What Will an Increasingly Weak Dollar Mean for Global Sourcing?

Whether you love the US economy or hate it -- it seems like we're all of varying mindsets based on the day or even the hour -- it's hard to deny the influence that an increasingly weak dollar will have on global sourcing and trade decisions in 2007 and beyond. As of Thursday, the dollar closed at a ten year low to the pound sterling. According to one currency strategist quoted in a Bloomberg dispatch, the "sterling will be testing $2 by December." For US companies, a weakening dollar will make it more difficult to justify the total costs involved in sourcing globally (for non-localized supply chain purchases overseas), making domestic supply options more attractive. It will also potentially make the US a more interesting source of supply to the UK and the rest of Europe, especially if the dollar continues its slide.

For US companies who are not considering currency risk in long-term global sourcing decisions and supply strategy, the current exchange ratios should serve as a wake up call. But the good news is that it's not too late to act. Indeed, there are many ways to deal with a declining domestic currency in global sourcing decisions. Examples include letting suppliers assume the currency risk (even though they'll most likely price and pad a risk quotient into their quotes), selling more globally in local currencies, and using exchange traded financial instruments to lock-in downside risk in variable contracts. But obviously the most improtant thing before implementing a strategy is realizing that currency risk is real and is getting more serious by the day.

- Jason Busch