Transportation Operations LINCS Practice Exam

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What does hedging in logistics help companies to do?

Increase their overall shipping costs
Reduce exposure to risks by diversifying suppliers
Ensure product uniformity
Decrease their inventory levels

The correct answer is: Reduce exposure to risks by diversifying suppliers

Hedging in logistics primarily helps companies to reduce their exposure to risks by diversifying their suppliers. This approach allows businesses to mitigate potential disruptions in the supply chain, such as delays, price fluctuations, or geopolitical issues that may affect a single supplier. By having multiple suppliers, companies can ensure a more stable supply of goods and services, which enhances their ability to respond effectively to unforeseen challenges in the market. When firms diversify their supplier base, they are better equipped to maintain consistent operations even if one supplier encounters problems, thus safeguarding their logistics and overall business operations. This risk management strategy leads to more resilient supply chains and enables companies to adapt swiftly to changing market conditions.