Which of the following actions hedges against commodity price fluctuations in a supply chain?

Commodity Price Fluctuations: Commodity prices can be volatile, affecting the cost structure of supply chains.

Hedging: Hedging is a risk management strategy used to offset potential losses due to price changes.

Options:

Purchase Always from the Lowest Bidder (A): This doesn't hedge against price fluctuations; it simply aims for cost minimization.

Increase Safety Stock Levels (B): This protects against stockouts but doesn't hedge against price changes.

Establish an Online Auction Site (C): This may facilitate competitive pricing but isn't a direct hedge.

Purchase Future Options (D): Futures contracts allow a company to lock in prices for commodities, thus hedging against future price fluctuations.

Conclusion: Purchasing future options is the most effective action to hedge against commodity price fluctuations by securing prices in advance.

References

"Financial Risk Management: Applications in Market, Credit, Asset and Liability Management, and Firmwide Risk" by Jimmy Skoglund and Wei Chen.

APICS Dictionary, 16th Edition.