A global supply chain model with transfer pricing and transportation cost allocation |
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Affiliation: | 1. Institute of Game Behavior and Operations Management, Nanjing University of Finance and Economics, Nanjing 210046, China;2. School of Management Science and Engineering, Nanjing University, Nanjing 210093, China;3. Tuchman School of Management, New Jersey Institute of Technology, University Heights, Newark, NJ 07102, USA |
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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). |
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