A study on transfer pricing considering fairness and profitability

Abstract

Transfer pricing is the setting of the price for goods or services sold among related subsidiaries within an organization. This is an important financial and business issue that has been ignored in many studies concerning supply chain network designs. Some studies have considered transfer pricing into production and supply chain planning; however, total profit optimization is single-objective and does not consider the satisfaction of individual subsidiary from a fair perspective. Considering sustainable development as fairness is also extremely important for a long-term strategy for an organization; therefore, this study focuses on balancing the trade-off between fairness and total profit on the design problem of supply chain network using transfer pricing. Meanwhile, a multi-item, multi-subsidiary, and multi-stage problem is solved by the integrated method of mixed-integer linear programming and fuzzy programming proposed by this study. From the experimental results, we verify that the transfer pricing can maximize the total profit of the supply chain network. In addition, the proposed multi-objective optimization model that considers fairness can benefit subsidiaries with minimal satisfaction while acquiring adequate total profit.