operating flexibility global manufacturing and the option value of a multinational network the multinational corporation is a network of activities located in different countries the value of this network derives from the opportunity to benefit from uncertainty through the coordination of subsidiaries which are geographically dispersed we model this coordination as the operating flexibility to shift production between two manufacturing plants located in different countries a stochastic dynamic programming model treats explicitly this flexibility as equivalent to owning an option the value of which is dependent upon the real exchange rate the model is extended to analyze hysteresis effects and within country growth options we show that the management of across border coordination has led to changes in the heuristic rules used for performance evaluation and transfer pricing

transfer prices and the structure of intra firm trade in this paper the structure of intra firm trade within the context of transfer price manipulation by a multinational firm is endogenized high and low values of host country tax rates give rise to intra firm trade in final goods and intermediate inputs and intermediate values of the tax rate are associated with intra firm trade in either the intermediate inputs or the final goods only higher tariffs and stricter local content restrictions bias intra firm trade towards intermediate good trade and final good trade respectively in the presence of endogenous transfer prices host country sales may increase if the multinational faces stricter trade restrictions and higher host country tax rates jel classification f23 f12 prix de cession interne et structure du commerce itnra firme ce memoire endogeneise la structure du commerce intra firme dans le contexte d un modele qui permet la manipulation du prix de cession interne par une firme plurinationale des taux de taxation hauts et bas par le pays hote entrainent un commerce international intra firme tant dans les biens finaux que dans les intrants intermediaires des taux moyens de taxation sont associes a un commere intra firme soit dans les intrants intermediaires soit dans les biens finaux mais pas dans les deux des droits de douane eleves et des restrictions sur le contenu interieur plus importantes creent des distorsions en faveur du commerce intra firme dans les biens intermediaires et dans les biens finaux respectivement quand il existe des prix de cession interne endogenes les ventes de la firme nationale peuvent s accroitre si la firme plurinationale fait face a des restrictions au commerce plus importantes et a des taux de taxation plus eleves de la part du pays hote

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

the multinational firm and exhaustible resources a multinational firm trading in exhaustible resources is examined the exhaustibility of the transferred good requires the generalization of some existing concepts and introduces some new results the optimal extraction strategy is examined and comparative static implications of government policies are established the performance of the multinational is compared with the outcomes that arise in the absence of a multinational under varying assumptions concerning the nature of the market in the latter case the behaviour of the firm is seen to depend crucially upon the transfer price limitations imposed by the governments this issue is complicated by the lack of an obvious set of such limitations

taxes and the division of foreign operating income among royalties interest dividends and retained earnings abstract how do taxes influence the way u s corporations divide foreign affiliate operating income among royalties dividends interest and retained earnings the paper goes beyond previous work that focused largely on dividend repatriation behavior and provides a comprehensive analysis of the disposition of foreign subsidiary operating income the empirical results show that taxes have a large and statistically significant effect on the composition of payments own tax prices discourage the payment of dividends royalties and interest but dividend and other repatriation taxes do not increase retained earnings they only alter the composition of payments the results are therefore consistent with a generalized hartman sinn model of the mature controlled foreign corporation that has various alternative repatriation vehicles finally this paper integrates the choice of payments with income shifting among countries because the latter may be part of a low tax strategy for repatriations in this general framework conventional composite tax prices are not appropriate because the response to a change in a composite tax price depends on which components changed

taxes and dividends the uk evidence abstract this paper provides empirical evidence on the simultaneous effects of both corporation and personal income taxes on dividend payment adjustments and on the behaviour of share prices on the ex dividend dates the results show that companies set their dividend policies to minimise their tax liability and to maximise the after tax return of their shareholders in particular firms that are unable to deduct the advanced corporation tax from their tax liability are found to pay low dividends in addition consistent with the tax hypothesis we find that the differential taxation of dividends and capital gains results in a decrease in ex day share prices by significantly less than the amount of the dividend there is no evidence of a tax induced dividend clientele

a tax savings model for the emerging global manufacturing network the emerging global manufacturing network involves nodal location features of tax areas and international logistics zones manufacturing procedures of simple process and deep process as well as transportation arcs since choosing tax savings locations and manufacturing procedures that increase after tax profit is important to global manufacturers this study aims to present several tax savings approaches and to develop a tax savings model for maximizing after tax profit in the emerging network numerical illustration demonstrates that the proposed model is an effective approach for global manufacturers to achieve tax savings the proposed model elucidates the crucial logistics behavior associated with tax savings

optimal production allocation and distribution supply chain networks abstract enterprise optimisation can rapidly strip significant bottom line costs out of global operations giving companies a real competitive edge the benefits of managing supply chain networks by integrating operational design and financial decisions have been acknowledged by the industrial and academic community the objective of this work is to determine the optimal configuration of a production and distribution network subject to operational and financial constraints operational constraints include quality production and supply restrictions and are related to the allocation of the production and the work load balance financial constraints include production costs transportation costs and duties for the material flowing within the network subject to exchange rates as a business decision the out sourcing of production is considered whenever the organisation cannot satisfy the demand a mixed integer linear programming milp model is proposed to describe the optimisation problem a case study for the coatings business unit of a global specialty chemicals manufacturer is used to demonstrate the applicability of the approach in a number of scenarios

the regulatory choice of noncompliance in emissions trading programs this paper addresses the following question to achieve a fixed aggregate emissions target cost effectively should emissions trading programs be designed and implemented to achieve full compliance or does allowing a certain amount of noncompliance reduce the costs of reaching the emissions target the total costs of achieving the target consist of aggregate abatement costs monitoring costs and the expected costs of collecting penalties from noncompliant firms under common assumptions i show that allowing noncompliance is cost effective only if violations are enforced with an increasing marginal penalty however one can design a policy that induces full compliance with a constant marginal penalty that meets the aggregate emissions target with lower expected costs this last result does not depend on setting an arbitrarily high constant marginal penalty in fact the marginal penalty need not be higher than the equilibrium marginal penalty under the policy with the increasing marginal penalty and can actually be lower finally tying the marginal penalty directly to the permit price allows the policy objective to be achieved without any knowledge of firms abatement costs

