Leyla Gadirzade

Production and Operations Management Midterm Exam

9501229795, Leyla Gadirzade

Istanbul University
The Institute of Business Management
Prof. Dr. Özlem AKÇAY KASAPOĞLU
May 12, 2023
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Table of Contents
1. Literature review about resilience in supply chain, risk management in supply chain and
responsiveness in supply chain ....................................................................................................... 4
Introduction ..................................................................................................................................... 4
1.1. Responsiveness in Supply Chain ............................................................................................... 4
1.2. Risk Management in Supply Chain ........................................................................................... 8
1.3. Resilience in Supply Chain ...................................................................................................... 11
Conclusion ..................................................................................................................................... 14
References ..................................................................................................................................... 15
2. Changing Challenges In Supply Chain Management ............................................................. 17
Outsourcing with 3PL ................................................................................................................... 21
Reducing Overhead Costs with Barcode Software........................................................................ 21
Increased Competition .................................................................................................................. 21
Shortage of Skilled Workers .......................................................................................................... 21
Building a Great Team .................................................................................................................. 21
Lagging Technology ....................................................................................................................... 22
Transparency and Traceability ...................................................................................................... 22
Regulatory Compliance ................................................................................................................. 22
Cybersecurity ................................................................................................................................. 23
Sustainability ................................................................................................................................. 23
Climate Change.............................................................................................................................. 23
Conclusion ..................................................................................................................................... 24
References ..................................................................................................................................... 25
3. Incentives In The Republic Of Azerbaijan .............................................................................. 26
Tax Incentives ................................................................................................................................ 26
Investment Incentive Certificates ................................................................................................. 27
Incentives for agricultural producers ............................................................................................ 27
Incentives for residents of industrial and technology parks ......................................................... 28
Incentives for the residents of the liberated territories ............................................................... 28
Law on the Special Economic Regime for Export-Oriented Oil and Gas Activities........................ 30
The Law on Special Economic Zones (SEZs)................................................................................... 31
Incentive for the employment of disabled persons ...................................................................... 31
Incentive for civil aviation ............................................................................................................. 31
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Incentives To Be Planned For The Near Future ............................................................................. 31

Incentive for Farmers in liberated areas ....................................................................................... 32
Incentives Applied During Covid-19 .............................................................................................. 32
Support for pandemic-affected entrepreneurs............................................................................. 32
Support for individuals (not engaged in entrepreneurship) ......................................................... 33
Softening regulatory burden of banks........................................................................................... 33
Promoting access of certain economic areas to credit resources................................................. 33
Support regarding payment services ............................................................................................ 34
Support regarding insurance services ........................................................................................... 34
Support for capital market participants ........................................................................................ 34
References ..................................................................................................................................... 36
4. Making A Location Selection By Using Factor Rating Method (15 Factors, 3 Alternative
Location) ........................................................................................................................................ 37
Introduction ................................................................................................................................... 37
Location Analysis ........................................................................................................................... 37
Factors Affecting Site Selection ..................................................................................................... 38
Method Of Factor Rating ............................................................................................................... 40
Conclusion ..................................................................................................................................... 41
References ..................................................................................................................................... 42
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1. Literature review about resilience in supply chain, risk management in

supply chain and responsiveness in supply chain
Supply chain management is a critical aspect of business operations, involving the coordination
of activities from the point of origin to the point of consumption. A resilient, responsive, and
risk-managed supply chain is essential for businesses to operate efficiently, minimize
disruptions, and respond effectively to changing market conditions. In this literature research,
we will explore the concepts of resiliency, risk management, and responsiveness in supply chain
management.

Introduction
During the 1980s, researchers and practitioners suggested supply chain management (SCM) as
a key motivational factor for improving organizational competitiveness. Till the mid 1990s
SCM became most popular and their concept of the managerial applications has been widely
practiced among industry, academia, governance and non-governmental organizations.
Normally for any supply chain, the flow of goods and information started from the source and
accelerated towards the end customer but the direction of cash flow follows the reverse direction
(Jayaraman & Ross, 2003). In general, supply chain contains three basic modules: inbound
logistics, manufacturing process and outbound logistics. Inbound and outbound logistics are
also called upstream and downstream respectively. At the beginning of the proposed research
proposal, it is necessary to understand the basic stages of supply chain management which is
illustrated in Fig. 1.

Fig. 1. Stage of SCM (figure modified from Chopra & Meindl, 2007)

1.1. Responsiveness in Supply Chain

In the year 2000 and beyond, businesses started to face tougher competition worldwide because
of new technology, market connections between countries, and customers changing their wants
and needs often. In today's market, companies need to be able to make things faster, get them
to customers quicker, save money in the process, make customers happy, and make better
products. This helps them stay competitive. Companies must be able to deal with changes in
the market better than other companies to stay competitive and survive. The main goal for
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businesses is to lower their supply chain cost by being efficient and able to respond quickly to
changes in the business world, like when products don't last very long or the amount of things
they have in stock goes up and down. Chan and Prakash (2012) say that supply chain networks
need to get better at meeting customer demands because there's a lot of competition and new
technology. Basically, people all around the world want supply chains that can quickly adapt to
changes in the market and what customers want. Companies are trying to make their supply
chains faster and cheaper by looking at the cost of the whole process and how long it takes to
get the product to market.
According to Catalan and Kotzab (2003), a supply chain is considered responsive when it can
quickly respond to real-time market signals and manage time effectively. Fisher, Christopher,
and Grossmann said that having a quick and adaptive supply chain is really important if you
want to compete well with other businesses. Hines (1998) said that if a company can quickly
make new products and get them to customers, they can beat their competition and make more
money.
In today’s global environment of business competitive market, most of the supply chains at
least intend to be responsive. Now, the inevitable question arises: How challenging would it be
to embrace responsiveness in supply chains while accounting for effective design and
management, delivery of product variety, high quality, short lead times, high plant and volume
flexibility, network structure, and inventory control?
To do this (above discussed problems) effectively, supply chains have various scopes as follows
(Gunasekaran et al., 2008; Tiwari et al., 2012; Sinha & Swati, 2014):
1. Reducing production time via lot splitting, decreasing setup time, or decreasing non-
productive time, and increasing use of automation and control,
2. Supply involvement in the early stage of new product development,
3. Investing in either finished products or raw materials safety stocks to buffer disruptions
coming from the downstream or upstream, respectively,
4. Opening retail outlets near the customer’s market,
5. Reducing time-to-market through shipping via faster transportation modes,
6. Dealing with firms resorting to highly reliable suppliers,
7. Access the performance of incompatibility among suppliers for supplier selection,
8. Reduced the manufacturer risk by better identification of underperforming suppliers,
9. Improve manufacturers to improve fulfillment of customer’s requirements.
Furthermore, to gain critical competitive advantage, firms also need to understand their
potential weak spots while assessing the implementation of new policies to be responsive
(Stevenson & Hojati 2007).
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Agile supply chain: Christopher (2000) defined agility as the ability of an organization to
respond rapidly to changes in demand both in terms of volume and variety. Mason-Jones et al.
(2000) defined agility as using market knowledge and a virtual corporation to exploit profitable
opportunities in a volatile market place.
Lean supply chain: Mason-Jones et al. (2000) defined leanness as a development of a value
stream to eliminate all waste, including time, and to enable a level schedule. Christopher (2000)
explained a clear demarcation in between the concept of agile and lean (see Fig. 2) by
considering three critical dimensions namely: variety, variability (or predictability) and volume.

Fig. 2. SCM strategy of agile verses leanness (figure modified from Christopher (2000))
Modeling of responsive supply chain
Responsive supply chain strategy can be defined as the determination of major customer
requirements in terms of range, frequency, cost, time-to-market, demand variability, and
innovation of product offering (Gunasekaran et al., 2008). Hitachi consulting suggests that it is
the ability of a firm to respond to the fluctuating of the customer demands (Brant et al., 2009).
They argue that being operationally efficient does not lead directly to long term profitability.
Therefore, Hitachi consulting clearly explains that the strategy of the supply chain should be
both operationally excellent as well as market responsive. Fig. 3 clearly explains how the
efficient supply chain becomes responsive towards the market demands.
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Fig. 3. Correlation among effective, efficient and responsive strategy of SCM (Brant et al.,
2009)
In nutshell, responsive supply chain is the end result of all other existing supply chain strategies
(see Fig. 4).

