Emerald Management Reviews

Design/methodology/approach - Reviews the literature on transfer pricing in finance, economics, managerial cost accounting, and global supply chain management. Constructs a profit maximization model that evaluates the trade-offs between factors such as production costs and capacities, distribution costs, taxes, local country profits and exchange rates, facilitating the development of an integrated global supply chain production and distribution plan that maximizes global profits. Illustrates how the global profit maximization model evaluates and accounts for the incremental cost or value added to a product from its cost as finished goods inventory at a plant to its selling price to the firm's external customer. Demonstrates the potential insights that the proposed global profit maximization model can provide by constructing a small global supply chain problem and solving it using a solution algorithm specifically developed for the purpose. Provides some model extensions and an example of an allocation process.

Findings - Highlights potential applications for the global profit maximization model: it provides an integrated production and distribution framework for developing global supply chain plans for a 12 to 24 month planning horizon; it provides excellent sensitivity analysis capabilities for both tactical and strategic planning; it can support strategic decisions such as potential changes in production strategies using existing plants; and by employing additional constraints, it can be used to consider the impact of duty drawback opportunities and local content type production and distribution regulations..

Research limitations/implications - Has no stated implications for future research.

Originality/value - Contributes to the research into supply chain profit maximization and transfer pricing, developing a model that evaluates decisions such as where to incur tax liabilities and how to set intra-company prices, in order to yield profit maximizing global product and distribution plans.