Modelling payment mechanisms for supply chain in construction

Abstract

Purpose

Different direct/indirect managerial and contractual links throughout the supply chain have been researched to improve project performance. These links are undoubtedly influencing payment and cash flow mechanisms. As different members of the supply chains are affected differently by the factors influencing cash flow, payment mechanisms have to be designed in such a way that this uneven sensitivity to cash flow factors is addressed and linked to value and utility. The purpose of this paper is to introduce an IT system developed to model different payment mechanisms to enable the supply chain members to decide on the most appropriate payment mechanism.

Design/methodology/approach

The adopted methodology to select the appropriate payment mechanism is first illustrated. The mathematical model is then developed. The IT system to automate the developed methodology is then presented. The system considers alternative payment terms and conditions across the supply chain in a transparent and negotiated manner.

Findings

The outcome results in designing payment mechanisms and cash flows that satisfy all supply chain members.

Originality/value

The value of this research to the construction industry has been the clear identification of the benefit of applying appropriate and innovative payment mechanisms. This will encourage organisations to engage in these mechanisms and hence improve the effectiveness of how projects are managed and executed.

Citation

Motawa, I. and Kaka, A. (2009), "Modelling payment mechanisms for supply chain in construction", Engineering, Construction and Architectural Management, Vol. 16 No. 4, pp. 325-336. https://doi.org/10.1108/09699980910970824