Screening location strategies to reduce exchange rate risk

A firm that markets its products and services world-wide may face significant financial risk due to exchange rate fluctuations unless it maintains an international sourcing/production network. Thus, the firm must evaluate various sourcing/production network designs. The selection of the appropriate design is not straight-forward since decisions are made in an environment of uncertainty and involve multiple time periods. We propose a two-phase approach to screen various alternative designs (configurations) utilizing a number of criteria, and illustrate it using a popular Harvard Business School case. As by-products, we introduce a new criterion for making a pairwise stochastic comparison of alternatives and demonstrate the value of maintaining excess geographically-dispersed production capacity.