Fig. 4. Strategy of responsive supply chain

The modeling of responsive supply chains can be done on the basis of its framework which is
illustrated in Fig. 5.
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Fig. 5. Framework of responsive supply chain (figure modified from (Gunasekaran et al., 2008;
Tiwari et al., 2012)

1.2. Risk Management in Supply Chain

Risk management is a methodological approach to managing uncertain outcomes. A particular
feature of risk management in supply chains (unlike in technical systems) is that people do not
strive for a 100% guarantee of the result: they consciously tend to take risks. There is a
contradiction between objective risks, those determined by experts applying quantitative
scientific means and perceived risk, those which include managers' perceptions. Actually, the
objective risk treatment is rooted in technical science where 100% reliability is mandatory. In
socio-economic systems, like supply chains, a value of 95% as an orientation for supply chains
is empirically suggested (e.g. Sheffi 2005). Different managers perceive risk to different
extents, and these perceptions can change in the same manager due to changes in his
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environment. That is why the models for supply chains should not strive for a unique optimal
solution but allow the formation of a number of alternative solutions with different degrees of
potential economic performance and risk. Summarizing, we will note that risk can be
considered from three basic positions:
1. risk is a likelihood estimation of a negative outcome of the event leading to losses/losses (the
technological approach);
2. risk is an individual estimation by the person of the danger of a negative outcome of the event
leading to losses/losses; risk is ultimately a property of any entrepreneurship (the psychological
approach);
3. risk is an integral property of any process or system, the management of which is a key
problem in economic performance and stability maintenance (the organizational approach).

Klibi et al. (2010) classify uncertainties and risks in the supply

chain as follows: ∙ random uncertainty (demand fluctuation risks) ∙
hazard uncertainty (risk of unusual events with high impact) ∙ deep
uncertainty (severe disruption risks) The different types of risks in
the supply chain can be classified into demand, supply, process, and
structure areas (see Fig. 6).

Fig. 6 Supply chain operational and disruption risks (Ivanov 2018)

The uncertainty risks associated with demand and supply are linked to unexpected events and
regular operations. These risks are also referred to as operational or recurring risks. Supply
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chain managers have made significant progress in managing global supply chains and reducing
recurring supply chain risks by improving their planning and implementation techniques
(Chopra and Sodhi 2014).
For supply chain managers, disruption risks present a new challenge. From 2000 to 2017, the
frequency and impact of supply chain disruptions increased due to various natural and man-
made disasters, such as the March 11, 2011 earthquake in Japan, floods in Thailand in 2011,
and the fire at the Phillips Semiconductor plant in New Mexico. (Chopra and Sodhi 2014,
Simchi-Levi et al. 2014). According to Hendricks and Singhal (2005), the negative effects of
supply chain disruption were quantified through empirical analysis and resulted in a 33-40%
decrease in stock returns compared to benchmarks over a three-year period that started one year
before and ended two years after a disruption.
Disruption risks represent a new challenge for supply chain managers who face the ripple effect
(Ivanov et al. 2014a,b, Ivanov 2017, Ivanov et al. 2017b, Dolgui et al. 2018) subject to structural
disruptions in the supply chain, unlike the parametric deviations in the bullwhip effect (Fig. 7).

Fig. 7 Operational and disruption risks in supply chains

Risk management is the process of identifying, assessing, and mitigating risks in supply chain
operations. Effective risk management is crucial for businesses to minimize disruptions and
reduce costs. Some of the common risks in supply chain management include supplier
bankruptcy, natural disasters, geopolitical tensions, and cyber-attacks. To manage risks
effectively, businesses can consider the following strategies:
Risk Identification: Businesses need to identify potential risks in their supply chain operations.
This involves assessing the likelihood and impact of potential risks and prioritizing them based
on their severity.
Contingency Planning: Once businesses have identified potential risks, they need to develop
contingency plans to mitigate them. Contingency planning involves developing a plan of action
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to respond to disruptions, including identifying backup suppliers, transportation modes, and

inventory.
Technology: Technology can play a crucial role in risk management in supply chain operations.
Businesses can leverage technology such as supply chain visibility platforms and data analytics
to identify potential risks and respond proactively. Supply chain visibility platforms can help
businesses monitor their supply chain operations in real-time, allowing them to identify
potential disruptions before they occur.

1.3. Resilience in Supply Chain

Supply Chain Resilience is an integral aspect of Supply Chain Risk Management, according to
Ponomarov and Holcomb (2009). This concept is a relatively recent and yet unexplored
research area in management as a whole, as highlighted by Ponis and Koronis (2012). In
organizational terms, resilience denotes "the capacity for continuous reconstruction," as stated
by Hollnagel et al. (2009). The concept of resilience has emerged as a new area in the field of
Supply Chain Management (SCM) in recent years, and several definitions of it already exist in
the literature. Three definitions of supply chain resilience are presented by Christopher and
Peck (2004), Sheffi (2005), and Ponomarov and Holcomb (2009). These definitions describe
resilience as the ability of a system to return to its original state or a new, more desirable state
after being disturbed, the ability of a material to recover its original shape following
deformation, and the adaptive capability of the supply chain to prepare for unexpected events,
respond to disruptions, and recover from them by maintaining continuity of operations at the
desired level of connectedness and control over structure and function, respectively. From these
definitions, it is evident that resilience is related to how quickly a supply chain can return to
normal working conditions after a risky event. Resilience is a proactive concept as it recognizes
that the chain might not have been working optimally before the event. The connection between
vulnerability and resilience is well articulated by Waters (2011), who suggests that the aim of
reducing supply chain vulnerability can be achieved by increasing its ability to withstand
unexpected events, enhancing sustainability, or boosting resilience. Vulnerability reflects how
likely a supply chain is to be impacted by risky events.
It is important to note that a significant challenge faced by risk managers is the reduction of the
time taken to return to the standard level of operational efficiency. The concept of resilience
posits the promptness with which a chain can revert to its original state.
There is a growing trend towards continuing to engage in employment following an instance of
impairment or harm. According to Sheffi (2005), resilience is defined as the capacity of a
material to regain its initial shape after undergoing deformation. Within the context of corporate
environments, resilience is defined as an organization's capacity to effectively recover from
significant disruptions. This encompasses various factors, such as the swiftness with which it
can revert to pre-disruption levels of operational performance, encompassing metrics like
production output, provision of services, and fill rate, among others. In order to illustrate this
requisite, Barroso and colleagues conducted a visual representation. In accordance with the
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findings of the year 2015, it has been suggested to adopt a theoretical construct termed as the
"resilience triangle", which portrays two fundamental parameters. These parameters pertain to
the severity of disruption, commonly referred to as "disruption severity".
The measurement of the extent of loss incurred, commonly referred to as damage magnitude,
along with the duration required for recovery, known as damping time, are fundamental
parameters in assessing and reporting losses resulting from unforeseen events (Fig. 3).

Fig. 8.: The “resilience triangle” Source: (Barroso et al. 2015, p.20)
A resilient supply chain must develop resilience capabilities to react to the negative
consequences of unexpected events and to return quickly to its original state (Barroso et al.
2015). Evidently, without a clear understanding of the performance outcomes associated with
resilience, supply chain managers have little guidance on what results to expect from the
implementation of resilience-focused strategies.
Resilience means that a supply chain can quickly return to a previous state or move to an
alternative, more desirable one (Waters 2011). Thus, it describes the ability to return to a stable
state after a disturbance. Also, this concept appears as a relevant concept to analyze the
continuity of flow after a rupture in a supply chain. To achieve this, some factors are proposed
to guide a resilience improvement process. Indeed, with the fact that there is a correlation
between increased resilience and improved supply chain performance, good logistics
management would include both efficiency and resilience in its analyses. According to Sheffi
(2005), companies can develop resilience in three main ways: (Fig. 9).
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Fig. 9.: Developing a resilient supply chain

1. Creating and increasing redundancies throughout the supply chain;
2. Building flexibility: A flexible Supply Chain allows a company to withstand disruptions
and better respond to demand fluctuations.
3. And changing the corporate culture: corporate culture aids companies to recover
quickly, and even profitably after a flow disruption. Several cultural traits were pointed
out, like continuous communication among informed employees, distributed power (so
that teams and individuals are empowered to take necessary actions), and the passion
for work.
Also, from the existing literature, one may select several Supply Chain Resilience Enablers.
For the moment, Soni et al. (2014) summarized them in ten factors. Particularly, five of the
enablers identified for supply chain resilience are explained below:
Supply chain visibility. The visibility concerns the manager’s perception of current changes.
To achieve agility, a firm needs visibility for a better identification of changes and speed for a
faster response to changes (Christopher & Peck 2004). Visibility enables managers to know
about changes and it is, therefore, the prerequisite to responding to those changes. Wieland &
Wallenburg (2013) stated that visibility is an outcome of investment in information sharing.
Information sharing. The unavailability of material or human resources and/or the absence of
the information necessary to the decision making can harm the efficiency of the company
(Ouabouch & Paché 2014); as Hollstein & Himpel (2013, p. 22) noted “in order to increase
resilience of a supply chain, it is essential that all supply chain partners have access to relevant
information”. According to Soni et al. (2014), visibility ensures confidence in the supply chain
and prevents overreactions, unnecessary interventions and ineffective decisions in a risk event
situation.
Supply chain agility. Being responsive is an increasingly important skill for firms in today’s
global economy; thus firms must be agile (Swafford et al. 2008). Defined as the firm’s ability
to quickly adjust its supply chain tactics and operations, agility is also an attribute closely tied
to the effectiveness of strategic supply chain management (Wieland & Wallenburg 2013).
Agility has also been defined as “the ability to cope with unexpected challenges, to survive
unprecedented threats of business environment, and to take advantage of changes as
opportunities” (Swafford et al. 2008).
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Collaboration among players through transparent communication, cooperation (which lets

suppliers and manufacturers act in concert), and integration in a relational perspective.
Industrial complexity generated by a large number of actors (suppliers, logistics service
providers, etc.); the multiple interactions between these generate a strong need for coordination
between the actors but also for collaborative relationships. Wieland & Wallenburg (2013) note
that relationships between supply chain members rely on the availability of information that is
visible to the actors along the supply chain.
Risk and revenue sharing. In inter-organizational relationships, collaboration is an approach
based on reciprocity of partners who are parts of a win-win situation. This implies that not only
the gains and profits will be shared as part of a collaborative relationship, but also the costs and
risks (Waters 2011).
Supply chain structure. In fact, the best Supply Chain design needs a balance between resilience
and normal measures of efficiency (Barroso et al. 2015). As well as agility, supply chain
resilience calls for rapid reconfiguration and the elimination of waste as much as possible.
Furthermore, supply chain resilience focuses on the system’s adaptive capability to deal with
disruptive events.

