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Exact and heuristic solutions of the global supply chain problem with transfer pricing

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  • Perron, Sylvain
  • Hansen, Pierre
  • Le Digabel, Sébastien
  • Mladenovic, Nenad

Abstract

We examine the example of a multinational corporation that attempts to maximize its global after tax profits by determining the flow of goods, the transfer prices, and the transportation cost allocation between each of its subsidiaries. Vidal and Goetschalckx [Vidal, C.J., Goetschalckx, M., 2001. A global supply chain model with transfer pricing and transportation cost allocation. European Journal of Operational Research 129 (1), 134-158] proposed a bilinear model of this problem and solved it by an Alternate heuristic. We propose a reformulation of this model reducing the number of bilinear terms and accelerating considerably the exact solution. We also present three other solution methods: an implementation of Variable Neighborhood Search (VNS) designed for any bilinear model, an implementation of VNS specifically designed for the problem considered here and an exact method based on a branch and cut algorithm. The solution methods are tested on artificial instances. These results show that our implementation of VNS outperforms the two other heuristics. The exact method found the optimal solution of all small instances and of 26% of medium instances.

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  • Perron, Sylvain & Hansen, Pierre & Le Digabel, Sébastien & Mladenovic, Nenad, 2010. "Exact and heuristic solutions of the global supply chain problem with transfer pricing," European Journal of Operational Research, Elsevier, vol. 202(3), pages 864-879, May.
    • Handle: RePEc:eee:ejores:v:202:y:2010:i:3:p:864-879
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    References listed on IDEAS

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    Cited by:

    1. Renato Matta, 2019. "Product costing in the strategic formation of a supply chain," Annals of Operations Research, Springer, vol. 272(1), pages 389-427, January.
    2. Omid Abdolazimi & Farzad Bahrami & Davood Shishebori & Majid Alimohammadi Ardakani, 2022. "A multi-objective closed-loop supply chain network design problem under parameter uncertainty: comparison of exact methods," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(9), pages 10768-10802, September.
    3. Matsui, Kenji, 2011. "Intrafirm trade, arm's-length transfer pricing rule, and coordination failure," European Journal of Operational Research, Elsevier, vol. 212(3), pages 570-582, August.
    4. Kristianto, Yohanes & Gunasekaran, Angappa & Helo, Petri, 2017. "Building the “Triple R” in global manufacturing," International Journal of Production Economics, Elsevier, vol. 183(PC), pages 607-619.
    5. Gao, Lu & Zhao, Xuan, 2015. "Determining intra-company transfer pricing for multinational corporations," International Journal of Production Economics, Elsevier, vol. 168(C), pages 340-350.
    6. Xinbo Zhang & Shuai Huang & Zhong Wan, 2018. "Stochastic programming approach to global supply chain management under random additive demand," Operational Research, Springer, vol. 18(2), pages 389-420, July.
    7. Hasani, Aliakbar & Khosrojerdi, Amirhossein, 2016. "Robust global supply chain network design under disruption and uncertainty considering resilience strategies: A parallel memetic algorithm for a real-life case study," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 87(C), pages 20-52.
    8. Miller, Tan, 2015. "Formation of a strategic manufacturing and distribution network with transfer pricesAuthor-Name: de Matta, Renato," European Journal of Operational Research, Elsevier, vol. 241(2), pages 435-448.
    9. da Silva Stefano, Gustavo & Antunes, Tiago dos Santos & Lacerda, Daniel Pacheco & Wolf Motta Morandi, Maria Isabel & Piran, Fabio Sartori, 2022. "The impacts of inventory in transfer pricing and net income: Differences between traditional accounting and throughput accounting," The British Accounting Review, Elsevier, vol. 54(2).
    10. Wei Luo & Kevin Shang, 2015. "Joint Inventory and Cash Management for Multidivisional Supply Chains," Operations Research, INFORMS, vol. 63(5), pages 1098-1116, October.
    11. Meisel, Frank & Kirschstein, Thomas & Bierwirth, Christian, 2013. "Integrated production and intermodal transportation planning in large scale production–distribution-networks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 60(C), pages 62-78.
    12. Miguel A. Lejeune & François Margot, 2016. "Solving Chance-Constrained Optimization Problems with Stochastic Quadratic Inequalities," Operations Research, INFORMS, vol. 64(4), pages 939-957, August.
    13. Matsui, Kenji, 2014. "Gray-market trade with product information service in global supply chains," International Journal of Production Economics, Elsevier, vol. 147(PB), pages 351-361.
    14. Ziping Wang & Wenlian Gao & Samar K. Mukhopadhyay, 2016. "Impact of taxation on international transfer pricing and offshoring decisions," Annals of Operations Research, Springer, vol. 240(2), pages 683-707, May.
    15. Hammami, R. & Frein, Y., 2014. "Redesign of global supply chains with integration of transfer pricing: Mathematical modeling and managerial insights," International Journal of Production Economics, Elsevier, vol. 158(C), pages 267-277.

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