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European Pharmaceutical Contractor

Tax Tactics

The competitive nature of today’s marketplace, coupled with the ramifications of globalisation, mean supply chain decisions can have a huge impact on not only the level of efficiency an organisation can achieve, but also on bottom line profit. With this in mind, it is imperative that businesses develop a thorough understanding of their supply chain design in order to remain competitive.

Design and planning for tax efficiency has long been an Achilles heel in the supply chain, with tax requirements differing substantially from country to country. With tax added to every layer of the manufacturing process, from raw ingredients through to the finished, packaged product, plant location can make a significant difference to production cost and profit margins.

This is particularly the case in pharmaceutical manufacturing, as the value added increases significantly, for example, from raw materials, to chemicals, to active ingredients, to pills and then packaged products. At each stage where value is added, tax is added too. Consequently, country specific tax rates can make a huge difference to profit margins. By incorporating tax efficiency into planning solutions, pharmaceutical supply chain executives can analyse tax implications when designing their supply chains, taking into account global tax regulations alongside other costs and constraints. Such optimisation can maximise after-tax profit of the network and reduce the typical international tax payments made by a company by 10 per cent – an attractive prospect in today’s market environment.


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Derek Nelson is a Product Manager in the supply chain applications group of IBM Websphere Software. Derek began his career with LogicTools in 2001, first working as a consultant and finally leading product management prior to ILOG’s acquisition of LogicTools in 2007. His focus is in the area of strategic supply chain planning, including the areas of network design, production sourcing, inventory optimisation and transportation planning. Derek has a Bachelor’s degree in Industrial Engineering from Northwestern University and a Master’s in Operations Research from Cornell University.

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