Conclusion
In conclusion, together, these three factors are crucial for building a resilient and agile supply
chain that can withstand unexpected disruptions, minimize risks, and respond quickly to
changing market conditions. By investing in resilience, risk management, and responsiveness,
companies can improve their supply chain performance, reduce costs, and enhance customer
satisfaction, ultimately driving long-term success and sustainability.
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References
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design and management. European Journal of Operational Research, 144(3), 629-645.
Chopra, S., & Meindl, P. (2007). Supply chain management. Strategy, planning & operation
(pp. 265- 275). Gabler.
Chan, F. T., & Prakash, A. (2012). Inventory management in a lateral collaborative
manufacturing supply chain: a simulation study. International Journal of Production Research,
50(16), 4670-4685.
Catalan, M., & Kotzab, H. (2003). Assessing the responsiveness in the Danish mobile phone
supp
Hines, P. (1998). Benchmarking Toyota's supply chain: Japan vs UK. Long Range Planning,
31(6), 911-918.
Gunasekaran, A., Lai, K. H., & Cheng, T. E. (2008). Responsive supply chain: a competitive
strategy in a networked economy. Omega, 36(4), 549-564.
Christopher, M. (2000). The agile supply chain: competing in volatile markets.Industrial
marketing management, 29(1), 37-44.
Mason-Jones, R., Naylor, B., & Towill, D. R. (2000). Engineering the agile supply chain.
International Journal of Agile Management Systems, 2(1), 54-61.
Brant, S. (2009). Report based on beyond lean the market responsive company. Hitachi
consulting
Tiwari, M.K., Mahanty, B., Sarmah, S., & Jenamani, M. (2012). Modeling of responsive supply
chain: CRC Press.
Asbjørnslett, B.E., 2009. Assessing the Vulnerability of Supply Chains. In G. A. Zsidisin & B.
Ritchie, eds. Supply Chain Risk: A Handbook of Assessment, Management et Performance.
New York: Springer, pp. 15–33.
Barroso, A.P. et al., 2015. Quantifying the Supply Chain Resilience. In H. Tozan & A. Erturk,
eds. Applications of Contemporary Management Approaches in Supply Chains. Christopher,
M. & Peck, H., 2004. Building the Resilient Supply Chain. The International Journal of
Logistics Management, 15(2), pp.1–14.
Waters, D., 2011. Supply Chain Risk Management: Vulnerability and Resilience in Logistics
2nd ed., London: Kogan Page.
Swafford, P.M., Ghosh, S. & Murthy, N., 2008. Achieving supply chain agility through IT
integration and flexibility. International Journal of Production Economics, 116(2), pp.288–297.
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Wieland, A. & Wallenburg, C.M., 2013. The influence of relational competencies on supply
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Ouabouch, L. & Paché, G., 2014. Risk Management In The Supply Chain: Characterization
And Empirical Analysis. The Journal of Applied Business Research, 30(2), pp.329–340.
Christopher, M. & Peck, H., 2004. Building the Resilient Supply Chain. The International
Journal of Logistics Management, 15(2), pp.1–14.
Sheffi J (2005) The resilient enterprise. MIT Press, Massachusetts
Klibi W, Martel A, Guitouni A (2010) The design of robust value-creating supply chain
networks: A critical review. Eur J Oper Res 203(2):283-293
Ivanov, D. (2018). Structural Dynamics and Resilience in Supply Chain Risk Management.
Springer, New York
Chopra, S., & Sodhi, M.S. (2014). Reducing the risk of supply chain disruptions. MIT Sloan
Management Review, 55(3), 73–80.
Simchi-Levi D, Schmidt W, Wei Y (2014) From superstorms to factory fires: Managing
unpredictable supply chain disruptions. Harvard Bus Rev, February
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multistage network under conditions of ripple effect and structure dynamics. Eur J Oper Res
237(2):758-770
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‘efficiency-flexibility-resilience’ in disruption management, Int J Prod Res 52(7):2154-2172.
Dolgui, A., Ivanov, D., Sokolov, B. (2018) Ripple Effect in the Supply Chain: An Analysis and
Recent Literature. Int J Prod Res, 56(1-2), 414-430.
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2. Changing Challenges In Supply Chain Management

Supply chain management has always been a complex and challenging task, requiring careful
planning and execution to ensure the timely and efficient flow of goods and services. However,
the challenges facing supply chain managers have changed significantly in recent years. The
rise of globalization, the increasing complexity of supply chains, and the growing prevalence
of disruptive events such as natural disasters and pandemics have all created new challenges
for supply chain management.
In this context, the ability to effectively manage risks and respond quickly to disruptions has
become essential for the sustainability of supply chains. At the same time, advances in
technology and data analytics have also created new opportunities for supply chain optimization
and improved visibility. In this project, the changing challenges facing supply chain
management will be discussed below.

Continually Changing Economic Trends

The trends in the ever-changing international economy are driven by general trends, such as
internationalization, the strengthening effects of globalization and glocalization, steady growth
in international competition, corporate attempts to outsource and reduce the number of
suppliers, research, development and innovation, shortening product life cycles, shifting to
time-based competition, and changes in customer buying habits and supply chain strategies
[Szegedi 2011]. In addition to the general impacts on the global economy, based on trends
experienced in the logistics field, specialists predict an increase in commodities over the next
few years. The organization and implementation of the supply of goods between supply chain
members should be organized in such a way that economies of scale (cost-effective methods
which bridge large geographical distances) and economies of choice (customized services
offered) apply simultaneously to chain members [Bowen, Leinbach 2004]. Since the
management of links between supply chain members is carried out by logistics service
providers and their importance and role have been strengthened recently, the comprehensive,
scientific examination of logistics service providers is current and necessary.
Therefore, globalization promotes the development of supply/distribution logistics. Regarding
production, globalization leads to the development of international networks. Therefore,
production is carried out in the most cost-effective sites, where spare parts and subassemblies
are often manufactured separately, just like the final assembly. Supply chain development and
integration are one possible way of reducing costs and inventories to increase efficiency and to
optimize processes, which may arise partnerships in the long run. Besides the determination of
optimum inventory level, particular attention is paid to inventory holding costs [Oláh et al.
2017a]. These forecast developments for ecommerce and its uninterrupted popularity will also
have a major impact on the growth of commodities in logistics systems, their size and
diversification. Changes in consumer habits and new sales incentives by commercial units are
predicting an increasing share of sales for online commerce. International e-commerce effects
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are expected to have a significant impact on logistics systems, including distribution processes
and solutions.
Other impacts include a decrease in the parameters of the quantity of goods per order unit (value
of goods, size of shipments), an increase in cyclical delivery frequency, and, based on market
information, a 10-15% reduction of one-off freight rates. Of course, the reduction in freight
rates can be influenced by other factors (reduced fuel prices, increasing competition, etc.), but
the above impacts have also triggered a negative spiral in the management of logistics service
providers. The best business barometers for logistics service providers are the availability of
shipping data for the following quarter published by international shipping companies and the
take-up prices (freight rates) for the future period which are based on these indicators, among
other things. A significant proportion of the flow of goods between continents takes place in
containers. The survey mentioned by Simon [2010] found that the volume of international
container transport increased by 10.8% per year between 2000 and 2005, and that further growth
is expected in the medium to long term. In a balanced economic environment, the number of
containers shipped worldwide doubles every 7 years. This container capacity growth trend will
have a significant impact on the logistics market and will be a challenge for the operation of
logistics systems. Today, many leading companies are offering an integration of services with
their core products which comprises a significant shift in their underlying business models.

