Role of transfer prices in global supply chains with random demands

Previous Article
Capacitated requirements planning with pricing flexibility and general cost and revenue functions
JIMO Home
This Issue
Next Article
General integro-differential equations and optimal controls on Banach spaces

January 2007, 3(1): 99-117. doi: 10.3934/jimo.2007.3.99

Role of transfer prices in global supply chains with random demands

Masha Shunko ^1, and Srinagesh Gavirneni ^2,

1.	Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA 15213, United States
2.	Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853, United States

Received October 2005 Revised June 2006 Published January 2007

Abstract
Related Papers

Transfer prices are an effective strategy for improving the after-tax profits of global supply chains with differential tax rates. Rigorous evidence of their effectiveness has been established by many researchers for deterministic settings. To the best of our knowledge, there has been no research studying the impact of transfer prices in stochastic supply chain settings. We attempt to fill this void by studying a two-stage supply chain in which the end-customer demand is random. This forces the retailer to behave like a newsvendor and balance overage costs with underage costs. Using a combination of analytical and computational techniques, we show that randomness in a supply chain magnifies the impact of transfer prices. We analyze possible reasons behind this behavior and also summarize the impact of various supply chain parameters (customer base, price elasticity, overage and underage costs, etc.) on the magnitude of profit improvement.

Keywords: Transfer Pricing., Taxation, Supply Chain Management.

Mathematics Subject Classification: Primary: 90B05, Secondary: 65C2.

Citation: Masha Shunko, Srinagesh Gavirneni. Role of transfer prices in global supply chains with random demands. Journal of Industrial & Management Optimization, 2007, 3 (1) : 99-117. doi: 10.3934/jimo.2007.3.99

[1]	Yeong-Cheng Liou, Siegfried Schaible, Jen-Chih Yao. Supply chain inventory management via a Stackelberg equilibrium. Journal of Industrial & Management Optimization, 2006, 2 (1) : 81-94. doi: 10.3934/jimo.2006.2.81
[2]	Jingming Pan, Wenqing Shi, Xiaowo Tang. Pricing and ordering strategies of supply chain with selling gift cards. Journal of Industrial & Management Optimization, 2018, 14 (1) : 349-369. doi: 10.3934/jimo.2017050
[3]	Mitali Sarkar, Young Hae Lee. Optimum pricing strategy for complementary products with reservation price in a supply chain model. Journal of Industrial & Management Optimization, 2017, 13 (3) : 1553-1586. doi: 10.3934/jimo.2017007
[4]	Lisha Wang, Huaming Song, Ding Zhang, Hui Yang. Pricing decisions for complementary products in a fuzzy dual-channel supply chain. Journal of Industrial & Management Optimization, 2019, 15 (1) : 343-364. doi: 10.3934/jimo.2018046
[5]	Amin Aalaei, Hamid Davoudpour. Two bounds for integrating the virtual dynamic cellular manufacturing problem into supply chain management. Journal of Industrial & Management Optimization, 2016, 12 (3) : 907-930. doi: 10.3934/jimo.2016.12.907
[6]	Jun Li, Hairong Feng, Kun-Jen Chung. Using the algebraic approach to determine the replenishment optimal policy with defective products, backlog and delay of payments in the supply chain management. Journal of Industrial & Management Optimization, 2012, 8 (1) : 263-269. doi: 10.3934/jimo.2012.8.263
[7]	Ali Naimi Sadigh, S. Kamal Chaharsooghi, Majid Sheikhmohammady. A game theoretic approach to coordination of pricing, advertising, and inventory decisions in a competitive supply chain. Journal of Industrial & Management Optimization, 2016, 12 (1) : 337-355. doi: 10.3934/jimo.2016.12.337
[8]	Xiaohong Chen, Kui Li, Fuqiang Wang, Xihua Li. Optimal production, pricing and government subsidy policies for a closed loop supply chain with uncertain returns. Journal of Industrial & Management Optimization, 2017, 13 (5) : 1-26. doi: 10.3934/jimo.2019008
[9]	Jiuping Xu, Pei Wei. Production-distribution planning of construction supply chain management under fuzzy random environment for large-scale construction projects. Journal of Industrial & Management Optimization, 2013, 9 (1) : 31-56. doi: 10.3934/jimo.2013.9.31
[10]	Juliang Zhang, Jian Chen. Information sharing in a make-to-stock supply chain. Journal of Industrial & Management Optimization, 2014, 10 (4) : 1169-1189. doi: 10.3934/jimo.2014.10.1169
[11]	Juliang Zhang. Coordination of supply chain with buyer's promotion. Journal of Industrial & Management Optimization, 2007, 3 (4) : 715-726. doi: 10.3934/jimo.2007.3.715
[12]	Na Song, Ximin Huang, Yue Xie, Wai-Ki Ching, Tak-Kuen Siu. Impact of reorder option in supply chain coordination. Journal of Industrial & Management Optimization, 2017, 13 (1) : 449-475. doi: 10.3934/jimo.2016026
[13]	Liping Zhang. A nonlinear complementarity model for supply chain network equilibrium. Journal of Industrial & Management Optimization, 2007, 3 (4) : 727-737. doi: 10.3934/jimo.2007.3.727
[14]	Joseph Geunes, Panos M. Pardalos. Introduction to the Special Issue on Supply Chain Optimization. Journal of Industrial & Management Optimization, 2007, 3 (1) : i-ii. doi: 10.3934/jimo.2007.3.1i
[15]	Jia Shu, Jie Sun. Designing the distribution network for an integrated supply chain. Journal of Industrial & Management Optimization, 2006, 2 (3) : 339-349. doi: 10.3934/jimo.2006.2.339
[16]	Jun Pei, Panos M. Pardalos, Xinbao Liu, Wenjuan Fan, Shanlin Yang, Ling Wang. Coordination of production and transportation in supply chain scheduling. Journal of Industrial & Management Optimization, 2015, 11 (2) : 399-419. doi: 10.3934/jimo.2015.11.399
[17]	Feimin Zhong, Wei Zeng, Zhongbao Zhou. Mechanism design in a supply chain with ambiguity in private information. Journal of Industrial & Management Optimization, 2017, 13 (5) : 1-27. doi: 10.3934/jimo.2018151
[18]	Kun Fan, Yang Shen, Tak Kuen Siu, Rongming Wang. On a Markov chain approximation method for option pricing with regime switching. Journal of Industrial & Management Optimization, 2016, 12 (2) : 529-541. doi: 10.3934/jimo.2016.12.529
[19]	Binbin Cao, Zhongdong Xiao, Xiaojun Li. Joint decision on pricing and waste emission level in industrial symbiosis chain. Journal of Industrial & Management Optimization, 2018, 14 (1) : 135-164. doi: 10.3934/jimo.2017040
[20]	Nina Yan, Baowen Sun. Comparative analysis of supply chain financing strategies between different financing modes. Journal of Industrial & Management Optimization, 2015, 11 (4) : 1073-1087. doi: 10.3934/jimo.2015.11.1073

2018 Impact Factor: 1.025

American Institute of Mathematical Sciences