important factor than they are now, the natural disasters and geo-political issues influencing the viability of global relationships must also contribute to any short or long-term supply chain sourcing decisions.