redesign of global supply chains with integration of transfer pricing mathematical modeling and managerial insights abstract unlike the supply chain sc design problem which deals with the configuration of a new sc the redesign problem assumes that a sc already exists and focuses on its reconfiguration in order to take profit of the changing logistics financial and fiscal advantages offered by each country first this requires considering specific decisions and cost factors such as those associated with facility closing and capacity relocation these aspects are often ignored by sc design models second to better capitalize on the tax advantages in each country the redesign of sc requires the consideration of taxation rates and mainly transfer pricing indeed companies can use transfer pricing to shift profits to lower tax countries which may impact on the sc redesign decisions e g on the relocation of operations and manufacturing facilities this paper contributes to the literature by 1 developing a large scale optimization model that is specific to the problem of sc redesign while addressing decisions costs and complexity factors that are often ignored by the model based sc design literature 2 integrating transfer pricing in the model by using two methods one of them is the profit split method that is dictated by the oecd transfer pricing guidelines 1995 2010 which could be considered as a novelty in large scale sc optimization models and 3 using the model to derive a series of insights that may be helpful for companies and governments most of these insights are difficult to obtain without the support of models like the one developed here

cost based transfer pricing under r d risk aversion in an integrated supply chain abstract this paper examines the economic role of transfer pricing for a vertically integrated supply chain when a risk averse production division manager faces uncertainty on the outcomes from r d investment in particular we compare two representative cost based transfer pricing methods full cost and variable cost pricing we construct an economic model based on the assumption that r d investment reduces the expected fixed costs of a production factor as well as the variable production costs we show that a firm s profit under full cost transfer pricing is greater than that under variable cost transfer pricing under certainty contrary to this benchmark result variable cost pricing becomes more profitable than full cost pricing when the risk averse manager bears relatively high risk

endogenous transfer pricing and the effects of uncertain regulation abstract a scenario is constructed under which a multinational firm mnf faces a threat of a penalty the probability of which is based on the mnf s transfer price given this scenario the mnf s optimum transfer price could be in the interior and simultaneous interaction of the transfer price and real variables exists increased surveillance of the transfer price makes the mnf move its transfer price towards the arm s length price and checks fiscal abuses but it worsens the international allocation of resources even though the cost advantage of the exporting country increases still the impact on global welfare is ambiguous

a game theoretic approach to transfer pricing in a vertically integrated supply chain we study the problem of setting transfer prices in a vertically integrated supply chain in which the divisions share technology and transactions costs we develop a cooperative game that provides transfer prices for the intermediate products in the supply chain this model is applied both when the market prices for these products are known and also when their valuations differ we provide a solution that is fair and acceptable to all divisions in the perfect information case the shapley value generates the transfer prices while in the asymmetric case we obtain transfer prices from the solution to a linear program

an enhanced robustness approach for managing supply and demand uncertainties abstract managing supply and demand uncertainties is a topic that receives increasing management attention due to 1 more price based competitions forcing firms purchase from cheaper but less reliable or unproven suppliers and 2 undesirable consequences of unaddressed demand fluctuations such as reduced service level financial loss reputational damage and loss of market share this paper presents a realistic production distribution planning model that is robust to common supply interruptions and demand variations a robustness approach named elastic p robustness is introduced that obviates the need to estimate probability distribution of random parameters when managing operational uncertainties of the supply chain the application of the proposed approach is investigated in an actual organization from discrete durable parts manufacturing sector our analyses of numerical results focus on 1 exploring different tactics for managing supply and demand variations 2 examining the benefits of concurrent consideration of supply and demand uncertainties 3 benchmarking the performance of the proposed approach against the popular robustness algorithms and 4 investigating the price of robustness under various supply and demand scenarios

design of sustainable supply chains under the emission trading scheme increase in environmental concerns together with legislations are forcing industries to take a fresh look at the impact of their supply chain operations on the environment this paper introduces a mixed integer linear programming based framework for sustainable supply chain design that considers life cycle assessment lca principles in addition to the traditional material balance constraints at each node in the supply chain indeed the framework distinguishes between solid and liquid wastes as well as gaseous emissions due to various production processes and transportation systems the framework is used to evaluate the tradeoffs between economic and environmental objectives under various cost and operating strategies in the aluminum industry the results suggest that current legislation and emission trading schemes ets must be strengthened and harmonized at the global level in order to drive a meaningful environmental strategy moreover the model demonstrates that efficient carbon management strategies will help decision makers to achieve sustainability objectives in a cost effective manner

a general unconstrained model for transfer pricing in multinational supply chains multinational supply chains operate in more than one country or tax jurisdiction and face decision problems concerned with trade flows of resources products and services transfer prices and allocation of transport costs between their divisions these decisions must consider for the sake of optimality corporate and governmental parameters such as the payment of dividends and royalties ownership of and control over subsidiaries income taxes differentials duties and quotas etc in this paper we generalize and extend the theory of the multinational firm to the case of multinational supply chains we propose a model that is more general and comprehensive than the previous ones proposed in the literature to be more specific our model integrates many of the previous research factors and includes new ones such as transport costs and duty drawbacks which are critical for supply chains that operate under international trade regulations under the maximization of the repatriated earnings objective we study the optimality conditions of the corporate decision variables to derive managerial guidelines and to determine how decisions regarding trade quantities transfer prices and transport cost allocations affect the amount of taxes to be paid to host governments as well as the total after tax repatriated earnings of the corporation

