Edited by Prof. Dr. Thorsten Blecker, Prof. Dr. George Q. Huang and Prof. Dr. Fabrizio Salvador 9 Operations and Technology Management Global Logistics Management Sustainability, Quality, Risks Wolfgang Kersten / Thorsten Blecker / Heike Flämig (Eds.) erich schmidt verlag ES Extract, for more details visit ESV.info/978 3 503 11228 9 Global Logistics Management Sustainability, Quality, Risks Edited by Wolfgang Kersten, Thorsten Blecker, and Heike Flämig With Contributions by Adel Al-Mansi, Hatem Aldarrat, Dagoberto Alves de Almeida, Nasrin Asgari, Deepak Barman, José Arnaldo Barra Montevechi, Helmut Baumgarten, Ronivaldo Belan, Leticia Biescas Altelarrea, Thorsten Blecker, Michael Bohn, Anna Corinna Cagliano, Maria Caridi, Inga-Lena Darkow, Debadyuti Das, Kateryna Daschkovska, Ralf Elbert, Heike Flämig, Christian W. Flotzinger, David Francas, Gabriela Garcia-Lopez, Alexander Goudz, Hans-Dietrich Haasis, Tobias Held, Hannelore Hofmann-Prokopczyk, Susanne Hohmann, Tong Huan, George Q. Huang, Yun Huang, Bernd Kaluza, Wolfgang Kersten, Matthias Klumpp, Jan Koch, Herbert Kotzab, Antje Krey, Charles Lau, Ma Lin, Matthias Lorenz, Abolfazl Mirzazadeh, Enzo Morosini Frazzon, Bernd Noche, Wolfgang Ortner, Manja Ostertag, Margherita Pero, Carlo Rafele, Fathi Rhoma, Daniel Rief, Hubert B. Schemitsch, Peter Schentler, Bernd Scholz-Reiter, Jörg Schweiger, Kianoush Siamardi, Andrea Sianesi, Gyaneshwar Singh Kushwaha, Frank Straube, Morteza Tolouei, Martin Tschandl, Hans G. Unseld, Andreas Wieland, Herwig Winkler, Heiko Wöhner, Reza Zanjirani Farahani, Stephan Zelewski, Hassan Zoghi ERICH SCHMIDT VERLAG Extract, for more details visit ESV.info/978 3 503 11228 9 ISBN 978 3 503 11228 9 ISSN 1863-3390 All rights reserved © Erich Schmidt Verlag GmbH & Co., Berlin 2008 www.ESV.info This paper fulfi lls the requirements of the Frankfurter Forderungen of Die Deutsche Bibliothek and the Gesellschaft für das Buch concerning the paper permanence and meets the tight regulations of American National Standard Ansi/Niso Z 39.48-1992 as well as ISO 9706 Printing and Binding: Hubert & Co, Göttingen Bibliographic information published by Die Deutsche Bibliothek Die Deutsche Bibliothek lists this publication in the Deutsche Nationalbibliografi e; detailed bibliographic data are available in the Internet at http://dnb.ddb.de. For further information concerning this title please follow this link: ESV.info/978 3 503 11228 9 from: Kersten/Blecker/Flämig (Eds.), Global Logistics Management. © Erich Schmidt Verlag GmbH & Co., Berlin 2008 V Preface Changes in business environment due to globalization and short product life cycles have increased the intensity of competition in many markets. Therefore companies collaborate closely with their suppliers and customers using Supply Chain Man- agement concepts to optimize the inter-organizational flow of material, information and capital through their networks. Originating in business logistics management, Supply Chain Management approaches were enlarged when the synchronization of manufacturing operations, common product design and standardized information technologies were integrated. Companies like Dell, Wal-Mart or Benetton gain their competitive advantage by the application of these Supply Chain Management techniques. New approaches are developed in the actual academic discussion, like common sustainability, quality and risk management in supply chains. With this volume we want to contribute to the holistic global management of logistics networks. Therefore we structure the book in five main areas of interest. The first topic highlighted is globalization. Although there already has been a dis- cussion in science and practice for years, many aspects of these topic are still not evaluated yet. The authors deal with the consequences of globalization for local lo- gistics structures as well as with management concepts to control international net- works. The second area of interest covered is sustainability and the underlying question how supply chains can become ecologically sustainable. In respect to fu- ture generations we are convinced that this topic is of tremendous importance for the management of logistics networks. Two rightly popular topics in science and practice build the joined third focus of this volume – risk and quality management in supply chains. Because both concepts seem to be