Globalization global production networks

An additional lever often discussed in global production network design is to adapt production processes and sometimes also product design to the characteristics of the designated plant location (cf. Meyer 2005, pp. 119-... 

Fleischmann et al. (2006) provide a global production network planning model used at BMW that extends the simpler load planning model proposed by Flenrich (2002). The model is a multi-period, multi-product model with an objective function that maximizes the pre-tax net present value of the network. It includes decisions on product-plant allocation, production volumes, material sourcing volumes by supply region, structural and product-specific investments and use of overtime capacity. A major contribution of the model is the incorporation of the time-distribution of investment expenditures typically observed in automobile production networks. While tariffs are included in the transportation costs, the model does not consider further aspects of international trade such as currencies, duty drawbacks or local content rules which play a major role in practice. 

Kouvelis et al. (2004) present a relatively simple multi-period MILP plant location model for global production network design with investment decisions only allowed in the first period. The production system consists of component-dedicated manufacturing sites and final assembly sites. It is limited to two production levels and one final product. The objective function maximizes the NPV of the production network. The main purpose of the model is to analyze the effects financing subsidies, tax regimes, tariff structures and local content requirements have on optimal network design. The analysis is based on theoretical considerations and a numerical example. More complex aspects of international trade such as duty drawbacks are not considered. 

As discussed in Chapter 2.3.4 specialty chemicals companies operate global production networks. Additionally, tariffs often constitute a higher share of total costs than transportation costs. Thus, a model that explicitly considers international trade is required. 

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