A global supply chain model with transfer pricing and transportation cost allocation

A global supply chain model with transfer pricing and transportation cost allocation

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Article ID: iaor20013732
Country: Netherlands
Volume: 129
Issue: 1
Start Page Number: 134
End Page Number: 158
Publication Date: Feb 2001
Journal: European Journal of Operational Research
Authors: ,
Keywords: programming: mathematical, supply
Abstract:

We present a model for the optimization of a global supply that maximizes the after tax profits of a multinational corporation and that includes transfer prices and the allocation of transportation costs as explicit decision variables. The resulting mathematical formulation is a non-convex optimization problem with a linear objective function, a set of linear constraints, and a set of bilinear constraints. We develop a heuristic solution algorithm that applies successive linear programming based on the reformulation and the relaxation of the original problem. Our computational experiments investigate the impact of using different starting points. The algorithm produces feasible solutions with very small gaps between the solutions and their upper bound.

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