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Impacts of exchange rate risk and transportation cost on a globally coordinated production plan for an OEM

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  • Ismail Civelek
  • Zubair M. Mohamed

Abstract

Transportation costs and exchange rate risk have been significant factors in selection of suppliers in global supply chain management. In this study, we investigate the effects of both of these factors on a global supply chain planner's strategic decisions on working with local or international suppliers. We develop an optimisation model to analyse the impacts of transportation cost and exchange rate risks and show for a coordinated production plan for an original equipment manufacturer (OEM), 1st tier and 2nd tier suppliers located locally or globally. We specifically focus on China (Pearl River Delta and Inland regions), India (Chennai) and Mexico (Baja) for the location of the OEM and its suppliers. We show that appreciation of Chinese currency and higher oil prices would make OEMs in Inland region of China and Mexico more attractive, respectively. India is very cost effective for the global strategic planner to locate OEM if oil prices decrease significantly. Moreover, we investigate the strategic benefit of relocating the OEM, 1st tier and 2nd tier suppliers for a global supply chain planner.

Suggested Citation

  • Ismail Civelek & Zubair M. Mohamed, 2015. "Impacts of exchange rate risk and transportation cost on a globally coordinated production plan for an OEM," International Journal of Manufacturing Technology and Management, Inderscience Enterprises Ltd, vol. 29(5/6), pages 309-323.
    • Handle: RePEc:ids:ijmtma:v:29:y:2015:i:5/6:p:309-323
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