inventory management under joint product recovery and cap and trade constraints abstract the influence of environmental legislation in inventory control policies is explored previous work on product recovery is extended using the introduction of a cap and trade mechanism in an infinite horizon inventory system in which demand and returns are uncertain demand is met through two different sources namely manufacturing and remanufacturing which differ in cost and greenhouse gas emissions the main contributions of this paper are 1 comparison of system operation in terms of cost and environmental performance under conventional and green inventory policies and 2 managerial insights into the structure of green inventory policies to illustrate the impact of a cap and trade scheme a numerical example is used we solved the problem as a markov decision process and characterized the inventory policies based on the optimal replenishment strategy we also conducted a sensitivity analysis to examine the effect of underlying environmental parameters such as the emission cap and the allowance price in the policy structures the results indicate that decisions are sensitive to carbon prices the inventory policy could play an important role in compliance with environmental legislation although there is threshold carbon price beyond which the company must focus on strategic decisions rather than tactical decisions

collaborative mechanism of a sustainable supply chain with environmental constraints and carbon caps abstract negative impacts on environment such as carbon emissions and pollution resulting from the business activities of firms in a supply chain have attracted great attention worldwide hence one of the crucial issues for supply chain management is the trade off between economic objectives and environmental sustainability this paper focuses on investigating the government policy incentive mechanism with which supply chain members are motivated to work collaboratively to reduce carbon and pollutant emissions by investing in producing environmental friendly products efp such a mechanism affects the transfer price through negotiation between the supply chain firms and consequently it has an impact on the supply chain s value transition and profit allocation a collaborative supply chain decision making framework is formulated with environmental constraints and carbon caps its objective is to maximize the net present value of an integrated supply chain as well as satisfy the interests of its individual members our key contribution lies in exploring a decision making mechanism for an environmentally sustainable supply chain that is jointly constrained by environmental carrying capacities and carbon caps and also takes into account government policy incentives the results show that collaboration between supply chain members plays a crucial role in improving their environmental performance as the transfer price is determined through negotiations to share government subsidies to satisfy the individual interests of supply chain members while the level of pollutants and carbon emissions are in compliance with environmental standards

accounting information capital investment decisions and equity valuation theory and empirical implications this paper develops a theoretical model to reexamine the roles of earnings and book value for equity valuation and to explore cross sectional differences in the properties of the valuation function ohlson 1995 and feltham and ohlson 1995 1996 show that assuming the clean surplus relation and a specific linear information dynamic equity value can be represented as a linear function of earnings and book value however recent empirical evidence indicates linear valuation functions do not fully capture the effects of earnings and book value on equity value for instance burgstahler and dichev 1997 find the valuation impact of either earnings or book value depends on the levels of these two variables and the valuation function is convex not linear similarly hayn 1995 and collins pincus and xie 1999 report that the valuation effect of earnings is asymmetric between positive and negative earnings also as collins pincus and xie 1999 show the relative and the incremental importance of earnings versus book value in explaining equity

a strategic tactical model for the supply chain design in the delocalization context mathematical formulation and a case study abstract in this paper we propose a mathematical model for the design of supply chains in the delocalization context our main objective is to develop a strategic tactical supply chain design model that integrates all the relevant components that characterize the delocalization problem we adopt the activity based approach to model the problem and we focus on the logistic decisions of activity location technology choice supplier selection etc and the financial decisions of transfer pricing transportation costs allocation etc the mathematical formulation is illustrated by a case study from the automotive sector a comparison between the model solution and the real decisions is used to prove the applicability and the utility of the proposed model

the role of co opetition in low carbon manufacturing abstract low carbon manufacturing has become a strategic objective for many developed and developing economies this study examines the role of co opetition in achieving this objective we investigate the pricing and emissions reduction policies for two rival manufacturers with different emission reduction efficiencies under the cap and trade policy we assume that the product demand is price and emission sensitive based on non cooperative and cooperative games the optimal solutions for the two manufacturers are derived in the purely competitive and co opetitive market environments respectively through the discussion and numerical analysis we uncovered that in both pure competition and co opetition models the two manufacturers optimal prices depend on the unit price of carbon emission trading in addition higher emission reduction efficiency leads to lower optimal unit carbon emissions and higher profit in both the pure competition and co petition models interestingly compared to pure competition co opetition will lead to more profit and less total carbon emissions however the improvement in economic and environmental performance is based on higher product prices and unit carbon emissions

timing and eco nomic efficiency of climate friendly investments in supply chains abstract emission trading schemes such as the european union emissions trading system euets attempt to reconcile economic efficiency with ecological efficiency by creating financial incentives for companies to invest in climate friendly innovations using real options methodology we demonstrate that under uncertainty economic and ecological efficiency continue to be mutually exclusive this problem is even worse if a climate friendly project depends on investing in of a whole supply chain we model a sequential bargaining game in a supply chain where the parties negotiate over implementation of a carbon dioxide co2 saving investment project we show that the outcome of their bargaining is not economically efficient and even less ecologically efficient furthermore we show that a supply chain becomes less economically efficient and less ecologically efficient with every additional chain link finally we make recommendations for how managers or politicians can improve the situation and thereby increase economic as well as ecological efficiency and thus also the eco efficiency of supply chains

fair transfer price and inventory holding policies in two enterprise supply chains abstract a key issue in supply chain optimisation involving multiple enterprises is the determination of policies that optimise the performance of the supply chain as a whole while ensuring adequate rewards for each participant in this paper we present a mathematical programming formulation for fair optimised profit distribution between echelons in a general multi enterprise supply chain the proposed formulation is based on an approach applying the nash bargaining solution for finding optimal multi partner profit levels subject to given minimum echelon profit requirements the overall problem is first formulated as a mixed integer non linear programming minlp model a spatial and binary variable branch and bound algorithm is then applied to the above problem based on exact and approximate linearisations of the bilinear terms involved in the model while at each node of the search tree a mixed integer linear programming milp problem is solved the solution comprises inter firm transfer prices production and inventory levels flows of products between echelons and sales profiles the applicability of the proposed approach is demonstrated by a number of illustrative examples based on industrial processes

a global supply chain model with transfer pricing and transportation cost allocation 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 ub