related regarding to the meas- ures they use as well as to their main approaches. The contributions of our forth main area show, how products and product related issues interfere with the design of logistics networks. Finally we present contributions which deal with the per- formance of supply chain networks. We would like to thank the authors for their excellent contributions which ad- vance the logistics research progress. Without their support and hard work, this vo- lume would not be possible. Additional thanks are due to the publishing company, the Erich Schmidt Verlag, especially to Dr. Joachim Schmidt for the possibility to publish this volume and his valuable cooperation. This book would not exist with- out a good organization and preparation. We would like to thank Philipp Hohrath, Thomas Will, and Jan Koch for their efforts to prepare, structure, and finish this book. Hamburg, August 2008 Wolfgang Kersten, Thorsten Blecker and Heike Flämig from: Kersten/Blecker/Flämig (Eds.), Global Logistics Management. © Erich Schmidt Verlag GmbH & Co., Berlin 2008 VII Table of Content Preface V Table of Content VII  I. Logistics in a Global Context Transfer Pricing, Taxation and Capacity Planning in International Manufacturing Networks 3 David Francas Bringing regional networks back-into global supply chains: Strategies for logistics service providers as integrators of logistics clusters 21 Hans-Dietrich Haasis and Ralf Elbert System Dynamics Analysis on the Evolution of Logistics Cluster: An Empirical Analysis Of Logistics Networks And Nodes In Yangtze River Delta of China 33 Ma Lin and Tong Huan Holistic Security in Global Supply Chains - A Strategic Framework 45 Andreas Wieland and Helmut Baumgarten Logistics in the Context Of Internationalisation – How Chinese and German Companies Enter Foreign Markets 59 Frank Straube, Michael Bohn, and Daniel Rief II. Sustainability in Logistics Future Scenarios 2030: The Contribution of Logistics to a Sustainable Development 75 Christian W. Flotzinger and Hannelore Hofmann-Prokopczyk Design of an Environmental Supply Chain Network: A Biosolids Waste Case Study 87 Adel Al-Mansi, Hatem Aldarrat, Fathi Rhoma, Alexander Goudz, Matthias Lorenz, and Bernd Noche from: Kersten/Blecker/Flämig (Eds.), Global Logistics Management. © Erich Schmidt Verlag GmbH & Co., Berlin 2008 Table of Content VIII Biogas Logistics Supply Chain Network Design: A Framework Model 99 Fathi Rhoma, Hatem Aldarrat, Adel Al-Mansi, Alexander Goudz, and Bernd Noche Reasons for the Slow Development of Reverse Logistics in the Electronic Industry of China 113 Charles Lau III. Risk and Quality Management in Supply Chains and Logistics Quality Management Impacts on Logistics Networks measured by Supply Chain Performance Indicators 129 Matthias Klumpp and Manja Ostertag A Conceptual Approach for Quality Improvements in Project-Oriented Supply Chain Networks 149 Herwig Winkler, Hubert B. Schemitsch, and Bernd Kaluza Impact Of Supply Chain Quality Management on Competitive Advantage and Organizational Performance 171 Deepak Barman, Gyaneshwar Singh Kushwaha, and Debadyuti Das Supply Chain Risk Management for Robustness in a Logistical Framework 187 Inga-Lena Darkow and Heiko Wöhner Container Logistics Networks under Context Diversity 205 Bernd Scholz-Reiter, Kateryna Daschkovska, and Enzo Morosini Frazzon Risk and Capacity Management in Logistics Networks: The Example of Global Container Operators 223 Stephan Zelewski, Matthias Klumpp, and Susanne Hohmann Logistics Services: Theoretical and Empirical Findings on Quality Perceptions 239 Wolfgang Kersten and Jan Koch IV. Product Induced Logistics Strategies Logistic Network Strategies and Product Harmonization – Some Findings of the Interrelation between Logistics Network Setup and Product Country Clustering in the Fast Moving Consumer Goods Industry in Europe 261 Tobias Held from: Kersten/Blecker/Flämig (Eds.), Global Logistics Management. © Erich Schmidt Verlag GmbH & Co., Berlin 2008 Table of Content IX Optimal Pricing for a Three-Level Supply Chain with Different Channel Structures Using Game-Theoretic Approach 279 Yun Huang and George Q. Huang Conceptual Design of a ROI Benefit Assessment for Web-based Supplier Relationship Management Scenarios 295 Wolfgang Ortner, Jörg Schweiger, and Martin Tschandl Inbound Supply Chain Management in Mass Customization: