The paper, titled 'Hedging weather risk and coordinating supply chains', presents an approach through which weather risks can be transferred to risk takers and sales volatility can be reduced using weather index-based financial instruments. It is based on the premise that weather conditions can influence the sales of many products positively or negatively.
The approach presented by the authors in the research paper suggests calculating the risk of adverse weather conditions on the basis of adverse conditions observed in the past. It does not involve using forecasts of weather conditions. The action design has been illustrated through the case studies of three companies: a company manufacturing automotive replacement parts, a clothing company and a company producing sunscreen products. The authors demonstrate its efficiency in reducing cash-flow uncertainty and potential losses caused by adverse weather, and in influencing sales to the next tier.