Social And Political Problems And Natural Disasters

According to a survey by aid organizations, two thirds of agricultural products produced in
African countries do not reach the impoverished population for logistical reasons. This fact is
depressing because the logistics system cannot solve its task in the environment where it is most
needed. Because of their hopeless prospects the population of impoverished African countries
is heading towards the more developed continents, in the pursuit of better chances of survival,
for example, in Europe. The major wave of migration - in the first quarter of 2015, 200,000
migrants entered the European Union - presents organizations in border countries with
significant challenges. This may change in the future, as the European Union proposes to share
the problem and burden among the member states [Europa.eu, 2015]. Regarding several aspects
of migration, the most relevant research directions and dilemmas, security policy, legal and
human rights aspects, current trends and their impacts should be highlighted. The global
migration trends will give big challenges for the developed economies [Oláh et al 2017b]. If
this proposal is adopted, each member state faces new challenges and thus new logistical
challenges. The frequency of natural disasters and the outbreak of local wars have a significant
impact on the environment and the economy [Taleb 2012].
Ignoring environmental pollution and sustainable development leads to ongoing natural
disasters (tsunamis, earthquakes, volcanic eruptions). In addition to the logistical challenges of
post-disaster recovery work, organizations operating logistics processes encounter two major
problems. The first is the designation of new alternative supply routes, which requires
immediate action from market participants, and the second is the intensification of the “pull-
out” tendency of companies to reduce the risk of their activities and supply chains, resulting in
the return of outsourced production to safer regions of the world, for example, from the Far
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East back to Europe. The most widespread practice in the period prior to disasters was that low-
value and repetitive production processes were deployed primarily to developing and/or Far
Eastern countries, while high-value-added activities were kept close to the final consumer in
the supply chain [Mudambi 2008].

Consumer Habits And Changes In Supply Chain Strategies

In a traditional case, the supply chain is examined so that it can be made more cost effective,
and faster, and so that its performance can be increased. However, according to Hau’s [2004]
observations, these objectives are mistaken and do not lead to competitive advantage. It is
therefore important that in order to retain its leading position a company regularly reviews its
supply chain and also has action plans that can help it deal with unexpected events. The supply
chains of outstandingly large companies have the following features: firstly, they are agile.
They respond swiftly to sudden changes in demand or supply. Secondly, they adapt to the way
market structures and strategies evolve. Thirdly, they coordinate the interests of all the
companies involved, so that when companies maximize their interests, they also optimize the
chain’s performance. Only agile, adaptable and coordinated supply chains will give their
companies a sustainable advantage. Accelerated lives require faster supply chains and thus
require logistics solutions that support the timely arrival of products/services. Supply chains
have introduced several new strategies to meet these expectations [Szegedi 2012]. Amongst the
strategies, the best solution is to use delayed differentiation, in which the final product can even
be created directly at the point of sale, taking into account customers’ expectations of time and
quality. Returning to the practice of delayed supply chains, standard cargo shipments are
currently a simple logistical task, but the rapid delivery of parts and accessories to sales points
already presents significant challenges for logistics service providers. Other prerequisites for
flexible supply chains are virtualization and network-based collaboration between the partners
involved. Today, among other considerations, the main focus is on the spread of cloud-based
technologies with mobile applications and the standardized Electronic Data Exchange (EDI)
between Enterprise Resource Planning System (ERP) in all areas that can either be easily
algorithmic or where manual inputting can lead to errors. Another challenge for the future is
the socalled “glocalisation”. In the freight transport system, the effect of the glocalisation is
expected to increase as the establishment of logistic centers will lead to an increase in the role
of local and regional production and distribution organizations. Logistical centers form a
hierarchically structured regional network, which is also linked to the great European and world
systems. Traffic between the centers can be dominated by rail and water transport, while in
areas supplying the centers the dominant role is played by road transport [Tánczos, Bokor
2006].

Supply Chain Management Over The Internet Of Things

The Internet has emerged as an effective means of driving information integration and sharing
for a supply chain, as well as has supported various coordination mechanisms across a supply
chain. To make decisions promptly and to accelerate material flows via the integration and
sharing of information flows improve the effectiveness and efficiency of a supply chain
execution. However there exists a gap between the material flows and the information flows in
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a supply chain because the information flows always can not reflect the wave of material flows
real-timely, as well as it is impossible to understand the process of a supply chain execution
real-timely. Being the next generation network of the Internet, the Internet of Things (IoT),
which is a comprehensive extension of the Internet and also can achieve the pervasive
connections between objects (things) and objects (things), information automotive collecting
and realtime processing, as well as ubiquitous computing, close the gap between objects in the
material world and their representation in information systems[Lou, 2011].
Below the Top Supply Chain Management Challenges for 2023 and beyond will be discussed:

Global Economic Uncertainty & Supply Chain Disruptions

In 2023, companies operating in the supply chain industry are facing various challenges due to
global economic uncertainty, which may lead to periodic disruptions in the supply chain.
Currently, these challenges stem from multiple factors, such as geopolitical tensions, economic
fluctuations, climate change, and evolving regulations. Although China has moved away from
its Zero COVID Policy, allowing for freer production and shipping, unpredictability still exists.
Meanwhile, the ongoing turmoil in Ukraine is expected to persist for the time being, and
businesses must adjust their operations to keep the goods flowing.
Furthermore, unstable global markets, trade wars, and fluctuating exchange rates can affect the
cost of raw materials, transportation, and production. Recent bank failures may also cause
concern for investors and supply chain managers. Climate change is another significant
challenge, causing more frequent and severe weather events that disrupt the supply chain by
damaging infrastructure, causing transportation delays, and creating resource scarcity.
Lastly, changes in trade policies, import/export restrictions, and environmental regulations may
create additional complexities for international supply chains. These challenges are already
having a significant impact on supply chains in 2023. To stay ahead, organizations must
proactively address these issues by monitoring economic trends, developing strategies to
mitigate potential negative impacts on their operations, creating contingency plans, diversifying
their supplier base, and staying informed on global developments to minimize risks and
maintain a positive reputation.
Cost Control
In the upcoming years, operating expenses are expected to increase, and managers must remain
vigilant about the impact of rising technology, fuel, and energy prices on product shipments.
For manufacturers, the upward trend in input costs adds further strain to already slim profit
margins.
The cost of labor remains a persistent challenge. Increases in wages can significantly affect a
company's profitability. In response, businesses may opt to reduce their workforce in a supply
chain that is already struggling to find adequate staff, increase prices and potentially lose
customers, or make significant changes to their business practices.
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Outsourcing with 3PL

Third-party logistics (3PL) firms have emerged as a popular option for companies seeking to
tackle challenges in managing their supply chain. These companies specialize in the storage
and shipment of products and often have the necessary technologies and economies of scale to
offer cost-effective solutions to their customers. By partnering with a 3PL, businesses can lower
operational costs and storage requirements while concentrating on their core competencies.
However, relying on a 3PL means sacrificing some control and flexibility within your
operations. Hiring a 3PL is also a complex and costly process. To avoid any contractual issues,
it is essential to conduct thorough research when evaluating 3PL options.
Many companies choose to use an in-house mobile inventory solution that is more cost-
effective to improve their spending management and maintain complete ownership of their
warehouse procedures.

Reducing Overhead Costs with Barcode Software

Businesses have the option to utilize enterprise technologies that can decrease overhead costs
and provide a return on investment. One such technology is mobile barcoding solutions, which
act as a force multiplier for front-line teams, enabling them to complete more work in less time
and with maximum accuracy. This leads to a reduction in errors and an increase in productivity,
resulting in lower costs and higher profit margins.
Moreover, mobile barcoding can prevent inventory management errors that result in lost stock
or returns, which can be expensive for the company.

Increased Competition
In 2023, the supply chain industry is facing heightened competition due to various factors,
including globalization, technological advancements, and rapidly evolving customer
expectations. As a result, companies must adapt to stay ahead in this competitive environment.

Shortage of Skilled Workers

The shortage of hands hinders a company’s ability to efficiently manage inventory, so
adjustments must be made to compensate.

Building a Great Team

The answer: It’s not easy, but also not impossible. Companies need to think about a number of
items when building their teams. These include:
Division of labor.
Experience in supply chain management.
A strong understanding of how events in the supply chain affect other departments
within the company.
Cultural expertise, especially since most supply chains are now global.
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Lagging Technology
Unfortunately, many warehouses and production plants still use outdated methods for managing
inventory, such as handwritten paper tickets and manual data entry. This can result in significant
challenges for these operations. Therefore, technology plays a vital role in supply chain
management. According to the RFgen Digital Inventory Report, 59% of companies plan to
increase their investment in supply chain technology in the coming years. While there are
various technologies available in the market, a more practical and cost-effective approach to
buying technology is essential for most businesses.
One of the more affordable and practical solutions is barcode software, which any company
that manages inventory or fixed assets can use. Mobile data collection solutions are also helpful
in streamlining supply chain management. By enabling real-time communication with
enterprise systems and ERP, these solutions ensure order accuracy and provide complete
visibility into materials. Mobile solutions eliminate errors and bottlenecks caused by manual
methods and improve productivity through instant automation.

