Global Supply Chain Management For A Rapid And Dynamic Transformation Environment

Guillermo B. Vazquez

Large corporations with global operations define their global supply chains with the intent to match supply with demand. More importantly, they consider material flows, established manufacturing and co-manufacturing sites, storage locations, cash flows, technological advantages and restrictions, regulations, tax benefits, and market opportunities.

These supply chain operations run in technology systems of record, planning and analytical applications, and global trade management systems that support solutions to resolve a complex set of regulations to maintain compliance with export and import processes.

Many use global intelligent transfer price supply chain (GITSC) business processes to:

  1. Optimize the landed costs for every product to the customer destination
  2. Define the total costs of ownership
  3. Define the relationship with the market and customers in terms of customer acceptance
  4. Understand and manage customer satisfaction and market share

Here is an example of a GITSC that represents the flow of a product manufactured in China, reprocessed in the European Union, and finally sold in the United States of America.

The transfer pricing strategy in this model shows how the product flow gains tax advantages by using operational ports in Singapore and the Netherlands to offload the tax revenue.

In this example, the GITSC model shows that the total global tax accumulated is $29.50, for a total accumulated profit of $611.50. If the same supply chain did not use the tax advantages of Singapore and the Netherlands, the estimated tax rate would be $192.30, with a net profit of $448.30. This example GITSC offers an 85% reduction in tax payments and 36.30% net revenue increase.

The following figure shows the GITSC transfer pricing model in blue and the standard supply chain transfer pricing model in yellow.

Companies running GITSC models implement business processes supported by IT systems that allow the execution of transactional operations to comply with tax, foreign trade, and customs regulations.

Areas of opportunity for global intelligent transfer price supply chains

The first area of opportunity is the inclusion of an intelligent business system that supports decision-making to manage changes in the supply chain. This is both a challenge and an area of opportunity. These business-intelligence systems rely on the ability to collect transactional data across the supply chain. The objective of increasing the current analytical capabilities of the supply chain is to maximize global after-tax profits by determining the flow of goods and the transportation cost allocation between each of the supply-chain actors. The inclusion of simulation models is the first attempt to stabilize the decision making, with the changes inflicted on the supply chain elements, and the addition of artificial intelligence heuristic expert systems (G. Zichlin, “Artificial Intelligence Expert Systems Shells,” 1989).

The second area of opportunity is to enhance current GITSCs based on lessons learned during the COVID-19 pandemic. The opportunity lies in managing the supply chain ecosystem, not in an isolated and disintegrated industry ecosystem model.

This industrial ecosystem integration is considered the most important priority to enable supply chain ecosystems to efficiently operate in this new reality characterized by fast, dynamic changes.

Join us in our exclusive webinar session on May 19 to get an overview of the SAP Readiness Check tool, which gives a first analysis of your existing SAP ERP application, highlighting key project activities.

Guillermo B. Vazquez

About Guillermo B. Vazquez

Guillermo B. Vazquez is a senior technology executive at SAP. He leads business and technical digital transformation initiatives that include multimillion-dollar SAP global programs with Fortune 500 companies. Guillermo has extensive experience in defining enterprise architecture strategy and solutions, advising more than 20 C-level executives on business intelligence requirements for the adoption of SAP HANA software as well as cloud, mobile and Big Data solutions. He participated in the SAP S/4 initial product release test team, working with the SAP Development Team in SAP Labs in Waldorf. Guillermo holds a master’s in science and engineering in technology management and business strategy from the University of Pennsylvania and the Wharton Business School. He is currently pursuing a doctorate in business administration with a specialization in management information systems at the Fox Business School at Temple University.