formation of a strategic manufacturing and distribution network with transfer prices abstract we propose a profit maximization model for the decision support system of a firm that wishes to establish or rationalize a multinational manufacturing and distribution network to produce and deliver finished goods from sources to consumers the model simultaneously evaluates all traditional location factors in a manufacturing and distribution network design problem and sets intra firm transfer prices that take account of tax and exchange rate differentials between countries utilizing the generalized benders decomposition approach we exploit the partition between the product flow and the cash allocation i e the pricing and revenue assignment decisions in the supply chain to find near optimal model solutions our proposed profit maximizing strategic planning model produces intuitive results we offer computational experiments to illustrate the potential valuable guidance the model can provide to a firm s supply chain design strategic planning process

an operational profit sharing and transfer pricing model for network manufacturing companies abstract new age companies are forging partnerships with other firms 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

decentralization and transfer pricing under oligopoly this paper presents a simple model of a partially decentralized multinational firm mnf in competition with a rival firm it is shown that transfer pricing can be used as a rent shifting device by the mnf to compete with the rival this arises because the mnf headquarters uses the transfer price to manage different subsidiaries the specific value of the transfer price chosen by the mnf depends on whether the rival firm produces the intermediate good the final good or both and whether the rival is integrated or not in particular both decentralization and competition with a fully integrated rival result in lower transfer prices

gray market trade with product information service in global supply chains abstract this paper investigates the economic effects of a product information service when potential consumers who are segmented by their taste exist in gray markets specifically we construct an economic model that considers a multinational firm mnf who expands business to a country and chooses whether to provide information service regarding product characteristics if receiving the information consumers in a specific segment whose taste suits the characteristics have positive utility from consuming the product while those in other segments have no utility by contrast consumers in all segments have positive expected utility before consuming the product without information with these settings we demonstrate that there arises the equilibrium that the mnf provides no information service when gray market trade i e parallel trade is allowed in the country leading to lower consumer welfare than when it is prohibited a primary finding in the equilibrium is that such a situation arises especially when potential consumers are less segmented in this situation the regulator in the country should ban the parallel imports so as to enhance consumer welfare the result is counterintuitive and notable because one might intuitively infer that gray market trade is less desirable when customers are more minutely segmented and the product information service is thus more specific and necessary

changes in accrual properties and operating environment implications for cash flow predictability abstract this paper reconciles conflicting evidence in prior literature on the relative ability of earnings and cash flows in predicting future cash flows further we investigate the implications of temporal shifts in accrual properties and operating environment for cash flow predictability three key insights emerge first cash flows consistently outperform earnings in predicting future cash flows second accruals and its components including those capturing non articulating events have incremental albeit small predictive ability over cash flows third earnings ability to predict future cash flows has increased over the period 1989 2015 due to changes in operating environment rather than accrual properties

integration of financial statement analysis in the optimal design of supply chain networks under demand uncertainty abstract models that aim to optimize the design of supply chain networks have become a mainstream in the supply chain literature this paper aims to fill a gap in the literature by introducing a mathematical model that integrates financial considerations with supply chain design decisions under demand uncertainty the proposed mixed integer linear programming milp problem enchases financial statement analysis through financial ratios and demand uncertainty through scenario analysis the applicability of the model is illustrated by using a case study along with a sensitivity analysis on financial parameters expressing the business environment the model could be used as an effective and convenient strategic decision tool by supply chain managers

uncertainty resolution and the theory of depreciation measurement this paper examines how a firm s depreciation policy influences the relation between the resulting accounting numbers and the market value of the firm s equity traditional financial accounting theory conceptualizes depreciation measurement as a cost allocation procedure that matches an investment s cost with the flow of benefits it produces as has long been recognized in a setting with certain future cash flows and zero net present value npv investments investment costs can be allocated using standard present value techniques to yield at each date book values equal to market values and accounting earnings equal to economic earnings 2 the resulting book value and accounting earnings numbers are such that for all periods the book rate of return equals the cost of

transfer pricing mechanisms an experimental investigation abstract this study evaluates in a laboratory setting the performance of the ronen and mckinney 1970 and the ronen 1992 transfer pricing schemes both mechanisms possess in theory the property of inducing efficient production and truth telling while decision making autonomy is maintained the ronen mckinney scheme however allows for multiple nash equilibria and if the divisions managers coordinate their messages they are expected to exploit the mechanism at the expense of the overall profitability of the firm the ronen 1992 scheme was designed to prevent this towards this end a penalty factor was incorporated into the original ronen mckinney scheme to make truth telling and optimal production a unique equilibrium the basic results are that under the ronen mckinney scheme and with coordination of messages being allowed subjects collude and earn significantly higher profits than amounts implied by the overall optimal solution without the penalty factor subjects seemed not to converge towards the efficient level of transacting at the end of the experiment it is not clear whether with additional trials such conversion would have occurred the inclusion of the penalty factor however eliminated the collusive behaviour in fact most of the pairs implementing the ronen mechanism reached the efficiency predicted by the theory whether or not coordination of messages was allowed

modeling and design of global logistics systems a review of integrated strategic and tactical models and design algorithms the overall focus of this research is to demonstrate the savings potential generated by the integration of the design of strategic global supply chain networks with the determination of tactical production distribution allocations and transfer prices the logistics systems design problem is defined as follows given a set of potential suppliers potential manufacturing facilities and distribution centers with multiple possible configurations and customers with deterministic demands determine the configuration of the production distribution system and the transfer prices between various subsidiaries of the corporation such that seasonal customer demands and service requirements are met and the after tax profit of the corporation is maximized the after tax profit is the difference between the sales revenue minus the total system cost and taxes the total cost is defined as the sum of supply production transportation inventory and facility costs two models and their associated solution algorithms will be introduced the savings opportunities created by designing the system with a methodology that integrates strategic and tactical decisions rather than in a hierarchical fashion are demonstrated with two case studies the first model focuses on the setting of transfer prices in a global supply chain with the objective of maximizing the after tax profit of an international corporation the constraints mandated by the national taxing authorities create a bilinear programming formulation we will describe a very efficient heuristic iterative solution algorithm which alternates between the optimization of the transfer prices and the material flows performance and bounds for the heuristic algorithms will be discussed the second model focuses on the production and distribution allocation in a single country system when the customers have seasonal demands this model also needs to be solved as a subproblem in the heuristic solution of the global transfer price model the research develops an integrated design methodology based on primal decomposition methods for the mixed integer programming formulation the primal decomposition allows a natural split of the production and transportation decisions and the research identifies the necessary information flows between the subsystems the primal decomposition method also allows a very efficient solution algorithm for this general class of large mixed integer programming models data requirements and solution times will be discussed for a real life case study in the packaging industry 2002 elsevier science b v all rights reserved

