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JOURNAL OF APPLIED BUSINESS AND ECONOMICS
A Simple Tactic for Purchasing French Oak Barrels
Author(s): Sarah Quintanar, Eric Sims, Andy Terry
Citation: Sarah Quintanar, Eric Sims, Andy Terry, (2018) "A Simple Tactic for Purchasing French Oak Barrels," Journal of Applied Business and Economics, Vol. 20, Iss.2, pp. 92-101
Article Type: Research paper
Publisher: North American Business Press
Abstract:
This paper identifies a cost-minimizing tactic for U.S. wineries when buying French oak barrels. An
otherwise trivial decision is potentially confounded by wineries’ order timing choice and exchange rate
risk. Using an intuitive model, which applies exchange rate futures prices and sixteen years of price data for a specific custom-made French oak barrel, we provide a general decision rule. The simple strategy of taking the early order discount dominates all alternative strategies and would have saved wineries nearly $78,000 compared to the more traditional ordering timeframe. Interestingly, using futures market prices does not improve the cost savings.