Specific Aspects and Requirements for Efficient Procurement 311 Peter Schentler and Antje Krey Economic Order Interval under Variable Inflationary Conditions 325 Abolfazl Mirzazadeh Product Architecture and Supply Chain Design: Impacts on Mix Flexibility 339 Andrea Sianesi, Margherita Pero, and Maria Caridi V. Performance and Capacity Management in Supply Chains A Client-Supplier Relationship Performance Measuring Model Based on Integrated Engineering 361 Dagoberto Alves de Almeida, Ronivaldo Belan, and José Arnaldo Barra Montevechi Airport Integrated Capacity Model 381 Leticia Biescas Altelarrea Fast Transhipment Equipment and Novel Methods for Rail Cargo 393 Hans Unseld and Herbert Kotzab Evaluation of Advanced Parking Information Systems at Airports 405 Hassan Zoghi, Kianoush Siamardi, and Morteza Tolouei Simulation for Logistics Performance Management: Comparing Different Approaches 423 Anna Corinna Cagliano, and Carlo Rafele Analysis of on-time delivery measure in a supply chain 443 Nasrin Asgari and Reza Zanjirani Farahani Development and Implementation of a Six Sigma Readiness Model in the Food Industry 455 Wolfgang Kersten, Gabriela Garcia-Lopez, and Jan Koch 3 Transfer Pricing, Taxation and Capacity Planning in International Manufacturing Networks David Francas Abstract This paper considers the impact of corporate taxation and transfer pricing on the design of a multi-market facility manufacturing network. Using a model based ap- proach we investigate the network configuration from a cross-plant capacity in- vestment perspective under demand uncertainty. The results highlight the impor- tance of creating operational flexibility within the manufacturing network of a multinational firm, not only to hedge against uncertainty in product demands, but further to arbitrage taxation by means of profit-shifting activities. Keywords: Manufacturing Strategy, Plant Network Configuration, Transfer Pric- ing, Taxation, Operational Hedging 1 Introduction A strong motivation for the configuration of an international manufacturing net- work has been the access to low costs production inputs although the benefit of centralized production in low-cost countries is often associated with disadvantages of increased logistics costs. Furthermore, investment decisions of multinational companies are affected by international tax rate differentials. Exploiting such dif- ferences by means of cross-country profit shifting can decrease global tax liability. Finally, companies have to take into account that investment decisions are typically made long before actual demand is known. Therefore it is of crucial importance that a supply chain is designed robustly to unknown operating conditions in order to avoid lost sales or excess capacity. This paper studies a manufacturer’s multi- market network design problem from a network capacity investment perspective. Specifically, the optimal network configuration is examined for a firm that pro- duces two products in order to serve two geographically dispersed markets using a common component and regionalized final assembly. For this specific setting, four network strategies are possible with different degrees of flexibility as shown in Figure 1: Nodes refer to active facilities, i.e. component production plant(s) and fi- nal product assembly facilities; the connecting arcs represent supply-demand links either between network sites resulting in component flows or between assembly fa- from: Kersten/Blecker/Flämig (Eds.), Global Logistics Management. © Erich Schmidt Verlag GmbH & Co., Berlin 2008 Extract, for more details visit ESV.info/978 3 503 11228 9 David Francas 4 cilities and market areas. Each of the displayed structures corresponds to a generic plant charter strategy commonly discussed in global manufacturing networks (Cohen and Lee 1989, Lu and Van Mieghem 2007). Figure 1: Possible configurations of the international manufacturing network (cf. Lu and Van Mieghem 2007) Clearly, shipping costs are higher for a process-focused network than using a mar- ket-focused configuration, as the common components need to be shipped across plants. Benefits associated with a market area strategy are reduced shipping costs and higher responsiveness to market due to advantages of quick delivery, whereas process-focused networks benefit from economies of scale due to consolidated pro- duction (Hayes