revenue sharing coordination in reverse logistics a reverse supply chain as a post consumption activity aims at extracting value from products at the end of their life cycle it could be comprised of reusing refurbishing remanufacturing and recycling activities in this paper we revisit the issue of revenue sharing in reverse supply chains to formulate the decision problems of coordinating parties manufacturer and retailer the coordination is formed in a dynamic setting where a feedback relationship exists between the return incentive policy of the retailer and the revenue sharing incentive strategy of the manufacturer to model this process we have adopted the use of a system dynamics sd approach sd is well suited for studying the behavior of complex systems over time and where internal feedbacks and delays exist we first identify pareto optimal solutions for individual players and from environmental perspectives of landfill diversion and carbon offset we then focus on revenue sharing as a widely practiced coordination scheme in reverse supply chains it resembles a leader follower stackelberg strategic decision making game with an equilibrium solution that yields lower performance for environmental criteria in this context we investigate if how a revenue sharing mechanism can be coordinated to achieve a higher environmental performance

tactical supply chain planning under a carbon tax policy scheme a case study greenhouse gas emissions are receiving greater scrutiny in many countries due to international forces to reduce anthropogenic global climate change industry and their supply chains represent a major source of these emissions this paper presents a tactical supply chain planning model that integrates economic and carbon emission objectives under a carbon tax policy scheme a modified cross entropy solution method is adopted to solve the proposed nonlinear supply chain planning model numerical experiments are completed utilizing data from an actual organization in australia where a carbon tax is in operation the analyses of the numerical results provide important organizational and policy insights on 1 the financial and emissions reduction impacts of a carbon tax at the tactical planning level 2 the use of cost emission tradeoff analysis for making informed decisions on investments 3 the way to price carbon for maximum environmental returns per dollar increase in supply chain cost

the relevance of the value relevance literature for financial accounting standard setting another view this paper explains that value relevance research assesses how well accounting amounts reflect information used by equity investors and provides insights into questions of interest to standard setters a primary focus of financial statements is equity investment other uses of financial statement information such as contracting do not diminish the importance of value relevance research value relevance questions can be addressed using extant valuation models value relevance studies address econometric issues that otherwise could limit inferences and can accommodate and be used to study the implications of accounting conservatism r 2001 elsevier science b v all rights reserved jel classification m41 m44 g12

intrafirm trade arm s length transfer pricing rule and coordination failure abstract this paper demonstrates that uniform imposition of the arm s length principle on transfer pricing leads to coordination failure among countries in terms of economic welfare if the countries trade products in the form of intrafirm transactions by multinational firms mnfs to highlight this implication we first show that imposition of the arm s length principle on an mnf induces it to transfer a product among subordinate divisions at marginal cost i e the competitive price which is consistent with the purpose of the principle nonetheless if regulators in each country impose the principle on mnfs all of the following economic welfare measures decrease compared with the situation where the principle is not imposed 1 consumer welfare in each of the trading countries 2 profit of each mnf and thus 3 total world economic welfare this result indicates that it is possible that enforcement of the principle has no positive effect at all in the world because economic welfare of all economic agents deteriorates when the principle is imposed a numerical analysis demonstrates that this possibility arises in a broad range of circumstances even including the situation where a giant economic world power and a small underdeveloped country mutually trade products in these circumstances an agreement among trading countries that no country imposes the arm s length principle may encourage pareto improvement of the world economy

a multi objective stochastic programming approach for supply chain design considering risk abstract in this paper we develop a multi objective stochastic programming approach for supply chain design under uncertainty demands supplies processing transportation shortage and capacity expansion costs are all considered as the uncertain parameters to develop a robust model two additional objective functions are added into the traditional comprehensive supply chain design problem so our multi objective model includes i the minimization of the sum of current investment costs and the expected future processing transportation shortage and capacity expansion costs ii the minimization of the variance of the total cost and iii the minimization of the financial risk or the probability of not meeting a certain budget the ideas of unreliable suppliers and capacity expansion after the realization of uncertain parameters are also incorporated into the model finally we use the goal attainment technique to obtain the pareto optimal solutions that can be used for decision making

a holistic framework for short term supply chain management integrating production and corporate financial planning abstract traditional approaches for scm usually focus on process operations and neglect the financial side of the problem in this work we present a novel approach for holistically optimizing the combined effects of operations and finances in scm to achieve such integration between different business areas it is derived an integrated model for scm which incorporates process operations as well as budgetary constraints the novelty of this formulation lies not only in the insertion of financial aspects within a sc planning formulation but also in the choice of a financial performance indicator i e the change in equity as the objective to be optimized in the integrated model the main advantages of this mathematical formulation are highlighted through a case study in which the results obtained by the integrated model are compared with those computed by the traditional sequential strategy in which the operations are firstly computed and the finances are fitted afterwards the obtained results show the importance of devising broader modeling systems for scm leading to increased overall earnings and providing further insights on the interactions between operations and finances

tariff concessions in production sourcing in this paper we study a multi stage production sourcing problem where tariff concessions can be exploited at the firm level using free trade agreements between countries to solve the problem an algorithm which embeds a very large scale neighborhood vsln search into a simulated annealing framework is developed a numerical study is conducted to verify the effectiveness of the solution approach

