Background
There are a plethora of inventory management systems in the market. By and large, they all look somewhat alike and all claim about the same benefits for their users. But are they really all alike or are there some important differences between their assumptions, methodologies and technologies?
Maybe a useful exercise could be to segment the inventory management system systems in respect of some or other differentiating variables.
However, before segmenting the inventory management systems, it is worth keeping two overriding axioms in mind.

• Inventories are future-looking investments beset with future uncertainties and associated risks.
• Future risks increase in proportion to the length of the planning or investing horizons.

These two statements are useful when looking for a segmentation criterion or variable.

Future Risks from Uncertainty
It is useful to further examine the implications of these two axiomatic statements.

• The longer the planning horizon, the greater is the uncertainty as we move away from today.
• The greater our uncertainty, the greater is our need for safety/buffer/insurance stocks.
• The greater the uncertainty, the greater are our working capital and operating costs.
• Anything that reduces this future uncertainty will also reduce our costs.

It is clear that the length of the planning and investing horizon is a key determinant of the important differences between system types.

Segmentation by Horizon Length
As mentioned, probably the single most useful segmentation criterion or variable is the length of the planning and investing horizon contemplated by the system.

• For some systems the planning horizons are measured in hours and days.
• Other systems plan over horizons that span days and weeks, and maybe months.
• There are also systems that plan over horizons that span weeks, months and years.
• Although there is some overlap between these systems, they are fundamentally different.

This may not be immediately apparent when reviewing their promotional material but a deeper drill-down into their time-based capabilities will soon reveal the differences.

Systems Compared
Although it is relatively easy to contrast the inventory management systems that are closely coupled with production or MRO planning with other inventory management systems, the differences become less obvious when looking at the next two system segments.

• At the shortest planning horizon end, we have production optimization systems where planning horizons are usually minutes, hours, and days. Very little future risk is encountered over these short or immediate planning horizons and there is very little need for buffer stocks. These may be thought of as near-real-time systems. An example here is QPlus.
• Next, come the inventory execution systems that work with demand forecasts and replenishment cycles. These systems apply MRP logic and will drive purchase ordering / transferring of stock over planning horizons spanning days, weeks, and sometimes months. Some future risks and uncertainty exist here, and they will usually set safety or buffer stock levels. However, for these systems, the risks are contained by the short planning horizons. These may be thought of as tactical systems. An example here is PIC.
• Lastly come those systems that plan and invest over horizons that span weeks, months, and years into the future. A great deal of uncertainty and risk will exist as the horizon expands. Unless these future risks can be effectively modeled and mitigated, the operating costs will rise to prohibitive levels as the horizon expands. Accurate multi-variate risk modeling, therefore, becomes imperative if costs are to be contained over long planning and investing horizons with their associated commitments. These systems may be thought of as strategic systems. An example of such a system is ICS.
• Although these systems may seem compartmentalized or discreet, in practice there is some overlap in functions between them. However, this overlap disappears as the planning horizon is extended. Rapidly increasing costs from uncertainty effectively limit the length of the planning horizon. PIC cannot confidently execute far-out future purchase orders whereas ICS can do so.

The Benefits from Extended Planning / Investing Horizons
The key words here are accurate or realistic future projections where all the supply chain risks have been measured and factored in. It is the confidence inspired by the realistic risk modelling that allow us to make future commitments over extended planning horizons.
Such future commitments hold promise of substantial benefits to both customers as well as to suppliers alike.

For the Customer

Customers can profit from some undoubted gains by implementing operating methods relying on long planning horizons.

For the customers the supply reliability for committed future dated orders should improve.

• Improved supply reliability, in turn, will reduce the size of the buffer stock investments needed.
• Customer service to end-users from improved supply reliability is also improved.
• This should result in substantial working capital productivity improvement gains for customers.
• Future capacity planning over extended time horizons is enabled and improved.

For the Supplier
Suppliers, too, stand to gain from long planning horizons and their associated purchasing commitments.

• A procure-to-order methodology now may become possible, with attendant stock reductions.
• The production planning or sourcing certainty is greatly increased.
• The dreaded “bull whip” (Forrester) effect is avoided.
• Future commitments to raw material suppliers with shared benefits now become possible.
• The net result is that working capital productivity is improved.
• Future capacity planning over extended time horizons is improved.

The Key Requirements
It should be borne in mind that there will be an overriding requirement to produce accurate closing stocks and accurate ROP’s to simulate future orders under varying conditions.
In order to effectively implement the capability to leverage long planning and investment horizons, the chosen system will need to be able to perform a number of key functions very well.

• It will need to produce risk-conditioned MRP projections for more than a year into the future.
• It will analyze multivariate risk parameters and variables for future risk modeling purposes.
• Effectively deal with independent as well as dependent demand planning and operations.
• Effectively deal with slow moving and Min/ Max rules where forecasts are usually ignored.
• Simulate daily sales and stock movements as well as closing stock positions far into the future.
• Adjust stock arrival dates dynamically and continuously for lead-time performance variations.
• Adjust closing stock positions for the risks of over forecasting.
• Adjust future demand forecasts for seasonal and cyclic trends.
• Deal with temporary policy, demand and risk changes over predetermined future time periods.
• Simulate future purchase orders over at least the next 12 months.
• Introduce systematic adjustments to orders as circumstances change without cancelling the committed future orders.
• Simulate purchasing and receiving workloads as well as space requirements by location for at least the next 12 months.

Finally
When measuring the ICS system against these functional yardsticks it becomes clear that, in many respects, it is in a class of its own.
All these requirements, and more, are met with the use of the ICS system and risk modelling methodology.
ICS is truly a strategic inventory management system that can simultaneously offer significant benefits to both customers / users as well as to their suppliers. In short, it helps to optimize inventory investments throughout the supply chain.
The latter is not a claim many of its competitors can honestly make.