Global multiproduct production-distribution planning with duty drawbacks

Abstract

Duty drawback refers to a full or partial refund of paid import duties when an imported merchandise is destroyed, exported, or consumed as a raw material to produce an export. Despite their extensive international trading operations, many manufacturers fail to save costs by claiming duty drawbacks. In the United States alone, estimates of unclaimed duty drawbacks range from US$1.5-10 billion per annum. In light of this hefty sum of unclaimed duty drawbacks, it is astounding that only one existing production-distribution model in the literature has attempted to include duty drawback. This article is the first to address this neglect of duty drawback in supply chain research by industry practitioners and academicians. To this end, it introduces the key concepts of duty drawback and explains its importance in the new economic era. Second, it presents a linear programming model incorporating three key regulatory factors - corporate taxes, import duties, and duty drawbacks - for solving a production-distribution problem in the chemical industry. Finally, through illustrative examples, it demonstrates the importance of incorporating duty drawback and other regulatory factors in production-distribution planningmodels. © 2005 American Institute of Chemical Engineers.