Currency Conversions

Issues with currency conversion add complexity to the global sourcing process. The absence of fixed exchange rates can be a problem. Fluctuations in exchange rates can have a significant impact on the costs and profits made by the buyer and the seller. U.S. purchasing departments are particularly at a disadvantage. Their unfamiliarity in dealing with foreign currencies leads to higher costs in two ways: 1) the buyers attempt to put all currency risk on the supplier which causes the supplier to include charges for hedging; 2) In an attempt to avoid dealing with foreign currency, buyers’ use U.S. subsidiaries who accept U.S. dollars but charge higher markups. The unfamiliarity of vendors and suppliers with currency conversion issues can cause supply chain slowdowns and force businesses to revert to using paper invoices, bound ledgers and filing cabinets leading to delays and increased costs in the supply chain.

Source: Dobler, D.W., & Burt, D.N. (1996). Purchasing and Supply Management. (6th ed.). New York: McGraw Hill.