Operational Hedging Against Adverse Circumstances

39 Pages Posted: 19 Sep 2008 Last revised: 14 Dec 2008

Dan Weiss

Tel Aviv University - Faculty of Management

Michael W. Maher

University of California, Davis - Graduate School of Management

Date Written: October 24, 2008

Abstract

This paper investigates operational hedging against severe disruptions to normal operations. It offers a new method to evaluate the extent that operations policy serves as a hedge against adverse circumstances. We apply the proposed method to explore how supply chain characteristics affect the responses of airlines to the acute demand fall off after the September 11 terrorist attacks. Results indicate that operational hedging vehicles (fleet standardization, high fleet utilization, an aircraft ownership policy rather than leasing, and international operations) are more powerful in protecting firms than using financial instruments. The study contributes in guiding managers as to how operations policy can serve as an imperative factor in mitigating exposures to low-end performance levels.

Keywords: Operations policy, Hedging,Airlines, Stochastic dominance

JEL Classification: G32, L29

Suggested Citation

Weiss, Dan and Maher, Michael W., Operational Hedging Against Adverse Circumstances (October 24, 2008). Journal of Operations Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1264014 or http://dx.doi.org/10.2139/ssrn.1264014

Dan Weiss (Contact Author)

Tel Aviv University - Faculty of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 69978
Israel

Michael W. Maher

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-7034 (Phone)
530-752-0723 (Fax)

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