Transparency and Traceability

The year 2023 brings new challenges for companies as there is a greater need for supply chain
transparency and traceability. This demand has been increasing for several years, with
consumers and regulators increasingly concerned about product origins, ethical sourcing, and
environmental impact. To stay competitive, companies need to invest in technology solutions
that provide end-to-end visibility and traceability in their supply chains.
To achieve this goal, businesses need accurate data on stock levels and material movements.
The easiest way to obtain this data is by automating the data capture process with barcode
software and other advanced data collection methodologies.

Regulatory Compliance
In 2023, supply chain companies face a crucial challenge to comply with regulatory
requirements. Governments are imposing stricter regulations to ensure product safety,
environmental protection, and ethical sourcing, requiring businesses to adjust their operations
to comply and stay competitive.
Industries such as food and beverage or aerospace and defense face even greater regulatory
challenges, necessitating additional measures to ensure compliance. Accurate data accessibility
and retrieval are critical during government or industry audits to avoid penalties and litigation.
One effective way to improve regulatory compliance is by implementing software that
automates traceability. Mobile barcoding solutions can automatically capture multiple levels of
data with great precision each time an item or pallet is scanned, creating a reliable track-and-
trace path with rapid reporting accessible at any time.
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Cybersecurity
Supply chain management is facing an increasing need for strong cybersecurity measures. This
task is more challenging than ever before. No matter what technology you use to enhance your
overall operations, investing in the best cybersecurity measures available can lead to long-term
cost savings. Several cloud ERP platforms come with built-in security features that you can use
to protect your data.
To secure mobile inventory operations, opt for solutions that inherit existing security protocols
and allow for additional capabilities like SSO or geofencing. For instance, mobile barcoding
can help safeguard data access while in transit or at rest.

Sustainability
The focus on sustainability has become increasingly crucial for businesses and consumers. To
reduce their environmental impact and implement eco-friendly practices, companies must
embrace sustainability throughout their supply chain operations. Despite the opportunities that
sustainability offers, it also presents its own set of challenges.
In order to make supply chain sustainability possible, several areas need to be examined. First,
supply chain managers must minimize waste, optimize energy usage, and reduce water
consumption in their operations to focus on waste reduction. Digital inventory solutions can aid
in reducing packaging waste, paper usage, and energy consumption for storage.
Second, companies must prioritize working with suppliers who share their commitment to
sustainability, ensuring the ethical and environmentally friendly sourcing of raw materials. This
approach not only reduces environmental impact but also mitigates the risk of reputational
damage.
Third, companies can decrease their carbon emissions by adopting eco-friendly transportation
methods, such as electric vehicles, and optimizing delivery routes to reduce fuel consumption.
Intermodal transportation options can further improve their sustainability profile.
Finally, companies can adopt the principles of the circular economy by designing products for
longevity, facilitating repair and reuse, and recycling materials at the end of a product’s life
cycle. This approach helps minimize waste and conserve valuable resources.
By incorporating sustainability into their supply chain management strategies, companies can
meet the growing expectations of customers, regulators, and stakeholders while driving long-
term success in a highly competitive market.

Climate Change
Climate change is becoming a major challenge for supply chain management and is expected
to become more difficult in the future (Carter, Rogers, & Choi, 2021). The impact of extreme
weather events, such as floods, droughts, and hurricanes, as well as resource scarcity, are just
some of the consequences that companies will have to contend with (Kim & Cavusgil, 2021).
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Moreover, businesses will also need to adapt to changing regulations related to climate change
(Neville, 2021).. Some strategies and solutions include:
Risk assessment and mitigation: Conducting regular assessments to identify potential climate-
related vulnerabilities and developing comprehensive mitigation plans can help businesses
prepare for and respond to disruptions caused by climate change.
Diversifying suppliers and transportation routes: Maintaining a flexible supply chain network
by diversifying suppliers and transportation routes can minimize the impact of climate-related
disruptions and maintain continuity.
Carbon footprint reduction: Reducing carbon footprint and optimizing energy consumption is
becoming increasingly important. Adopting renewable energy sources and implementing eco-
friendly transportation methods can contribute to climate change mitigation, cost savings, and
improved brand reputation.
Collaborative action: Supply chain stakeholders can work together to develop industry-wide
initiatives and best practices for addressing climate change challenges. Collaborative action,
such as sharing resources and knowledge, can help companies build more resilient and
sustainable supply chains.

Conclusion
To conclude, with new technologies, global disruptions, and shifting customer demands, supply
chain managers face numerous challenges. An agile and resilient supply chain is the need of
the hour. However, resilience and agility cannot be built into a supply chain without carefully
considering its design, implementation, and operation. This requires a change in mindset, the
adoption of advanced technology and tools, and the inclusion of risk and agility KPIs along
with the traditional KPIs of cost, quality, and service levels.
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References
Szegedi Z., 2012. Supply Chain Management. Budapest, Hungary: Kossuth Press.
Bowen, J., Leinbach, T., 2004. Market concentration in the air freight. Tijdschrift voor
Economische en Sociale Geografie, 95(2), 174-188.
Oláh J., Lakner Z., Hollósi D., Popp J., 2017a. Inventory methods in order to minimize raw
materials at the inventory level in the supply chain. LogForum, 13(4), 389-390.
Simon, H., 2010. Rejtett bajnokok a 21. században. Budapest, Hungary: Leadership Kft.
Europa.eu 2015. Eredményesebb migrációkezelés: az európai migrációs stratégia
http://europa.eu/rapid/pressrelease_IP-15-4956_hu.htm
Oláh, J., Halasi, G., Szakály, Z., Popp, J. Balogh, P., 2017b. The Impact of International
Migration on the Labor Market – A Case Study from Hungary. Amfiteatru Economic, 19(46),
790-805.
Taleb, N., 2012. A fekete hattyú - avagy a legváratlanabb hatás. Budapest, Hungary: Gondolat
Kiadói Kör Kft.
Mudambi, R., 2008. Location, control and innovation in knowledge intensive industries.
Journal of Economic Geography, 8(5), 699-725.
arter, C. R., Rogers, D. S., & Choi, T. Y. (2021). Challenges and opportunities for sustainable
global supply chain management in a post-pandemic world. International Journal of Production
Economics, 239, 108074.
Kim, D., & Cavusgil, S. T. (2021). Managing global supply chain risks in the aftermath of
Covid-19. Journal of International Business Studies, 52(5), 719-736.
Neville, B. A. (2021). Climate change, sustainability, and the management of supply chains.
Business Horizons, 64(1), 85-94.
Hau, L.L., 2004. The Triple-A Supply Chain Harvard Business Review, October, 102- 112.
Szegedi Z., 2012. Supply Chain Management. Budapest, Hungary: Kossuth Press.
Tánczos L., Bokor Z., 2006. A regionalitás és a közlekedés összefüggéseinek vitája az MTA
Közlekedéstudományi Bizottság tudományos ülésén. Budapest
Lou, P., Liu, Q., Zhou, Z., Wang, H., 2011. Agile supply chain management over the internet
of things. Management and Service Science (MASS), 2011 International Conference on IEEE.
1-4.
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3. Incentives In The Republic Of Azerbaijan

Azerbaijan is a post-soviet country that regained independence in 1991. Since 1994, the
country’s vast oil reserves have been attracting foreign investment to the economy, which
consequently made the oil and gas sector the main target of foreign investments. The modern-
day Azerbaijan has managed to up-build relatively sophisticated communication and
transportation infrastructure, as well as industrial, agricultural, educational, housing and
healthcare sectors, although the oil and gas industry still accounts for the bulk of its exports.
Azerbaijan continues to develop its market infrastructure, including legal, tax and banking
frameworks and links to the international business community. It presents a unique challenge
to businesses entering Azerbaijan that wish to assess the real business risks and make reality
based decisions rather than relying on perceptions.
Given the region’s significant potential, many around the world seem to be focusing more
closely on the Caspian region as a whole. Despite the after-effects of the global financial crisis,
there now appears to be a resurgence of interest in Azerbaijan among foreign investors.
Moreover, The country has been implementing various incentive programs and policies to
promote economic development and attract foreign investment.
Some of the incentives offered in Azerbaijan include:

Tax Incentives
Azerbaijan has implemented various tax incentives to promote economic growth and
development. These incentives aim to encourage investment, support businesses, and stimulate
job creation. Some of these incentives include:
1. Tax Holidays: This incentive provides new businesses with a tax holiday for a specified
period, usually up to three years. During this period, the business is exempt from paying
corporate income tax, property tax, and land tax.
2. Investment Tax Credits: This incentive provides tax credits to businesses that invest in
specific sectors or regions of the country. The tax credit is equal to a percentage of the
investment amount and can be used to offset future tax liabilities.
3. Accelerated Depreciation: This incentive allows businesses to depreciate assets at an
accelerated rate, which reduces their taxable income and lowers their tax liability.
The tax incentives in Azerbaijan have had a positive impact on the country's economy. By
providing tax breaks and credits, these incentives have encouraged investment and supported
the growth of key sectors such as manufacturing, tourism, and agriculture.
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For example, the Tax Holidays incentive has helped to encourage new businesses to start up
and expand their operations. This has led to the creation of new jobs, increased economic
activity, and higher tax revenues in the long run.
Similarly, the Investment Tax Credits incentive has helped to attract foreign investment and
promote economic development in specific sectors and regions of the country. This has helped
to create jobs and stimulate economic growth in these areas.
Finally, the Accelerated Depreciation incentive has helped businesses to invest in new
equipment and technology, which has increased their productivity and competitiveness. This
has helped to promote economic growth and development in the country.

