Managing Behavioural Risks in Logistics-Based Networks - A Project Finance Approach

Purpose – Logistic service providers (LSPs) are increasingly required to take over the ownership of network-specific inventories and to finance related working capital. The paper examines the nature of associated uncertainties, especially behavioural risks and illustrates the mechanisms of the project financing approach to solve many of the specific challenges of a LSP to manage a network's working capital.Design/methodology/approach – Based on an idealised automotive supply chain network, working capital related conflicts of interest between members of a supply chain will be discussed. Behavioural risks in a network will be examined and context factors which moderate the intensity of those risks are identified. It is argued that the principles of project financing allows for the design of a workable concept of working capital financing within supply chain networks. Findings – The analysis of network risks structures concludes that behavioural risks associated with working capital make it difficult to finance network-specific inventories by LSPs. Within network structures the project financing approach is able to facilitate cooperative behaviour between network members and enables the financing of network-specific working capital.Practical implications – The results can be applied to supply chain networks which are affected by opportunistic behaviour merely in dynamic industries with structures similar to the automotive industry.Originality/value – The project financing technique, which originates from the field of large infrastructure investments, is adapted to the supply chain context. The contribution provides insights into the benefits and the mechanisms of this financing approach. Industries which often reconfigure their value chains should make use of this approach