Supply chain networks design and transfer-pricing

Purpose – The purpose of this paper is to provide a new modelling framework for distribution network strategy and to study how various transfer-pricing schemes cope with stochastic demand under different countries tax policies. Design/methodology/approach – Use is made of real options to quantify the available options for supply chain network design. The application of real options approach relies on three main conditions, such as the existence of uncertainty (market), flexibility (different network design) and irreversibility (investments) in the decision process. Findings – Evaluation of the potential impact of changes in local tax policies on long-run plant and distribution centers location decisions. A more intensive tax regime tends to promote changes in the distribution network that support multinational companies. In high uncertain markets, the options to change the network are more attractive – uncertainty is linked with an increase in flexibility. Practical implications – The present study provides decision makers with a useful tool for supporting the design of global logistics networks, considering different scenarios and therefore determines a more after-taxes profitable logistics network configuration. Originality/value – Integrate financial issues while studying different scenarios for supply chain network designs. It presents a model that focus on distribution network design considering transfer-pricing methods as decision variables and aiming after-taxes bottom-line results maximization. There are relatively few “reported” implementations of global profit maximization models for large-scale networks. Thus, we believe that the implementation of global profit maximization models represents a potentially significant unrealized opportunity worthy of serious consideration by many firms.