and Wheelwright 1984). Aside, process-focused networks allow firms to risk-pool the uncertain demand for the common subassembly from all products and markets. In this regard, the market area structure describes a dedicated network configuration without any risk- pooling opportunities, while the hybrid structure is the most general and includes the concept of ‘chaining’ introduced by Jordan and Graves (1995). This highly flexible configuration is adapted by many international car manufactures such as from: Kersten/Blecker/Flämig (Eds.), Global Logistics Management. © Erich Schmidt Verlag GmbH & Co., Berlin 2008 Extract, for more details visit ESV.info/978 3 503 11228 9 Transfer Pricing, Taxation and Capacity Planning in International Manufacturing Networks 5 VW, Chrysler, and General Motors which operate in an industry exposed to high market uncertainty (Francas et al. 2007). Beside these issues which are commonly discussed in operations and logistics management, we investigate the role of cross-country profit shifting as a further ra- tional for selecting a certain network configuration. The potential scope of profit- shifting via an arbitrary use of transfer prices is sizeable because of the ongoing economic integration and the increasing volume of trade in intermediates (Ernst & Young 2005). Moreover, these opportunities exist in spite of current regulations imposed by tax authorities to avoid such behaviour, as has been observed in recent investigations of Overesch (2006), Weichenrieder (2006), and Huizinga and Leaven (2007). Especially in the EU taxation becomes increasingly important since conver- gence of other factors is extremely high. Due to an enhanced integration of national markets, disparities of economic and production conditions disappear and differ- ences in corporate tax rates become even more distinct. Exploitation of these ex- ogenous market imperfections via production-shifting to low-tax countries thus represents a viable alternative to multinational enterprises (MNEs) in order to de- crease their global tax liability (Stöwhase 2003, Overesch 2006). In this paper, a numerical study is presented to capture the effects of taxation and demand uncertainty. In particular, we examine the performance of the generic operations strategies of a market area configuration, onshore and offshore configu- rations, and a hybrid configuration in between. Our results highlight the importance of creating operational flexibility within the manufacturing network of a multina- tional firm, not only to hedge against demand uncertainty, but to further arbitrage taxation by means of profit-shifting activities. The remainder of the paper is organized as follows: In Section 2 the role of transfer pricing within a corporation is introduced. The third section highlights im- portant factors influencing the configuration of international networks and reviews the literature on global network design and manufacturing flexibility. The devel- opment of an adequate model that captures both taxation issues and demand uncer- tainty in the framework of flexible manufacturing network structures is described in Section 4. Subsequently, a numerical study is presented to show the effects of taxa- tion and demand uncertainty (Section 5). The paper concludes in Section 6 provid- ing a summary of results and managerial insights obtained. 2 Transfer Pricing Basically, the use of transfer prices serves two major roles. First, in a tax free world the intention of transfer prices is the efficient allocation of resources within a single firm, in addition to their role of providing incentives to divisional managers who are rewarded based on their performance. Hence, the rationale for setting transfer prices to value internally exchanged commodities originally derives from the moti- vation of operating autonomous units in a decentralized firm. For an extensive lit- from: Kersten/Blecker/Flämig (Eds.), Global Logistics Management. © Erich Schmidt Verlag GmbH & Co., Berlin 2008 Extract, for more details visit ESV.info/978 3 503 11228 9 [...]