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Natural hedging as a risk prophylaxis and supplier financing instrument in automotive supply chains

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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.
   
type journal paper
   
keywords Automotive industry, Supply chain management, Risk management, Small-to medium-sized enterprises, Financial performance, Collaboration.
   
language English
kind of paper journal article
date of appearance 3-2011
journal Supply Chain Management: An International Journal
publisher Emerald (Bingley UK)
ISSN 1359-8546
ISSN (online) 1758-6852
DOI 10.1108/13598541111115374
volume of journal 16
number of issue 2
page(s) 128-141
review double-blind review
   
citation Hofmann, E. (2011). Natural hedging as a risk prophylaxis and supplier financing instrument in automotive supply chains. Supply Chain Management: An International Journal, 16(2), 128-141, DOI:10.1108/13598541111115374.