A tax integrated approach for global supply chain network planning

Balaji, K and Viswanadham, N (2008) A tax integrated approach for global supply chain network planning. IEEE Transactions on Automation Science and Engineering, 5 (4). pp. 587-596. ISSN 1558-3783

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Globalization is here to stay. Companies source, manufacture, and sell across borders. There are several destinations available for undertaking these activities offering varying degrees of incentives and at each destination the company incurs a different delivery cost. Multinational companies need to make more realistic decisions about where to make, source, locate, move, and store products to minimize the total cost of delivery keeping in mind the incentives offered by the governments and the logistics costs at and from the location. Current literature on supply chain optimization does not emphasize on tax. To attract foreign investment, many developing economies have included tax-holidays in their export-import (EXIM) policy for companies operating in free trade zones (FTZs). In this paper, we propose a tax integrated mixed integer model, for optimally deciding the foreign direct investment (FDI)-outsourcing (the choice of establishing captive production centers versus complete outsourcing) alternatives at the various stages of a global supply chain. For a general acyclic supply chain, this decision problem is NP-hard and obtaining analytical results on optimal FDI-outsourcing strategy may be difficult. We linearize the tax integrated model by introducing exactly one hub at each stage. In this case, termed hub-based sourcing - single hub case, we prove that the greedy strategy is an optimal FDI-outsourcing strategy. However, by associating multiple hubs at each stage the decision problem remains NP-hard. Finally, we empirically analyze the tax integrated model (for the general case) on a use-case scenario in which some locations in the choice have free trade zones offering tax incentives.

Item Type: Article
Subjects: Operations Management > Supply Chain Management
Date Deposited: 31 Oct 2014 19:29
Last Modified: 12 Jul 2023 19:03
URI: https://eprints.exchange.isb.edu/id/eprint/99

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