performance evaluation and a flow allocation decision model for a sustainable supply chain of an apparel industry abstract there is a growing concern that business enterprises and their supply chains focus primarily on economic activities and ignore their impact on the environment and society this paper aims to help decision makers managers and practitioners to achieve economic growth societal development and environmental protection by developing sustainable supply chain performance measures and proposes a partner selection and flow allocation decision making model survey data from 278 business organizations from the indian apparel industry supply chain network were used and an integrated method of structural equation modeling fuzzy analytical hierarchy process and fuzzy multi objective linear programming was applied to the proposed model the results of the structural equation modeling analysis indicate that the survey respondents considered sustainable production performance to be of prime importance which thus indicates its significance in developing a sustainable supply chain for the apparel industry to illustrate the use of the proposed model for partner selection and flow allocation decision making real time data from an apparel manufacturer are presented optimal results were obtained for two strategies sustainability and cost saving to show a cost benefit trade off when developing a sustainable supply chain using comparative performance a decision maker can choose an appropriate strategy based on cost benefit analysis of the presented trade offs

a microcredit contract model with a black scholes model under default risk microfinance has emerged as a new promise for alleviating poverty and improving the limited access to financial services by offering small loans with no pledged collateral requirement to the poor due to the unique features of microfinance the credit relationship between the lender and the borrower is considered to be the foundation of the business based on the concept of supply chain microfinance this paper develops scenario based stochastic microcredit contract models for a group case in order to obtain a minimum interest rate a black scholes debt model estimates volatility directly from market observable returns on a borrower s equity next incorporating the minimum interest rate the stochastic microcredit models are developed to calculate a proper interest rate while maintaining the financial sustainability of a corporation the stochastic microcredit models also include financial statement analysis through financial ratios to reflect the microfinance business environment through the comparison of the effect of cash flow bullwhip this study illustrates that the proposed model has the potential to decrease the bullwhip effect by determining a proper interest rate in microcredit the proposed models could be used by microfinance institutions as an effective credit risk tool

joint inventory and cash management for multidivisional supply chains this paper develops a centralized supply chain model that integrates material flows with cash flows the supply chain is owned by a single firm with two divisions the downstream division headquarters facing random customer demand replenishes materials from the upstream division the firm installs a financial services platform that pools the divisions cash into a master account managed by the headquarters in each period cash is received from customers and paid to the outside vendor after materials are delivered the headquarters determines how much cash to retain for inventory replenishment the objective is to determine an optimal joint inventory replenishment and cash retention policy for the entire supply chain we prove that the optimal policy has a surprisingly simple structure both divisions implement a base stock policy for inventory replenishment the headquarters monitors the corporate working capital and implements a two threshold policy for cash retention this result is obtained by exte

depreciation rules and the relation between marginal and historical cost the reported cost of a product frequently contains historical cost com ponents that reflect past investments in productive capacity we examine a setting wherein a firm makes a sequence of overlapping capacity investments earlier research has identified particular accrual accounting depreciation rules with the property that on a per unit basis the historical cost of a product captures precisely its marginal cost relative to this benchmark we investigate and characterize the direction and magnitude of the bias in reported histori cal cost that results from alternative depreciation rules including in particular straight line depreciation in conjunction with partial direct expensing in ad dition we demonstrate that for a reasonable range of parameter specifications the resulting bias is rather small finally we apply our framework to two spe cific settings first in a regulatory context we establish the extent to which the accounting profit margin is indicative of a firm s pricing power in the product market second we model an internal control scenario in which a manager s performance is evaluated using residual income and identify the distortions in investment levels that result from the use of alternative depreciation rules

a hierarchical process industry production distribution planning model abstract global and multinational companies are subject to government regulations in addition to other international uncertainties due to operation in diverse geographic locations such government regulations often affect the cost of raw materials adversely which in turn creates adverse impact on product cost and forces the decision makers to re evaluate current production distribution plan this paper presents an integrated supply chain model for simultaneous strategic and operational planning of a strategic business unit sbu in a global supply chain affected by government regulations the model incorporates impact of changes in cost of inputs on expected product cost and solves for an optimal strategic and operational plan for the entire supply chain in addition the model includes exchange rates border crossing costs and solves a multi period model with due consideration of uncertainties in demand and transportation time

are cyclical fluctuations in productivity due more to supply shocks or demand shocks measured productivity is strongly procyclical real business cycle theories suggest that actual fluctuations in productivity are the source of fluctuations in aggregate output keynesian theories maintain that fluctuations in aggregate output come from shocks to aggregate demand keynesian theories appeal to labor hoarding or off the production function behavior to explain the procyclicality of productivity if observed productivity shocks are true productivity shocks a function of factor prices should covary exactly with productivity in annual data for united states industries that function of factor prices and conventionally measured productivity move together very closely moreover their difference is uncorrelated with aggregate output this abstract was borrowed from another version of this item

supply chain coordination with green technology under cap and trade regulation abstract cap and trade regulation is generally accepted as one of the most effective market based mechanisms to curb carbon emissions in this paper we study the production and emission abatement decisions of a make to order supply chain consisting of a manufacturer and a retailer under cap and trade regulation specifically the manufacturer can reduce unit product carbon emission by using green technology with the cooperation of a retailer by certain contracts who sell the products to environment concerned consumers wholesale price and cost sharing contracts are considered in the supply chain we list some main conclusions here first as carbon trading price increases the optimal production quantities the optimal abatement levels firstly decrease increase and then remain constant second both wholesale price and cost sharing contracts can coordinate the supply chain last combining the optimal operational decisions under the two contracts with two part tariff agreement we design a contract in which the retailer pays a lump fee to the manufacturer and find that there is an interval of the lump fee to achieve pareto improvement for the two firms

