Order Management System (OMS)

What Is Available To Promise Inventory? Example and Calculation

Available to promise (or ATP) is a metric that helps companies maintain the minimum necessary of a given item, maximizing warehouse space and lowering the likelihood that customers will see things as “backordered.”

In this article, we will provide you with everything about the Available To Promise Inventory, how to calculate it, and examples.

What does the Available To Promise Inventory mean?

Available to promise, as its name suggests, refers to the amount of inventory that is currently available and that a company can promise to sell in the near future. Allocation from procurement orders is excluded.

Available To Promise definition
Available To Promise definition

For instance, e-commerce merchants utilize the ATP computation to establish the due date for your delivery.

ATP enables companies for using their inventory warehouse space more efficiently by allowing them to keep the bare minimum of a certain product in their warehouses. To ensure that your customers never experience “backorder” status, it leverages data to match supply and demand as closely as feasible.

Available to promise is the best approach to stay ahead of the curve and do stock replenishment in the most efficient way if you’re searching for a strategy to boost both profit and customer pleasure.

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With the help of ATP, organizations with intricate operations can maintain a low inventory without going overboard with their capacity. Additionally, it enables salespeople to quickly determine when they can fulfill certain customers ’ orders. Without ATP, salesmen frequently need to speak with several departments to see whether the product is in stock and can be supplied by particular dates.

Companies never want to lose a deal or question optimistic projections, but underestimating demand can have disastrous results. Overcommitting can result in write-offs, faulty products, and irate investors, which is worse for a company than greater stockout rates or worse service standards.

Available to promise inventory may sound difficult, but it’s actually much easier than you might imagine. It is a crucial component of controlling your supply chain.

Now, let’s see how to calculate available to promise inventory in the next part!

How to calculate ATP?

Calculating your Available To Promise Inventory is straightforward:

ATP = Quantity On Hand + Supply – Demand

Where,

  • Quantity on hand: nettable amount on hand
  • Supply: scheduled receipts, planned orders (including discrete jobs, buy orders, and purchase requisitions), and recommended repeated schedules.
  • Demand: component demand, sales orders (from scheduled orders, discrete projects, and proposed repeated schedules); does not include predicted demand or manual entries

Why is ATP important for optimizing multichannel businesses?

More businesses are engaging in cross-channel competition, including brick-and-mortar, e-commerce, and wholesale. To satisfy customer expectations and ensure that complicated inventory management operates properly, ATP supply chains are now becoming essential.

ATP is important for optimizing multichannel businesses
ATP is important for optimizing multichannel businesses

Based on the push-pull method, there are 2 ways to apply ATP. ATP inventory analysis is useful in predicting future demand when used with a push approach. What is kept in inventory is decided by past sales as well as growth projections.

Inventory is distributed when each order enters the system since pull-based ATP responds to real orders placed. In this case, ATP is carried out in real-time to allow for batch checks of available resources when inventory is verified periodically.

How is safety stock different from available to promise?

There are significant variations between ATP and safety stock, a classification that is frequently employed in inventory management. The amount of inventory a company should have on hand in case of stockouts or shortages is known as safety stock. 

Consider it as a form of insurance against increases in demand or material shortages. Normally, this figure never changes.

The available to promise inventory, however, is subject to daily fluctuation. It could also be negative which would mean that your inventory is less than the required amount for safety stock.

In other words, safety stock tells you how much stock to have on hand, and ATP tells you how much stock you can sell at any particular time.

Available To Promise Inventory Example

Imagine that we run a widget factory that has recently started using an ATP supply chain to give you a sense of how ATP functions. The hypothetical warehouse opens the 2nd quarter of the year with 10 widgets on hand.

We get a Master Production Schedule (or MPS) of 100 widgets every month, and our system has generated sales forecasts for each of the months this quarter.

The number of widgets we need available to promise for the coming month is determined by subtracting the sum of the sales orders from the Master Production Schedule at the conclusion of each month.

Let’s go back to the widget factory and say that at the end of April, we had 30 widgets available to promise. We only manufactured 100 widgets in May while receiving 110 sales, which would have been an issue if it weren’t for the initial 10 we had on hand.

We got 230 orders at the conclusion of the quarter as opposed to the 300 that were anticipated and listed on the MPS, leaving us with a sum of 80 widgets ATP for the following three months.

We may modify our predictions and MPS in accordance with the second quarter’s sales and the prior year’s sales to achieve a leaner, more effective inventory operation.

Obviously, ATP-based inventory management software is considerably more complicated than this, but the same concepts still hold true. With more data available over time, firms can anticipate production plans and inventory with precision for the upcoming month, quarter, or year.

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Management and analysis of ATP inventories

Businesses have an advantage over slower, less sophisticated inventory management systems thanks to ATP supply chains.

Analysis of ATP inventories
Analysis of ATP inventories

Giving clients various delivery services in a constrained time frame and a high level of satisfaction among customers is a benefit that is difficult to achieve in any other situation. Although it seems like a minor distinction, it can have a significant impact.

For instance, because their inventory management software is inaccurate or unresponsive to what is happening in the warehouse, salesmen frequently don’t believe what is represented in the inventory.

Employees who lack trust may act erratically, look out for their own interests, and disrupt the supply chain. Because of overzealousness or, conversely, overly cautious delivery schedules to appease customers, this might result in back-ordered products, both of which frequently result in lost revenue.

The supply chain can anticipate the needs of your sales personnel using ATP forecasting, fostering a degree of buy-in as well as trust that wasn’t previously achievable. An ATP supply chain provides the chance to maintain inventory levels that are always just in time for consumers while avoiding backorders.

With fewer complaints made both publicly and privately about broken promises or unsolved issues, this also results in more content consumers and cheaper customer service expenditures.

Companies can boost stock turnover rate and decrease markdowns by running leaner inventory control processes, which boosts gross margins as well as overall income.

3 best practices of ATP inventory

3 best practices of ATP inventory
3 best practices of ATP inventory

The implementation of ATP could seem daunting, as with any new procedure. Here are three essential strategies to remember in order to achieve a seamless transition and maximize ATP:

Involve all necessary employees while onboarding ATP

In the ATP onboarding, all stakeholders—including salespeople, customer service representatives, inventory planners, and warehouse managers—must have an opportunity to voice their opinions.

Make sure that everyone on the team is aware of the importance of ATP and how it directly affects them. The fewer roadblocks you encounter along the way, the better everyone knows the system.

Employ the top inventory management system available

ATP sounds sense in theory, but you’ll struggle to compete in a market that’s getting more cutthroat and complicated by the day without a reliable inventory management system. You may estimate production schedules and keep lean inventories by using ATP reports that a top-notch technology solution is able to produce.

Begin with a cycle of tests

It’s crucial to avoid immediately overwhelming personnel and leadership so that you can use a test cycle to lessen the stakes. By making the effort to go over the process step by step, you can build team confidence at all stages and work out any problems before going live.

The Bottom Line

Customer expectations are becoming more challenging to achieve as time goes on. Free and fast shipping is becoming standard practice for businesses that offer physical inventory.

Your business can benefit from Available To Promise Inventory by having a better understanding of consumer demand, stronger supplier relationships, and more accurate inventory decisions.

Consider leveling up your business management system to better properly track your inventory if your company is looking for ways to streamline its inventory management procedures.

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