Investment Incentive Certificates

An investment incentive certificate (“Certificate”) entitles its holder to tax and customs
benefits. The Certificate is granted by the Ministry of Economy of Azerbaijan to entrepreneurs
who have submitted investment projects that meet criteria approved by the Cabinet of Ministers
regarding the field of economic activity, the minimum investment amount and the region in
which the investment project is to be carried out. Accordingly, the Tax Code and the Law on
Customs Tariffs set out the applicable tax and customs duty exemptions for entrepreneurs. The
following exemptions from taxes apply for a period of 7 years from the date the Certificate is
obtained:
• Personal income tax — 50% of an individual entrepreneur’s income
• Profit tax — 50% of a legal entity’s income
• VAT — full exemption for the import of machinery, production equipment and devices by
individual entrepreneurs and legal entities
• Property tax — full exemption for relevant property of individual entrepreneurs and legal
entities
• Land tax — full exemption for relevant land parcels owned or used by individual
entrepreneurs and legal entities

Incentives for agricultural producers

Taxpayers producing agriculture products are exempt from profit tax, VAT, and property tax
for the 10-year period beginning 1 January 2014.
Only mark-ups applied in the retail sale of agricultural products produced in Azerbaijan are
subject to VAT. Beginning from 1 January 2022, for a period of three years, VAT is assessed
on mark-ups applied on wholesale and retail sale of agricultural products (local and foreign
origin).
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Under recent amendments to the Tax Code, the following transactions are not subject to VAT
for a specified period:
Import and sale of wheat, as well as production and sale of flour and bread, for seven years
from 1 January 2017.
Sale of animal and poultry meat for four years from 1 January 2020.
Production and sale of bran for five years from 1 January 2019.
Sales of feed and feed additives used in livestock and poultry farms for four years from 1
January 2020.

Incentives for residents of industrial and technology parks

Businesses operating in industrial and technology parks are eligible for certain privileges and
exemptions for 10 years starting from the reporting year in which residents are registered in the
industrial and technology park. Beginning from 2023, companies involved in system
integration, software preparation and development activities and conducting these activities
even outside of the territory of the technology parks might be considered as residents of
technology park and by that use the tax benefits provided in the legislation.
The privileges include the following:
Exemption from profit/income, land, and property tax for resident legal entities and private
entrepreneurs.
Exemption from withholding tax on dividend payments.
VAT exemption for import of equipment for construction, scientific research works, and other
activities in these parks, depending on the nature of these activities.

Incentives for the residents of the liberated territories

Legal entities and individuals registered with the tax authorities and operating in the liberated
territories are eligible to the following exemptions for a period of 10 years:
From 1 January 2023 a number of amendments to the legislation of the Republic of Azerbaijan
establishing tax and other incentives in relation to activities in the liberated territories of
Azerbaijan has been taken effect.
Amendments to the Tax Code of the Republic of Azerbaijan (hereinafter, the "Tax Code")
stipulate the following benefits for 10 years starting from 1 January 2023 for legal entities and
individuals registered in tax authorities of the liberated territories and carrying out activities in
these territories ("residents of the liberated territories")
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● exemption from corporate income tax/personal income tax, including non operating
income, and simplified tax;
● exemption from property tax;
● exemption from land tax;
● exemption from VAT on the import of raw materials for certain manufacturing
activities;
● exemption from tax on dividend income of shareholders (participants) of legal entities
- residents of the liberated territories.
The envisaged tax exemptions will not apply to the following activities and operations:
1. activities in the field of provision of financial services;
2. road freight transport services;
3. provision of goods (works, services) by a contractor (except for resident contractors
carrying out manufacturing activities within the liberated territories) at the expense of
the state budget.
The above exemptions will apply subject to the following conditions:
1. exemption from taxation on manufacturing, processing and extraction activities, shall
apply to taxpayers that are registered for tax purposes in the liberated territory and that
carry out these activities in these territories. Tax exemption applies to income derived
from manufacturing, processing and extraction of goods supplied in or outside the
liberated territory, as well as exported from the territory of the Republic of Azerbaijan;
2. tax exemption in the fields of wholesale trade, construction and services (except for
services rendered to the population) applies to residents of the liberated territories that
provide goods (works, services) to residents of the liberated territories. Tax exemptions
do not apply if goods (works, services) are provided to persons carrying out activities
outside the liberated territories including when goods (works, services) are exported
from the territory of the Republic of Azerbaijan;
3. exemption from taxation in the fields of tourism, retail trade, catering and other services
to the population applies to residents of the liberated territories that carry out activities
in these territories;
4. where residents of the liberated territories carry out the activities stipulated in items i, ii
and iii above outside the liberated territories (within the territory of the Republic of
Azerbaijan), the tax exemptions stipulated shall not apply to them;
5. if a resident of the liberated territories engaged in the activities referred to in items i, ii,
iii above carries out other activities outside this territory, including outside the Republic
of Azerbaijan, then the accounting of income and expenses related to activities
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performed in these territories and other activities performed outside these territories
shall be carried out separately for each type of activity.
Also, according to the amendments to the Presidential Decree on "Increase of social benefits",
specialists working in the territories liberated from the occupation will be given a one-time
allowance of 600 manats to maintain the basic living conditions. These changes will remain in
force until 1 January 2028.
According to the amendments made to the Law of the Republic of Azerbaijan on "Social
Insurance", the following part of the mandatory state social insurance contributions paid by
insurers (insured) of the non-governmental sector not operating in the oil and gas field in the
liberated territories of the Republic of Azerbaijan will be subsidized from the state budget
(excluding contractors carrying out activities in the fields of finance and road freight transport
services and supplying goods (works and services) at the expense of the state budget, except
resident contractors carrying out manufacturing activities in the liberated territory):
1. from 1 January 2023 to 1 January 2026 - 100 percent;
2. from 1 January 2026 to 1 January 2029 - 80 percent;
3. from 1 January 2029 to 1 January 2031 - 60 percent;
4. from 1 January 2031 to 1 January 2033 - 40 percent.

Law on the Special Economic Regime for Export-Oriented Oil and Gas
Activities
The Law on the Special Economic Regime for Export-Oriented Oil and Gas Activities was
adopted in April 2009 and will remain effective for 15 years. This law avails the following tax
incentives to contractors and subcontractors (excluding foreign subcontractors without PE in
Azerbaijan):
Local companies are permitted to choose between (i) profit tax at a rate of 20% or (ii) 5% WHT
on gross revenues.
Foreign subcontractors are taxable only by a 5% WHT.
0% VAT rate.
Exemption from dividend WHT and taxation on branch’s net profits.
Exemption from customs duties and taxes.
Exemptions from property tax and land tax.
In order to derive these benefits, the relevant taxpayer should obtain a special confirmation
certificate from the Ministry of Industry and Energy.
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The Law on Special Economic Zones (SEZs)

The companies operating in SEZs shall have the following tax benefits:
A 0.5% tax levied on overall turnover from supplied goods, performed services, or works.
A 0% VAT rate.
Customs exemptions.
In order to operate in an SEZ, a special residency certificate is necessary. However, the
following companies may not apply for this certificate:
Companies producing or processing oil and gas.
Companies producing alcoholic beverages and tobacco.
Television or radio broadcasting companies.

Incentive for the employment of disabled persons

The rate of profit tax levied on production enterprises belonging to community organizations
for disabled persons, and involving at least 50% of disabled persons, shall be reduced by 50%.
In determining eligibility for these privileges, disabled persons substituting for permanent
employees, contractors (i.e. who work under contractor agreements, civil legal contracts), or
disabled persons till the age of 18 are not included in the average number of employees.

Incentive for civil aviation

Payment for rent or lease of aircraft and aircraft engines from non-residents of Azerbaijan who
do not have PE in Azerbaijan within the scope of this activity is exempted from VAT and WHT.

Incentives To Be Planned For The Near Future

Incentive for Cultural Sector (Film Industry)
The State Tax Service under the Azerbaijani Ministry of Economy, the Ministry of Culture, and
the Azerbaijan Creative Industries Federation have organized an online meeting for major
cinema producers working in film making, dubbing, and animation industries. The meeting
participants held discussions within the "Social and economic development strategy of
Azerbaijan for 2022-2026" to define the range of tax incentives that can be provided for cultural
development, and increase inputs and capital investments in this area.
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Furthermore, proposals have been heard on measures to create an enabling environment for
people working in the country's film industry, as well as to provide incentives to entrepreneurs
in producing and distributing national films.

