An operational profit sharing and transfer pricing model for network-manufacturing companies

• Published in: European journal of operational research Vol. 175; no. 1; pp. 543 - 565
• Main Author: Lakhal, Salem Y.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 16.11.2006; Elsevier; Elsevier Sequoia S.A
• Series: European Journal of Operational Research
• Subjects: Applied sciences; Exact sciences and technology; Extended enterprise; Inventory control, production control. Distribution; Logistics; Manufacturing; Monetary incentives; Networking; Operating profit sharing; Operational research and scientific management; Operational research. Management science; Operations research; Pricing; Profit maximization; Profits; Studies; Supply chain management; Supply chains; Transfer pricing; Extended enterprise; Supply chain management; Operating profit sharing; Networking; Pricing; Supply chain; Inventory control; Profit; Logistics
• ISSN: 0377-2217; 1872-6860
• DOI: 10.1016/j.ejor.2005.05.024

New age companies are forging partnerships with other firms to market products that have been assembled through manufacturing activities distributed at different locations. These locations belong to more than one company and the product passes through these different sites during its manufacturing stages. This manufacturing collaboration is known as network-manufacturing. According to the network philosophy, companies form alliances to manufacture a product and share in its operating profits. This paper proposes a framework and methodology for profit sharing and transfer-pricing between network companies. We propose a paradigm that enables maximization of operating profits by the manufacturing-network in its larger supply chain, suggesting a departure from the model that maximizes profits for the individual company within the sphere of its own supply chain.