Redesign of global supply chains with integration of transfer pricing: Mathematical modeling and managerial insights

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).