Use ICS to Improve The Risk Assessments In Your Supply Chain Finance Agreements

Leveraging our unique algorithmic technology, Inventory Capital Solutions (ICS) automates the assignment of risk to each element of the inventory held by a company. This granular risk assessment makes it easier than ever to identify the investment quality of each portion of an inventory in support of third-party inventory financing and concurrent inventory de-recognition from the balance sheet in compliance with US-GAAP and IFRS. Keep reading to learn more.

The Conventional Trading Model

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.

Releasing Lazy Capital

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 optimized for customer service and simultaneous capital productivity.

Substantial savings are usually realized at this stage through the release of "lazy capital."

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Defining Investment-Grade Inventory

Further capital optimization now becomes possible.

The vehicle for this new capital cost optimization 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.

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Moving Inventory Off Your Balance Sheet

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.

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Ready to learn more?

If you are ready to take your inventory risk assessments to the next level in support of your supply chain financing agreements, complete the form below to allow a member of our team to set up a product demo that will show you how Inventory Capital Solutions by FDC can help your company leverage this powerful tool to improve the performance of your supply chain financing agreements.