A Global Supply Chain Model with Transfer Pricing

1. A Global Supply Chain Modelwith Transfer Pricing MAI Lab 2002년 8월 30일 금요일 발표자: 김해중

2. Contents • Introduction • Literature review • Transfer Pricing • Models • Conclusion

3. Strategic production-distribution models:A critical review with emphasis on global supply chain models Carlos J, Vidal Universidad del Valle, Cali, Colombia Marc Goetschalckx School of Industrial and Systems Engineering. Georgia Institute of Technology European Journal of Operational Research(2001)

4. Transportation mode ND Determination of fleet size PPDP Dispatching of different vehicles Introduction • What is production-distribution system? Production-Distribution System Purchasing Production Scheduling Inventory Warehousing Transportation Example Strategic Tactical Operational Day Week Month Year

5. Strategic production-distribution Domestic Global Supply Chain Design • Strategic Problem • The number, location, capacity, type of manufacturing plants and warehouses • The set of suppliers to select • The transportation channels • The amount of raw materials and products to produce and ship • The amount of inventory

6. Different taxes and duties, exchanges rates, trade barriers, transfer prices, government stability, infrastructure…. • Global supply chain models

7. Literature review • Previous review • Aikens(1985) • Main facility location models, least complex • Uncapacitated, single-echelon, multicommodity • Bhatnagar et al(1993) • General coordination: different activities ex) facility location & production & distribution • Multi-plant coordination: different level ex) production planning & demand nervousness • Geoffrion and Power(1995) • Evolution of logistics: technology, algorithms, data management, software • Benders Decomposition, Factorization methods • Thomas and Griffin(1995) • Coordination ex)buyer-vendor, production-distribution, inventory-distribution • Further: nonlinear transportation cost, life cycle, • Slats en al(1995) • Recent technology. Ex) EDI, PDI, MIS • Verter and Dincer(1995) • Global facility location decisions. • Capacity, technology, exchange rate fluctuations, price variability

8. MIP Models • Geoffrion and Graves(1974) • Known capacities, numbers of facility, candidate locations • Benders Decomposition, Multicommodity single-period, first paper in MIP model • Cohen and Lee(1985) • Deterministic, periodic, mathematical, nonlinear objective, • MMPS(Manufacturing planning support system. No formulation, computation • Brown et al(1985) • Opening/closing of plants, production, transportation • Decomposition methods • Cohen et al(1989) • Single vs. international supply chain. Duties, tax rates, random currency rate • Not considered in the model. Fixes the transfer prices and overhead costs • Cohen and Kleindorter(1993) • A global company, location, capacity, product mix, material flow, cash flow • No specific mathematical formulation

9. Brown and Olson(1994) • Dynamic row factorization • Arntzen et al(1995) • Multi-period, multi-commodity MIP • Inventory, production, shipping cost. Time constraints, Global BOM, capacity, • Cole(1995) • SILAS(Strategic Inventory Location Allocation System) • Multi-echelon, multi-commodity, single-period MIP • Normal demand and stochastic customer service • Linearized, CPLEX, Simulation to verify • Vidal and Goetschalckx(1996)

14. Global BOM • Non fixed ex) Excess capacity • Stochastic factors ex) Demand, service level • Qualitative aspects ex) infrastructure • Reliability ex) Vendor, channel • Trend • Multi… • Stochastic • Global • Single • Fixed • Deterministic • Domestic

15. A global supply chain model with transfer pricing and transportation cost allocation Carlos J, Vidal Universidad del Valle, Cali, Colombia Marc Goetschalckx School of Industrial and Systems Engineering. Georgia Institute of Technology European Journal of Operational Research(2001)

16. Tax, duty, exchange rate, trade barriers Abdallah(1997) “TP is the most important and difficult international tax issue facing multinationals today, and is expected to remain so for the near future “ Introduction • What is Transfer pricing(TP)? Multinational Company Plant D/C How much? Country A Country B

17. Basic model • Before • Transfer prices are fixed • Ignore allocation of transportation cost among subsidiaries • Basic considerations • TP, transportation cost allocation, inventory costs, transportation mode • Satisfy tax and other legal requirements • Profit maximization • Minimize exchange rate risk.

18. Basic single-product example Plant D/C x, t, p Country A Country B 관세, 세율, 고정비, 운송비, 최대수요량, 생산비, 판매가…. 수송비용할당비율(p of TCA) 수송가격(TP) 수송량

19. Objective Plant DC A,B 모두 이익 A만 이익 B만 이익 A,B 모두 손해 NIAT: Net income after tax NIBT: Net income before tax

20. t가 증가하면 A의 이익 증가, B이익 감소 전체이익은 concave

21. Global net income after tax function Net income t

22. Linearized by y=tx

23. Optimal solution

24. Transportation cost allocation • can be modeled Independently • Free on board(FOB), free alongside ship(FAS), cost, insurance and freight(CFI) • p: the proportion of transportation costs allocated to the origin • p=1, allocated to the origin(A)

25. General Model • Assumptions • taxed on their local-source income • vertical integration • bounded on transfer price

26. Model P(x,t,v,p)

27. 수송량 수송량 TP p • Objective • D/C의 경우 ibts(매출-수송비-재고비-입고비용-고정비) net income before tax of logistics object i 매출액 수송비 재고비 입고비 고정비

28. Solution approaches

29. Computational experience • CPLEX with IBM RS 6000 model 590

31. Conclusions • Contribution • TP, transportation cost allocation 고려, • NP-hard  successive LP-solution • Further research • New plant or DC opening • ND의 확장 • Global parameters • Stochastic • Algorithm

32. Appendix

33. Appendix

34. Appendix