determining intra company transfer pricing for multinational corporations abstract although significant attention has been paid to transfer pricing the pricing of intermediate products sold between different divisions within one company the focus has been limited to tax minimization within regulatory boundaries this paper presents a comprehensive model that aims to determine the optimal transfer price for a multinational corporation mnc to maximize the entire organization s profit the model considers the situation in which intermediate products are sold from the mnc s selling divisions to buying divisions the buying divisions further process these intermediate products to produce final products the final products are then sold in both selling divisions and buying divisions across the mnc s global locations in contrast to the existing literature our innovative model incorporates elements such as international transportation costs holding costs taxes tariffs including the introduction of a second tariff and exchange rates this paper also provides managerial insights about the impact of setting transfer prices in different currencies on the variance of each division s profit given exchange rate uncertainty

supply chain downsizing under bankruptcy a robust optimization approach research on supply chain network design has mainly pursued efficiency oriented objectives for boosting service level and profit however the priority of an enterprise facing bankruptcy pressure shifts to fulfill debt obligation with limited financial resources and survive downsizing in this paper we define a supply chain downsizing problem scdp under bankruptcy as streamlining a supply chain network in order to balance a business survival and its long term profitability we formulate a mixed integer programming mip model with specific downsizing features which maximizes the utilization of investment resources through a combined operation of demand selection and production assets reallocation the corresponding robust counterparts of the mip model are further developed based on robust optimization techniques for dealing with uncertainties of demands and exchange rates we analyze and validate the proposed downsizing mip model with a series of systematically generated test cases while its robust counterparts are studied extensively using a large generated case the findings demonstrate the value of our approach in discovering detailed downsizing plans in magnitude and direction and provide valuable insight into how financial debt payback could be arranged and in a unique way show managers how the reconfigured downsized network would mitigate and lead to a sustainable and higher economic value supply chain

carbon pricing versus emissions trading a supply chain planning perspective abstract carbon pricing taxes and carbon emissions trading are two globally practiced carbon regulatory policy schemes this paper presents an analytical supply chain planning model that can be used to examine the supply chain performance at the tactical operational planning level under these two policy schemes model implementation and analyses are completed using actual data from a company operating in australia where these environmental regulatory policies are practiced numerical results provide important managerial and practical implications and policy insights in particular the results show that there are inflection points where both carbon pricing and trading schemes could influence costs or emissions reductions an erratic nonlinear emissions reduction trend is observed in a carbon pricing scheme as the carbon price increases steadily whereas emissions reduction in a carbon trading scheme follows a relatively linear trend with a nonlinear cost increase overall a carbon trading mechanism although imperfect appears to result in better supply chain performance in terms of emissions generation cost and service level even though a carbon tax may be more worthwhile from an uncertainty perspective as emissions trading costs depend on numerous uncertain market conditions

productivity shocks and business cycles this note uses two measures of productivity growth the solow residual and the dual residual from the cost function to test competing theories of the cycle in a number of oecd countries the empirical results indicate that both demand and supply shocks play a role in driving economic cycles and therefore refute the stronger real business cycle hypothesis

on delineating supply chain cash flow under collectionrisk abstract the credit terms for accounts receivable ar offered by sellers to buyers not only create a time lag between supply chain physical flow and cash flow but also increase the collection risk contributed by late collection and default previous studies describing the relationship between the two major supply chain flows did not consider the collection risk which poses a serious challenge to companies with limited cash resources when seeking growth opportunities in sales this study first delineates the relationship between the two flows during a growth period without imposing any constraints a stochastic optimization model is then developed to observe the managerial implications of cash flow risk under tight cash constraints

econometrics of the basu asymmetric timeliness coefficient and accounting conservatism a substantial literature investigates conditional conservatism defined as asymmetric accounting recognition of economic shocks news and how it depends on various market political and institutional variables studies typically assume the basu 1997 asymmetric timeliness coefficient the incremental slope on negative returns in a piecewise linear regression of accounting income on stock returns is a valid conditional conservatism measure we analyze the measure s validity in the context of a model with accounting income incorporating different types of information with different lags and with noise we demonstrate that the asymmetric timeliness coefficient varies with firm characteristics affecting their information environments such as the length of the firm s operating and investment cycles and its degree of diversification we particularly examine one characteristic the extent to which unbooked information such as revised expectations about rents and growth options is independent of other information and discuss the conditions under which a proxy for this characteristic is the market to book ratio we also conclude that much criticism of the basu regression misconstrues researchers objectives

the multinational firm with arm s length transfer price limits abstract a multinational firm faced with arm s length limitations on its transfer prices is examined where the limitations are determined by the firm s marginal cost and intracountry prices such a firm is shown to manipulate its production and sales in order to gain a more desirable transfer price comparative static results develop policy implications not found in simpler models which often assume the firm to be constrained by arm s length limits but to be unaware of the effects of its actions on the limits

a market driven transfer price for distributed products using mathematical programming a distributed product has its manufacturing activities distributed among many locations these locations could belong to one or more firms in a manufacturing network often components needed to manufacture a distributed product move through different nodes in the network and sometimes across international borders hence a transfer price is needed for the purpose of estimating duties and drawbacks being aware of the fact that transfer price can be used to manipulate taxable profits many countries have instituted rules concerning transfer price estimation for example in the united sates the internal revenue service irs says that the right price is the market value but for many components it is difficult to find a free market similar products may exist in the market but they may have different attributes in such cases it is important to be able to estimate the market driven transfer price given other similar products in the open market we develop a method using a mathematical programming model and providing companies an opportunity to work proactively with the irs in a cooperative manner in order to avoid costly audit and litigation this way companies avoid penalties and also gain certainty regarding tax liability an example illustrating the method is presented

on integrating theories of international economics in the strategic planning of global supply chains and facility location abstract this paper relates three theories of international economics comparative advantage competitive advantage and competitiveness and formulates the thesis that incorporating them in the form of readily available individual competitiveness indicators in or ms models offers promise to enhance decision support for the strategic planning of global supply chains in general and for locating facilities in particular the purpose of this paper is to relate these theories from the field of international economics to give a roadmap of related measures that are provided by annual competitiveness reports and to pose several research questions as challenges to the or ms community as it seeks to improve models to support the strategic planning process accordingly specific objectives of this paper are to relate each of these theories and to describe their interrelationships to describe measures provided by two well known annual competitiveness reports and to illustrate application of the theories as a means of supporting the thesis of the paper and justifying the research questions we pose for future research while this paper discusses topics relative to the broader background of global supply chain design it illustrates applications associated with facility location a component of the global supply chain design since it has a rich history within the or ms community and since it is central to strategic planning in the global economy