Incentive for Farmers in liberated areas

Agrarian Credit and Development Agency's board chairman Seymur Movlayev stated that the
agency plans to develop tools to support farmers who will conduct entrepreneurial activities in
the country's liberated territories. He noted that it is planned to develop special incentive
packages to support the farmers.
Currently, the work is underway to restore Azerbaijan's liberated lands. Azerbaijan will rebuild
its recently liberated areas in four stages. The initial stage includes the solution of the issues of
governance and security, infrastructure, while the subsequent stages include the solution of the
issues of social services activities, reconstruction, and development of the economy.
In 2021, Azerbaijan allocated $1.5 billion for the reconstruction of liberated territories,
followed by AZN 2.2 billion ($1.2 billion) in 2022. These funds will be used primarily to restore
infrastructure (electricity, gas, water, communications, roads, education, health, and so on) as
well as cultural and historical monuments.

Incentives Applied During Covid-19

On April 23, 2020, the Management Board of the Central Bank of Azerbaijan adopted a
decision “on additional measures to support individuals and entrepreneurs amid the coronavirus
pandemic”.
The decision provided provisions in connection with restructuring of individuals’ mortgage
loans issued out of funds of the Azerbaijan Mortgage and Credit Guarantee Fund, restructuring
business loans issued out of State funds, as well as support for insurance and capital market
participants. Support plan of the Central Bank covers the following areas:

Support for pandemic-affected entrepreneurs

The Decision provides possibility of restructuring of loans issued by credit institutions to
private businesses (including individual entrepreneurs) working in pandemic-affected areas,
provided that those loans must have satisfactory credit histories as of March 1, 2020.
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Banks may extend the payments on these loans at the request of entrepreneurs and by mutual
agreement of the parties. In this case, regardless of the borrower's financial condition and loan
restructuring, the loan quality has not to deteriorate until 30 September 2020.
In addition, banks are recommended not to calculate and charge penalties for delayed
performance in loan obligations (principal amount or interest portion) of entrepreneurs until 30
September 2020.

Support for individuals (not engaged in entrepreneurship)

Individuals are provided with the opportunity to restructure mortgage loans allocated at the
expense of the Mortgage and Credit Guarantee Fund of the Republic of Azerbaijan.
Loans will be restructured at the request of borrowers. The quality of such loans granted before
March 1, 2020 and of satisfactory quality will not deteriorate if they are restructured by
September 30, 2020.
In order to stimulate mortgage lending by banks at their own expense, it was decided to reduce
risk rates on this category of loans from 100% to 50%.
Banks are recommended not to calculate and charge penalties for delayed performance in loan
obligations (principal amount or interest portion) of individuals until 30 September 2020.
Credit institutions will continue to calculate interest on principal debt over this period to be paid
by borrowers to credit institutions.

Softening regulatory burden of banks

In order to create conditions for the implementation of above-mentioned measures, ensure the
sustainability of financial services to businesses and individuals and increase lending
opportunities, a number of regulatory requirements that put pressure on banks’ capital will be
softened until the end of the year (including reduction of adequacy ratio percentages).

Promoting access of certain economic areas to credit resources

The risk rate for loans granted to producers of medical equipment and accessories is reduced
from 100% to 20%, which will allow banks to allocate cheaper and less capital consuming loans
to that area.
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Support regarding payment services

Taking into account low economic activity, to stimulate cashless payments and decrease
expenses, it is intended to implement the following actions:
● to reduce service fees charged on banks in interbank payment systems up to 50%;
● to reduce tariffs on payment services supplied by banks to customers accordingly;
● to reduce tariffs on acquiring services up to 50%.

Support regarding insurance services

Insurance companies are also provided with a number of regulatory holidays and incentives. In
particular, insurers are recommended to grant a grace period to the insured, who has been
directly affected by the quarantine regime, in payment of insurance fees under voluntary
insurance contracts until 30 September 2020, as well as provide insurance services through
effective use of electronic facilities.

Support for capital market participants

The Central Bank will also take actions to mitigate the negative impact of the coronavirus
pandemic on capital market participants. For this purpose, capital market participants will be
provided with following regulatory holidays:
● in case of violation of the capital requirements by investment companies, application of
enforcement measures against them is postponed until 1 January 2021;
● publication of annual audit reports by investment companies and the stock exchanges is
postponed until 30 September 2020;
● publication of annual and semi-annual reports by issuers whose securities were publicly
offered and traded on the regulated market is postponed for up to 1 month;
● inspections of activity of investment companies and stock exchanges are postponed until
30 September 2020.
In addition, securities market participants will be provided with following incentives:
● the National Depository Center will not charge tariffs on deals in the secondary market
with shares and bonds, as well as registration of repo transactions until 30 September
2020;
● the Baku Stock Exchange will not charge listing tariffs on corporate bonds until 1
January 2021;
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● the number of documents required for public offering will be minimized.

The above actions will be softening regulatory burden of capital market participants and
maintaining optimization of investors’ transaction cost and more flexible secondary market
operations in the government securities market.
In conclusion, the tax incentives available in Azerbaijan have been instrumental in promoting
economic growth and development. By providing tax breaks and credits, these incentives have
encouraged investment, supported businesses, and stimulated job creation. As Azerbaijan
continues to develop its economy, it is likely that these tax incentives will continue to play a
vital role in promoting sustainable growth and development.
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References
“Azerbaijan - Market Overview.” Export.gov, U.S. Commercial Service, 14 Oct. 2021,
www.export.gov/article?id=Azerbaijan-Market-Overview.
“Investment Incentives.” Azpromo.az, 12 May 2023, www.azpromo.az/en/investment-
incentives.
“Taxes and Investment Incentives.” Invest.gov.az, Ministry of Economy of the Republic of
Azerbaijan, 12 May 2023, invest.gov.az/en/taxes-and-investment-incentives/.
"Law on the Special Economic Regime for Export-Oriented Oil and Gas Activities." Ministry
of Taxes of the Republic of Azerbaijan, http://taxes.gov.az/en/pages/256. Accessed 12 May
2023.
"Law on Special Economic Zones." Ministry of Taxes of the Republic of Azerbaijan,
http://taxes.gov.az/en/pages/254. Accessed 12 May 2023.
"Incentives for Employment of Disabled Persons." Ministry of Taxes of the Republic of
Azerbaijan, http://taxes.gov.az/en/pages/231. Accessed 12 May 2023.
"Incentives for Civil Aviation." Ministry of Taxes of the Republic of Azerbaijan,
http://taxes.gov.az/en/pages/258. Accessed 12 May 2023.
"Meeting Held to Define Range of Tax Incentives for Azerbaijan's Film Industry." Azerbaijan
Caspian Shipping CJSC, 14 April 2023, https://asco.az/en/meeting-held-to-define-range-of-
tax-incentives-for-azerbaijans-film-industry/. Accessed 12 May 2023.
"Agrarian Credit and Development Agency to Develop Tools to Support Farmers in Liberated
Areas." Trend News Agency, 22 March 2023,
https://en.trend.az/business/economy/3523089.html. Accessed 12 May 2023.
Central Bank of Azerbaijan (2020, April 23). Decision of the Management Board of the
Central Bank of Azerbaijan on additional measures to support individuals and entrepreneurs
amid the coronavirus pandemic. Retrieved from
https://www.cbar.az/assets/50c8624f4d03f2adad4a8b3001cddcee.pdf
Samadli, R. (2020, May 4). Azerbaijan: Tax incentives during COVID-19. Eurasia Review.
Retrieved from https://www.eurasiareview.com/04052020-azerbaijan-tax-incentives-during-
covid-19-oped/
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4. Making A Location Selection By Using Factor Rating Method (15

Factors, 3 Alternative Location)

Abstract- This study aims to investigate the criteria considered in the evaluation of potential
business sites through a factor-based rating analysis. The geographic placement of a
manufacturing facility constitutes a determining factor with regard to the overall cost associated
with the product. Proper strategic planning is imperative in the selection of a suitable location.
This study relates to the analysis of location, encompassing demographic analysis, traffic
analysis, among other relevant factors. The present discourse expounds upon the paramount
determinants that influence the positioning of a location, accompanied with apt illustrations.
The evaluation of the site in question demands a comprehensive assessment of numerous
influential factors that may impact production, including but not limited to aspects such as
transportation, the accessibility of appropriate land and raw material availability. The factor
rating method can be delineated with a series of facile steps that facilitate the process of
identifying the optimal geographic location for a given enterprise.
Keywords- factor rating, site selection, plant location, evaluation, strategic planning

Introduction
The identification of a suitable region and specific site for the establishment of a business or
factory is commonly known as plant location determination. The selection of a particular site
is typically predicated upon a thorough analysis of the potential cost and benefits associated
with various alternative locations. According to scholarly sources (Verma, J.C., and Gurpal
Sing 2002, Ghosh, Bishwanath 2000), the act of making a strategic decision is an irrevocable
process. The selection of a location ought to be determined based on both the exigencies of the
business and the prevailing circumstances. Entrepreneurs are advised to endeavor to secure an
optimum or ideal location. An ideal location is characterised by a minimisation of production
costs, the attainment of a robust market presence, the mitigation of risk, and the attainment of
maximum social benefits.It is the place of maximum net advantage or which gives lowest unit
cost of production and distribution (Charantinath M Poornima 2006).

