Transfer Pricing System Transfer Pricing Article Review

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Table 2, Relationships in MNSC problem provide an analysis of these factors in the form of a decision matrix of transfer prices, transport cost allocations and trade quantities from an import and expert standpoint (Villegas, Ouenniche, 2008).

This is one of the more useful aspects of this article, in that it extrapolates the near-term decisions of transfer pricing systems directly and materially into the financial reporting of the firm in the same fiscal period. There is also the quantification of the MNSC purely from the effects of cross-supplier and supplier-buyer collaboration which gets much coverage in the industry press, yet lacks the quantification from a financial standpoint this article provides. The quantification of MNSC-based decisions purely on transfer pricing that is market-based leads to higher levels of volatility and uncertainty of earnings yet also gives firms a great control over the competitiveness of fulfilling their own demand over time. The authors point out that there is a material effect of market-priced transfer pricings if the originating division has the ability to trim costs significantly over time and attain business process management (BPM) objectives for process re-design followed by Business Process Rengineering9BPR) and the reduction of losses due to uncompetitive pricing.

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Limitations

By far the most well-defined from a model standpoint, this article illustrates that the authors have an exceptional grasp of statistical and economic modeling and can quickly create models that are integrated with each other (Villegas, Ouenniche, 2008). What the models lack however is the use of longitudinal data and the use of time series analysis to provide greater empirical analysis. Second, the authors admit that MNSCs are by nature multi-modal, multi-process and therefore resist optimization even when there is data to be used for correlation. The models lack a true test over years of MNSC data across industries with varying supply chains, cross-channel conflicts and heterogeneity of buyer-supplier relationships. The authors also fail to show how this model can be used as an analytical construct for measuring divisional relative to corporate performance across competitors as well. The models are useful in their analysis of the key relationships yet need more optimization to be of use in MNSCs......

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