Modeling a multiperiod global supply chain network design problem with transfer pricing

Abstract

This paper addresses a novel multiperiod global supply chain network design problem that aims to maximize the after-tax profit for a multinational corporation owning plants and distribution centers located at different nations or territories. Taking into account time-dependent discounts offered by raw material suppliers, currency exchange rates, transfer prices and random demands faced by distribution centers, the multiperiod global supply chain network design problem is first formulated as a continuously but nondifferentiable optimization model that can determine the optimal solution including shipment of raw materials, distribution strategies and transfer prices. After introducing two kinds of dummy slackness variables, the model is equivalently converted to a typical continuously differentiable optimization model. Consequently, a simulated annealing method that incorporates with a local search technique is designed for solving the multiperiod global supply chain network design problem. Finally, a numerical example is carried out to evaluate the models and the solution algorithm proposed in this paper.