valuing operational flexibility under exchange rate risk in this paper we develop a stochastic dynamic programming formulation for the valuation of global manufacturing strategy options with switching costs overall we adopt a hierarchical approach first exchange rates are modeled as stochastic diffusion processes that exhibit intercountry correlation second the firm s global manufacturing strategy determines options for alternative product designs as well as supply chain network designs product options introduce international supply flexibility supply chain network options determine the firm s manufacturing flexibility through production capacity and supply chain network linkages third switching costs determine the cost of operational hedging i e the costs associated with reducing downside risks overall the firm maximizes its expected discounted global after tax value through the exercise of product and supply chain network options and or through exploitation of operational flexibility contingent on exchange rate realizations in this environment the firm must trade off fixed operating costs switching costs and the economic benefits derived from exploiting differentials in factor costs and corporate tax rates a multinomial approximation of correlated exchange rate processes is proposed that leads to a consistent and tractable lattice model for this compound option valuation problem we then demonstrate how the global manufacturing strategy planning model framework can be utilized to analyze financial and operational hedging strategies

competition in multiechelon assembly supply chains in this paper we study competition in multiechelon supply chains with an assembly structure firms in the supply chain are grouped into homogenous sectors nodes that contain identical firms with identical production capabilities that all produce exactly one undifferentiated product that may itself be a kit of components each sector may use several inputs to produce its product and these inputs are supplied by different sectors the production process within any sector is taken to be pure assembly in fixed proportions the number of firms in each sector is known the demand curve for the final product is assumed to be linear as are production costs in all sectors competition is modeled via a coordinated successive cournot model in which firms choose production quantities for their downstream market so as to maximize profits given prices for all inputs and all complementary products production quantities for sectors supplying the same successor are coordinated through pricing mechanisms so that complementary products are produced in the right proportions under these assumptions equilibrium prices for any multiechelon assembly network are characterized by a system of linear equations we derive closed form expressions for equilibrium quantities and prices in any two stage system i e a system with multiple input sectors and a single assembly sector we show that any assembly structure can be converted to an equivalent larger structure in which no more than two components are assembled at any node finally large structures can be solved either by direct solution of the characteristic linear equations or through an iterative reduction compression to smaller structures

valuation and accounting for inflation and foreign exchange inflation and foreign exchange raise new issues with respect to accounting representations of equity value for example inflation creates an earnings illusion as an artifact of the mismatching of expenses based on allocations of historical costs with current revenues in determining earnings this mismatching distorts mappings of aggregate earnings and book values into equity value such that value relevant information is lost in this article we consider the consequences of inflation and foreign exchange accounting policies including those contained in accounting standards on the value relevance of bottom line accounting numbers policies are identified that achieve efficient accounting in the sense that aggregate comprehensive earnings and book values are sufficient for an accounting representation of equity value the linear relations that emerge provide predictions on capitalization coefficients that help explain results of empirical inquiries as well our analysis provides a theoretical foundation for policies contained in accounting standards that contributes to the resolution of controversies such as that concerning foreign exchange accounting

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

offshoring and outsourcing in a global supply chain impact of the arm s length regulation on transfer pricing abstract we consider the structure of a global supply chain for operational decisions in a multinational firm mnf with tax considerations the mnf consists of two divisions one for production and the other for retailing while the retail division of the mnf and the market for its product is located in a domestic country the production division may be located in either the domestic high tax country or a foreign low tax country when the two divisions of a mnf are co located in the domestic country the firm enjoys the benefit of a centralized operational decision on the order quantity to maximize its total profit although there is no tax saving opportunity on the other hand a mnf can enjoy a tax saving benefit when offshoring its production division to a low tax country although its operational decision on the order quantity is decentralized which is harmful to the supply chain profit due to double marginalization the mnf may further pursue the low procurement cost of its retail division by allowing the retail division to search for an outsourcing opportunity from an outside supplier however outsourcing can hurt the profit of the mnf from the loss of the production division due to competition with outside suppliers we analyze the trade offs in the mnf s optimal choice of supply chain structure in addition we incorporate a regulation on the mnf s internal transaction by tax authorities which is commonly called the arm s length regulation we study how the mnf s choice of the operational structure of its supply chain changes in consideration of this regulation our results suggest that tax considerations deserve attention from managers when designing the supply chain structure

transfer pricing and decentralized dynamic lot sizing in multistage multiproduct production processes abstract this paper presents the use of a transfer pricing system to coordinate business units in a wagner whitin type model for a decentralized lot sizing problem in a dynamic multistage multiproduct environment the paper includes two major proofs 1 a transfer pricing system enabling optimal decentralized lot sizing is characterized the transfer pricing system can be interpreted as a generalization of the reciprocal method or step down allocation method in cost location accounting and 2 based on a wagner whitin type theorem and the kakutani fixed point theorem it is shown that such a transfer pricing system exists

an integrated plant loading model with economies of scale and scope abstract this paper presents a new formulation of a class of plant product mix loading problems which are characterized by fixed facility costs concave production costs and an integrated network structure which encompasses inbound supply and outbound distribution flows in particular we are interested in assigning product lines and volumes to a set of capacitated plants fixed costs are incurred when a product line is assigned to a plant the production cost function also exhibits concavity with respect to each product line volume thus both scale and scope economies are considered explicitly in the model the problem formulation leads to a concave mixed integer mathematical program we develop an optimization algorithm within the framework of benders decomposition for the case of a piecewise linear concave cost function our algorithm generates optimal solutions efficiently the problem solutions also illustrate how our model is effective in evaluating tradeoffs between inbound production and outbound costs finally the model is used to illustrate the impact of various cost factors logistics scale and complexity on optimal product mix solutions