... insight into: • latest findings in the area of global logistics • new concepts for product induced logistics strategies • quality and risk management for logistics and supply chains • the challenge of sustainability • performance and capacity management With this volume you will learn how to optimize the management of existing networks in different fields of logistics Extract, for more details visit ESV.info/978... Global Logistics Management © Erich Schmidt Verlag GmbH & Co., Berlin 2008 ^ Nowadays the supply chain management framework is improved continuously by new elements, such as quality or risk management This affects the inter-organizational management system in a global perspective and the design of every single node in a supply chain This volume, edited by Wolfgang Kersten, Thorsten Blecker and Heike... design of its multi-plant network Vidal and Goetschalckx (1997), Cohen and Mallik (1997), and 6 from: Kersten/Blecker/Flämig (Eds.), Global Logistics Management © Erich Schmidt Verlag GmbH & Co., Berlin 2008 Extract, for more details visit ESV.info/978 3 503 11228 9 Transfer Pricing, Taxation and Capacity Planning in International Manufacturing Networks Meixell and Gargeya (2005) present reviews on global... Kulkarni et al (2004) and Lu and Van Mieghem (2007) 10 from: Kersten/Blecker/Flämig (Eds.), Global Logistics Management © Erich Schmidt Verlag GmbH & Co., Berlin 2008 Extract, for more details visit ESV.info/978 3 503 11228 9 Transfer Pricing, Taxation and Capacity Planning in International Manufacturing Networks intermediate flows transportation costs might additionally include tariffs and duties, if any.2... assembly facilities Random product demand is supposed to be in _ 2 This assumption is employed for two reasons: first, within commercial blocks duties and tariffs are to be neglected, and second, it avoids a possible trade-off between minimization of taxes vs duties and tariffs 3 Taxation upon repatriation will be ignored since it may be postponed for a long period of time and may effectively... capturing additional features like commonality, flexible resources, and transhipments Operational hedging strategies can be viewed as real options whose value is driven through either timing, i.e pooling of safety capacity and postponement of operational decisions (e.g commonality, 7 from: Kersten/Blecker/Flämig (Eds.), Global Logistics Management © Erich Schmidt Verlag GmbH & Co., Berlin 2008 Extract,... Kersten/Blecker/Flämig (Eds.), Global Logistics Management © Erich Schmidt Verlag GmbH & Co., Berlin 2008 Extract, for more details visit ESV.info/978 3 503 11228 9 David Francas Final product demands are supposed to be random variables with known probability distribution Furthermore, there is no demand for the common component alone It is possible that some demand may not be met, which will incur a... income to tax favourable locations by dynamically adjusting transfer prices and transportation cost proportions in response to realized demands Hence, managerial flexibility is exploited by postponing tactical decisions until market demands are known Capacity and Network Design Decision (1st Stage) Realized Final Product Demand Production; Transfer Prices; Transportation Cost Allocation (2nd Stage)... transfer prices either implicitly – see Kouvelis and Rosenblatt (2001), Martel (2005) – or even explicitly – see Nieckels (1976), Cohen et al (1989), Cohen and Lee (1989), Canel and Khumawala (1996) – as a determinant for minimizing taxes in global supply chains Vidal and Goetschalckx (2001) simultaneously consider endogenously determined transfer prices and transportation cost allocation to either the... products 4 Methodology and Model Development We developed a stochastic optimization model that explicitly considers corporate taxation in the design of a multi-market facility network and verify the network configuration from a cross-plant capacity investment perspective under random demand (Francas et al 2008) The modelling approach incorporates strategic capacity investment decisions and tactical resource . III. Risk and Quality Management in Supply Chains and Logistics Quality Management Impacts on Logistics Networks measured by Supply Chain Performance Indicators 129 Matthias Klumpp and Manja. Analysis Of Logistics Networks And Nodes In Yangtze River Delta of China 33 Ma Lin and Tong Huan Holistic Security in Global Supply Chains - A Strategic Framework 45 Andreas Wieland and Helmut. Prof. Dr. Thorsten Blecker, Prof. Dr. George Q. Huang and Prof. Dr. Fabrizio Salvador 9 Operations and Technology Management Global Logistics Management Sustainability, Quality, Risks Wolfgang Kersten