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Keywords:

  • Capacity management;
  • Global supply chain;
  • Heuristics;
  • Production and distribution;
  • Production planning;
  • Transfer pricing

In environments where tax rates in local regions do not represent major decision factors, a cost minimization methodology, which represents the most common optimization modeling approach for integrated manufacturing and distribution planning, can help formulate an effective integrated plan. However, when planning flexibility or alternatives exist because of differing local country tax rates and types and intra-company transfer pricing options, cost minimization methodologies may inaccurately identify profit-maximizing global production and distribution plans. Instead, a profit maximization model that explicitly evaluates decisions such as where to incur tax liabilities and how to set intra-company prices may be required to develop an integrated global manufacturing and distribution plan. In this paper, we discuss and formulate a model that yields profit maximizing global production and distribution plans. We discuss the managerial implications of our results, and the potential applications and benefits of the model.