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How to Mitigate Foreign Exchange Risk

By Candice Schuval

Mitigate FX Risk

Unity X: Secret Weapon Against FX Risk 

The aftermath of the Brexit vote served as a sobering reminder that even a developed country can experience currency volatility, as the rate of the British pound swung wildly and reached record lows. In recent months, experts have worried that the ongoing drama surrounding tariffs and NAFTA could also jeopardize the value of the U.S. dollar. Just this week, we experienced a major slide in the stock market which shook the world.

The turbulent trade environment makes this a confusing time for global manufacturers. Manufacturers continue to take advantage of trade opportunities, outsource operations and purchase supplies from overseas. But how can they run their international business without taking a hit from foreign exchange (FX) instability?  

Leveraging years of experience with international enterprises, Datix developed a secret weapon against FX risk—Unity X. Unity X is a pre-built integration solution that automatically syncs up-to-date exchange rates from XE Currency Data into Epicor ERP. By combining the reliability of Unity X with the following foreign exchange management tips, manufacturers can take control of their global operations. 

Identify Exposure to Risk 

When manufacturers evaluate FX risk, they tend to cut corners without even realizing it. For example, a business may source materials from a foreign supplier under a U.S. dollar-denominated contract, but the supplier might calculate the price under the value of its local currency. These little details make a big difference in your exposure to FX risk.  

To ensure you don’t leave any stones unturned in your risk mitigation strategy, thoroughly identify sources of potential exchange hazards. Comb through every area of your supply chain, cash flows and foreign exchange payables and receivables. Don’t forget to check sales contracts and leases for embedded clauses that could require price adjustments to account for currency rate changes. Once all exposures are noted, quantify the potential impact of rate fluctuations using sensitivity analysis or value at risk models. This will help you prioritize areas where you can work to limit your exposure.  

Adopt a Variety of Mitigation Techniques 

There’s no shortage of financial and non-financial techniques to adopt to hedge FX risk. For example, manufacturers can use futures contracts to buy or sell goods or assets at a preset price by a later date. One of the most important methods is to establish governance procedures. Businesses should create governance procedures that establish that sales reps can’t sign contracts with foreign exchange terms without approval from their controller or CFO, ensuring that sales teams stay in line with risk strategies.  

A prevalent myth in global finance is that it’s best to conduct trade in your home currency. However, this isn’t necessarily the case. Overseas suppliers often prefer writing contracts in their local currency, which could actually save you money. Foreign suppliers usually charge a premium for assuming the risk of paying in U.S. currency. By agreeing to complete transactions in their currency, you avoid that extra cost. Just make sure you have strong protocols and agreements in place to manage risk when making these deals.  

Reduce Manual Data Entries 

To know the best time to strike an international deal or purchase from foreign suppliers, manufacturers must stay on top of currency rates. However, the common method for updating exchange rates is manual data entry. That means employees are wasting time keying data into the ERP system, inevitably typing the wrong numbers every once in a while. These occasional errors put companies at risk of making poorly-timed decisions or costly accounting blunders.  

With Unity X, this dangerous process is a thing of the past. By connecting Epicor ERP and XE, Unity X protects the accuracy of currency rates. XE Currency Data, the world’s most trusted exchange authority, provides transparent rates using over 100 global sources to verify accuracy. Its API package seamlessly integrates with back-office systems, delivering daily international rate updates automatically into your ERP solution. Global manufacturers can rest easy knowing that Unity X will offer accurate, up-to-date currency data without any tedious, manual tasks from employees.  

Wrap Up  

There’s no denying it: growing your manufacturing business outside national borders introduces risk into your processes and finances. But there’s also no denying that global expansion introduces exciting new opportunities for exposure and boosted revenue. To make it big in the international marketplace, manufacturers must carefully mitigate foreign exchange risk by implementing effective tools and strategies. 

After over 20 years of providing solutions to global manufacturers and distributors, Datix understands the difficulties of managing multiple currencies. That’s why our expert developers built Unity X to connect XE with Epicor, the premier ERP solution for manufacturers. Epicor ERP includes an array of robust modules and functions to control international operations, including multicurrency management, risk mitigation and visibility across global sites. The combined powers of Epicor ERP and XE Currency Data make Unity X the optimal solution to take your business worldwide.  

To get started on building your global enterprise, reach out to Datix today!  

CONTACT AN EXPERT AT DATIX TODAY!

Tags: Epicor® ERP, erp integration, manufacturing, manufacturing software, mitigate risk, global, unity x, international, multiple currencies

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