A GLOBAL SUPPLY CHAIN PROFIT MAXIMIZATION AND TRANSFER PRICING MODEL

Authors

  • Tan Miller Ph.D.,

    1. Rider University
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    • Tan Miller (Ph.D. University of Pennsylvania) is the Harper Professor of Global Supply Chain Management at Rider University. He has logistics experience at Pfizer, Warner-Lambert, Mercer Management Consulting, Unisys and American Olean Tile. His responsibilities have included heading the logistics operations of a multi-billion dollar distribution network, leading a logistics strategic planning organization, and working in numerous other related supply chain functional areas. Dr. Miller has published four books on logistics and supply chain operations, planning and modeling. He has also published in such journals as the Journal of Business Logistics, Distribution Magazine, The Annals of Operations Research and Location Science, and he serves on the editorial board of several industry trade journals. He received his doctorate and MBA from the University of Pennsylvania and the Wharton School.

  • Renato de Matta Ph.D.

    1. University of Iowa
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    • Renato de Matta (Ph.D. University of Pennsylvania) is an Associate Professor of Management Sciences at the University of Iowa. He received his doctorate in Decision Sciences at the Wharton Business School, University of Pennsylvania. His research expertise is in the areas of supply chain management, service operations and integer programming. He has published in various journals including Operations Research, Naval Research Logistics, Production and Operations Management, IIE Transactions, European Journal of Operational Research and Journal of Business Logistics. Dr. de Matta is a member of INFORMS.


Abstract

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.

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