Business Research

, Volume 6, Issue 2, pp 215–240 | Cite as

Integrated Strategic Planning of Global Production Networks and Financial Hedging under Uncertain Demands and Exchange Rates

Open Access
Article

Abstract

In this paper, we present a multi-stage stochastic programming model that integrates financial hedging decisions into the planning of strategic production networks under uncertain exchange rates and product demands. This model considers the expenses of production plants and the revenues of markets in different currency areas. Financial portfolio planning decisions for two types of financial instruments, forward contracts and options, are represented explicitly by multi-period decision variables and a multi-stage scenario tree. Using an illustrative example, we analyze the impact of exchange-rate and demand volatility, the level of investment expenses and interest rate spreads on capacity location and dimensioning decisions. In particular, we show that, in the illustrative example, the exchange-rate uncertainty cannot be completely eliminated by financial hedging in the presence of demand uncertainty. In this situation, we find that the integrated model can result in better strategic planning decisions for a risk-averse decision maker compared to traditional modeling approaches.

JEL classification

C61 M11 G62 

Keywords

strategic production network planning financial hedging uncertainty stochastic programming 

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Copyright information

© The Author(s) 2013

This article is published under license to BioMed Central Ltd. Open AccessThis article is distributed under the terms of the Creative Commons Attribution License which permits any use, distribution, and reproduction in any medium, provided the original author(s) and the source are credited.

Authors and Affiliations

  1. 1.Goethe University FrankfurtGermany
  2. 2.Otto-von-Guericke University MagdeburgGermany
  3. 3.Decision Support and Operations Research LabUniversity of PaderbornPaderbornGermany

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