The deployment of ICS as the inventory management and analysis software provides the basis for 3rd party inventory financing and concurrent inventory de-recognition off the balance sheet. De-recognition is in compliance with US-GAAP and IFRS.
Unique off-balance sheet inventory financing enabled and managed by
one-of-a-kind risk algorithms.
The starting position shows a common business set-up where inventories are purchased from suppliers to fulfil anticipated future market demand.
Purchased inventory products are received and booked into inventory. The inventory ties up working capital until it is liquidated through sales to a customer.
This conventional trading model consumes significant amounts of working capital and incurs significant capital costs.
The ICS inventory management methodology and technology is introduced. It is based on advanced demand forecasting and on actuarial supply chain risk calculations run uniquely for every stocked item at every stocking location. This drives the reorder point signals for replenishment stock purchases uniquely for every stocked item at its locations.
The outcome is a risk-balanced inventory investment portfolio that is truly optimised for customer service and simultaneous capital productivity.
Substantial savings are usually realised at this stage through the release of 'lazy capital'.
Further capital optimisation now becomes possible.
The vehicle for this new capital cost optimisation is presented by the innovative asset quality risk models and simulations to partition the stocked inventory items into low-risk and higher-risk brackets.
Many low-risk inventory items can then be reclassified as “investment grade” assets and a methodology exists for de-recognition and for removal from the trader’s balance sheet in compliance with the US GAAP and the IFRS requirements.
An “insurance wrap” is usually also available to safeguard the investment grade quality classifications.
A Special Purpose Vehicle (SPV) is established to purchase, own and financially hold the inventory stock items until sold by the trading company.
In effect, the trading company is offered so-called “consignment stock” by the SPV until sold by the trading company. No future purchase commitments are needed from the trading company.
It offers a “no-recourse” and “bankruptcy remote” solution.