Location Analysis
It is a process in which analysis of alternative sites is done with the aim of selecting the best
site for business. It consists of the following (Ghosh, Bishwanath 2000,Florence. P. Sargent
1984):
Demographic Analysis: it involves the study of population in the area in terms of total
population, age composition, per capita income, educational level, occupational structure, etc.
Site Economics: alternative sites are evaluated in terms of establishment cost and operational
cost under this. Cost of establishment is basically the cost incurred for permanent physical
facilities but operational costs are incurred for running business on a day to day basis, they are
also called running costs.
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Competitive Analysis: it helps to judge the nature, location, size and quality of completion in a
given trade area.
Traffic Analysis: to have a rough idea about the number of potential customers passing by the
proposed site during the working hours of the shop, the traffic analysis aims at judging the
alternative sites in terms of pedestrian and vehicular traffic passing a site.

Factors Affecting Site Selection

The geographical location of the final plant can have a strong influence on the success of the
industrial venture (Verma, J.C., and Gurpal Sing 2002, Lundy, James. L. 1984). Considerable
prudence should be taken when selecting the appropriate plant site, whereby numerous distinct
factors need to be thoroughly evaluated. The location of a plant must primarily consider the
minimization of production and distribution costs. However, other factors, such as the
feasibility of future expansion and the provision of safe living conditions for employees and
local residents, also warrant consideration (Sreekantaradhya, B.S. 1985).
To make the best decision on the ultimate location, it's crucial to conduct a comprehensive
evaluation of the pros and cons of different geographic regions and consider the advantages and
drawbacks of the available properties. The following list outlines several factors which must be
taken into account (Weber, Alfred,1929):
Raw Materials Availability: The availability of raw materials is of crucial significance in the
determination of a suitable plant location. It is imperative to direct one's focus towards several
aspects while considering the procurement of raw materials, such as the cost of purchase,
geographical proximity to the supplier, transportation costs, accessibility and dependability of
supply, quality of the raw materials, and storage prerequisites.
Location: Market location affects distribution cost and time for shipping. Proximity to major
markets is important in selecting a plant site as buyers often prefer nearby sources. For a
sulphuric acid plant, it's best to create it close to fertilizer industries as they are the primary
consumers.
Availability of Suitable Land: Examine proposed plant site's land characteristics, including
topography and structure, to affect construction cost. Land cost, local building/living conditions
and potential future expansions govern plant facility decisions. Land should be flat, well
drained, and able to bear loads. A site evaluation will determine if piling or special foundations
are required.
Transport: One of the most important factors to be taken into account while selecting a plant's
location would be transportation of goods and materials to and from the site. Ideally, when
choosing a location, it would be wise to consider proximity to two key transport modes: namely,
roads, railways, waterways, or seaports. The utilization of road transportation is on the rise and
is highly applicable for distributing goods locally from a central storage facility. Long-haul
transportation could be more cost-effective with rail transit. Ideally, the location of the plant
should be such that it can be easily accessed through various modes of transportation, including
roadways, railways, and waterways. It is typically essential to have easily accessible rail and
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air transportation options connecting the plant to the main company headquarters, as well as
efficient transportation accommodations for the plant employees.
Availability of Labors: Labor will be required for both constructing the plant and managing its
operations. Typically, proficient construction personnel will be recruited externally for the
project, however, there ought to be a sufficient supply of inexperienced workers in the vicinity
who can be taught to manage the equipment. Plant maintenance will require the expertise of
highly skilled craftsmen. The examination of labor availability and appropriateness for
recruitment and training must take into account the established practices and limitations of the
trade unions in the area.
Availability of Utilities: the word „utilities‟ is generally used for the ancillary services needed
in the operation of any production process. These services will normally be supplied from a
central facility and include water, fuel and electricity (Kumar Anil, S.C. Purnima, Abrahim
Mini K, K Jayashree, 2003).
Water: Water is a vital resource for both industrial and general purposes, serving a diverse range
of functions such as cooling, washing, steam generation, and raw material utilization in
manufacturing processes. The plant's location must be contingent upon the presence of a reliable
water source, specifically those that are procured from lakes, rivers, wells, or seas. In cases
where the water supply exhibits seasonal variability, it is advisable to establish a reservoir or
drill multiple standby wells as a means of mitigating the effects of this phenomenon. When
selecting a water supply, an array of factors such as temperature, mineral content, presence of
silt and sand, as well as the cost of supply and purification treatment, are of paramount
importance and must be taken into due consideration. De-mineralized water is utilized in
instances where the process demands pure water, typically in the context of boiler feed. This
form of water is devoid of any minerals that may have been originally present. The utilization
of natural and forced draft cooling towers is commonplace in providing the requisite cooling
water on a given site.
Electricity: The majority of industrial plants normally require significant power and steam, for
which a fuel source is commonly needed to fulfill these utilities. In order to operate and power
a range of equipment such as generators, motors, turbines, plant lighting systems and for general
usage, power, fuel, and stem are essential components to consider when selecting a site for a
plant. Consequently, these elements should be regarded as a significant factor in making such
a decision.
Local Community Considerations: The proposed plant must fit in with and be acceptable to the
local community. Full consideration must be given to the safe location of the plant so that it
does not impose a significant additional risk to the community.
Climate: The expenses will rise due to unfavorable weather conditions encountered on-site.
Additional insulation and specialized heating for equipment and piping will be necessary to
cope with extremely low temperatures. In the same way, it is crucial to take into account
elevated humidity levels and high temperatures when choosing a suitable location for the plant,
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as they present significant challenges. Locations that are prone to high wind loads or
earthquakes will require more robust structures.
Political and Strategic Considerations: Capital grants, tax concessions, and other inducements
are often given by governments to direct new investment to preferred locations; such as areas
of high unemployment. The availability of such grants can be the overriding consideration in
site selection.
Taxation and Legal Restrictions: State and local tax rates on property income, unemployment
insurance and similar items vary from one location to another. Similarly, local regulations on
zoning, building codes, nuisance aspects and other facilities can have a major influence on the
final choice of the plant site.

Method Of Factor Rating

There are many analytical methods which can be used for selecting the suitable site for any
industry. Factor rating is mostly used method, following are the basics steps:
Step1: Develop a list of relevant factors.
Step 2: Assign a weight to each factor reflecting its relative importance to the firm.
Step 3: Develop a rating scale for the factors.
Step 4: Score each location on each factor based on the scale.
Step 5: Multiply the scores by the weights for each factor and total the weighted scores for each
location.
Step 6: Make a recommendation based on the maximum point score, considering other factors.
In the factor rating method, first we must identify the Most Important Factors in evaluating
alternative sites for the new facility. Then we should assign a weight between 0 and 100 to each
of these factors. Each alternative location will then be rated based on these factor weights. The
most weighted alternative is selected as the best alternative.
In this project three alternative sites have been considered for manufacturing sector of
automobile production and the factor rating method to evaluate the three alternative locations
of Mexico, Vietnam, and Malaysia has been used as below:
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Results are shown below:

Location Mexico Vietnam Malaysia

Total Weighted Score 7080 6230 6370

Therefore, based on the analysis, Mexico has the highest score and would be the best location
for setting up a manufacturing facility. This is because Mexico scored the highest on most of
the factors, such as political stability, Availability of skilled labor force, tax incentives, ease of
doing business, market access, logistics and transportation, and availability of raw materials.
However, investors should also consider other factors such as labor laws, regulations, and
environmental compliance before making a final decision.

Conclusion
The determination of a suitable physical location for a plant constitutes a critical decision for
entrepreneurs due to its significant impact on both the production and distribution expenses.
The meticulous undertaking of location analysis is imperative. Firms can fail due to location or
growth limitations. In the Method of Factor Rating, careful consideration should be given to
subjective factor weights, selected factors, and assigned scores.
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References
Verma, J.C., and Gurpal Singh, Small Business and Industry – A handbook for
Entrepreneurs, New Delhi, Sage, 2002
Ghosh, Bishwanath entrepreneurship development in India: National publishing house,
Jaipur and New Delhi 2000
Charantinath M Poornima, Entrepreneurship Development Small Business Enterprises:
Pearson Education First Impression, 2006
Florence. P. Sargent, Investment, Location and Size of plant, London: Cambridge
University Press, 1984
Lundy, James. L. Effective Industrial Management, New Delhi: Eurasia Publishing
House, New Edition, 1984
Sreekantaradhya, B.S., Regional Dispersal of Industries, New Delhi; Deep and Deep,
1985
Weber, Alfred, Theory of Location of Industries, Chicago: The University of Chicago
Press, 1929
Kumar Anil, S.C. Purnima, Abrahim Mini K, K Jayashree, “Entrepreneurship
development”: New Age International Private Limited Publisher, 2003