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

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 benefiting 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 cap...

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