Correct accounting for duty drawbacks with outward and inward processing in global production networks |
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| Affiliation: | 1. Daimler AG – Production Strategy Locations, Mercedesstraße 138, 70327 Stuttgart, Germany;2. WHU – Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar, Germany;1. Politecnico di Torino, Department of Control and Computer Engineering, Politecnico di Torino Corso Duca degli Abruzzi 24, 10129 Torino, Turin, Italy;2. Fraunhofer IVI, Dresden, Germany;1. Discipline of Business Analytics, The University of Sydney, Room 490, Merewether Building (H04), Sydney, NSW 2006, Australia;2. Department of Industrial & Systems Engineering, Rensselaer Polytechnic Institute, ISE, RPI, 110 8th St., CII, Suite 5015, Troy, NY 12180, United States;3. Department of Management, University of Notre Dame, Room 359, Mendoza CoB, Notre Dame, IN 46556, United States;1. Research Centre on Production Management and Engineering (CIGIP), Universitat Politècnica de València, Camino de Vera S/N, 46002 Valencia, Spain;2. Research Centre on Production Management and Engineering (CIGIP), Universitat Politècnica de València, Plaza Ferrándiz y Carbonell, 2, 03801 Alcoy, Alicante, Spain;1. Research, Technological Innovation and Supercomputing Center of Extremadura (CénitS), N-521, Km. 41.8, 10071 Cáceres, Spain;2. University of Extremadura - Escuela Politécnica de Cáceres, Avda. Universidad s/n, 10003 Cáceres, Spain |
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| Abstract: | We develop a new model for the correct accounting of customs duties levied on a product. We examine inward and outward processing – that is, processed components can be either imported or produced in a foreign country – in the strategic planning of a global production network. This complex modeling problem is structured with path variables, and the duty drawbacks can be simultaneously and correctly entered for n production stages in m market regions (with corresponding duty regions) for all products with a maximum n-level bill of materials. We present a case study from the automotive industry to examine whether or not the possibility of future duty rate changes or free trade agreements, such as one between the United States and the European Union, could affect the design of a production network and hence should be considered in strategic planning. We show that correctly accounting for duty drawbacks can lead to changes in the global footprint of production. We also demonstrate that intercontinental trade barriers (in the form of duties) diminish working capital and entail longer delivery routes. Eliminating these political trade barriers could increase the returns to capital while reducing both delivery lead times and environmental costs. |
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| Keywords: | Duty drawbacks Production networks Automotive Strategic planning |
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