An operational profit sharing and transfer pricing model for network-manufacturing companies

An operational profit sharing and transfer pricing model for network-manufacturing companies

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Article ID: iaor20083798
Country: Netherlands
Volume: 175
Issue: 1
Start Page Number: 543
End Page Number: 565
Publication Date: Nov 2006
Journal: European Journal of Operational Research
Authors:
Keywords: networks
Abstract:

New age companies are forging partnerships with other finns to market products that have been assembled through manufacturing activities distributed at different locations. These locations belong to more than one company and the product passes through these different sites during its manufacturing stages. This manufacturing collaboration is known as network-manufacturing. According to the network philosophy, companies form alliances to manufacture a product and share in its operating profits. This paper proposes a framework and methodology for profit sharing and transfer-pricing between network companies. We propose a paradigm that enables maximization of operating profits by the manufacturing-network in its larger supply chain, suggesting a departure from the model that maximizes profits for the individual company within the sphere of its own supply chain.

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