Available to Promise, or ATP, tells you the quantity you have available on hand. It is a part of inventory management and plays a crucial role in several supply chain operations.
According to Zerba Warehousing Vision Study, inventory management is one of the biggest challenges in supply chain management. Calculating available to promise inventory can help you overcome many of these challenges.
In this article, we will understand:
- Definition of available to promise inventory.
- Calculating available to promise inventory with examples.
- Using available to promise inventory for making supply chain decisions.
- The benefits of using available to promise inventory.
What is Available to Promise Inventory?
Available to Promise Inventory, or ATP inventory, is the number of products that a company can commit to delivering at any given time. The metric used to measure this inventory level is called availability to promise. This metric shows how many orders a company can process before going out of stock.
Availability to promise metric can help you track inventory levels on any given day. For example, an omnichannel retailer can calculate the delivery lead time based on the available to promise inventory. You can also use the ATP method to calculate optimum inventory levels for the just-in-time delivery method.
The available-to-promise inventory is often confused with the capable-to-promise inventory. While both are used for inventory tracking, they have some key differences.
Capable to Promise vs Available to Promise
Capable to Promise (CTP) and Available to Promise (ATP) both focus on different capacities of a supply chain. While ATP is a forecast of inventory that would be available for order fulfilment, CTP forecasts the maximum capacity of the supply chain to produce inventory.
CTP is a more complex metric compared to ATP. You only need to consider the products in your inventory to calculate available to promise inventory. On the other hand, you need to consider several other supply chain management factors to calculate the CTP inventory. These include supplier lead time, production capacity, availability of raw materials, supply chain logistics, and so on.
While ATP shows the actual inventory levels, CTP is a method to estimate inventory levels based on the capacity of the supply chain to deliver products.
How to Calculate Available to Promise Inventory?
You can use the available to promise formula to calculate the quantity of inventory you will have ready to sell at any given time. Let’s see the formula to calculate ATP and use an example to understand it in detail.
Available to Promise Formula
The formula to calculate available to promise inventory is:
Available to Promise (ATP) Inventory = Inventory on Hand + Inventory Supply - Inventory Demand
In the available to promise formula, the Inventory on Hand signifies the number of products that you are ready for shipping. These would be the products in a ready state in your warehouse that you can use for order fulfilment.
Inventory Supply signifies the number of products expected to arrive through the supply chain. Here you only have to consider the products that would arrive in the warehouse or order fulfilment centre. You cannot consider the products that would be at any other stage in the supply chain for available to promise calculation.
Inventory Demand refers to the existing demand for the products. Here, you only need to consider the orders already placed by the customer. You do not need to consider the forecasted demand or expected sales.
The availability to promise is an inventory tracking metric to estimate the number of products available for future demand. Let’s understand this formula better with an example.
Available to Promise Example
To calculate available to promise inventory, we need certain values such as:
- Available Inventory
- Expected Supply / Purchase Orders
- Existing Demand / Sales Orders
We will assume the values mentioned in the table below for this available to promise calculation example. You can also use the same method to calculate available-to-promise inventory for days, weeks, months, quarters, and years.
It is important to note that you only have to use actual values in the available to promise formula. You should not use estimations of supply or demand to calculate available to promise KPI.
|January 1||January 2||January 3||January 4|
|On Hand Inventory||200||20||0||(-30)|
|Expected Supply / Purchase Orders||0||100||100||200|
|Existing Demand / Sales Orders||180||120||130||160|
|Available to Promise Inventory||20||0||(-30)||10|
In this example to calculate available to promise inventory, we begin with an on-hand inventory of 200 products. We have assumed zero purchase orders for that day. So the inventory level for January 1st will remain at 200.
Similarly, you can calculate the total available inventory for each day. In the above available-to-promise example, the available inventory is as follows:
- January 1st: 200 Products
- January 2nd: 120 Products
- January 3rd: 100 Products
- January 4th: 170 Products
Once you have the number of available products, you need to input the sales orders in the available to promise formula. These are the products that you have already committed to a customer. So, you need to deduct these from the number of available products to get available to promise inventory.
For January 1st, we deduct 180 products from the 200 available products. This calculation gives us the number of products that are available to promise. In this example, we have 20 products available to promise.
This means that you can still process orders for 20 more products without running out of stock. It also means that you will have 20 products in the on-hand inventory for the next day.
In the above available to promise example, we have to carry forward the ATP inventory from January 1st to January 2nd. Similarly, you need to carry forward the available-to-promise inventory of one period as the on-hand inventory of consecutive periods.
You will notice that on 3rd January, the ATP drops to -30. This means that we are short of 30 products to fulfil the existing demand. This brings us to Positive ATP and Negative ATP. Let’s understand these concepts using the above available to promise example.
A positive value in ATP inventory indicates that you have stock available to fulfil orders. In the above example, you can see positive ATP on January 1st (20), and 4th (10). You can carry forward this inventory to the next period.
A negative value in ATP inventory indicates that you will be out of stock before completing the existing orders. In the above available to promise calculation example, we see a negative ATP of 30 products on January 3rd. It means that you are short of 30 products to meet the current demand.
It also means that some of your orders will be delayed until additional inventory arrives. The negative ATP inventory also shows the quantity of additional supply required to manage inventory levels.
You can use Positive ATP and Negative ATP as available to promise KPI to manage inventory levels. Once you calculate available to promise inventory, you can use it to drive several supply chain management decisions.
What are Available to Promise Supply Chain Strategies?
The available to promise calculation is crucial for managing the stability of the supply chain. It helps you make decisions concerning:
- Supply Requirements
- Warehouse Management
- Delivery Lead Times
- Order Fulfilment
By using availability to promise in the supply chain, you can accurately estimate the number of products that you can ship to your customers. The available to promise KPI also tells you the additional inventory you will need to manage the existing demand.
Furthermore, available to promise inventory calculation is necessary for warehouse management. It tells you about the number of products you will have in your warehouse at a given time. This will help you estimate the space required to store upcoming inventory.
Available to Promise Process Flow in Supply Chain
You can use available to promise inventory calculation to plan supply and order scheduling. The below image shows the available to promise process flow in the supply chain.
In this process flow, you use information from demand planning and supply expectations to generate the ATP. Based on the available-to-promise inventory, you can schedule existing and future orders.
If the ATP has a positive value you can easily schedule more orders for shipping. But, if the ATP has a negative value, you might have to delay scheduling some of the orders based on the next estimated inventory supply.
Available to Promise Inventory Example in Supply Chain Management
Let’s create another table to help us understand the available to promise supply chain.
|January 1||January 2||January 3||January 4|
|On Hand Inventory||200||50||0||(-30)|
|Expected Supply / Purchase Orders||0||100||150||200|
|Existing Demand / Sales Orders||150||150||180||140|
|Available to Promise Inventory||50||0||(-30)||30|
We have positive ATP of 50 products on January 1st. And we have an incoming supply of 100 products on January 2nd. This means that we can process orders for up to 150 products on January 2nd.
This results in an empty inventory on January 3rd with 150 products to be added to the available to promise supply chain. But, we need to process 180 orders on that day. This means that orders for 30 products will get delayed until the next supply cycle.
This way you can use the available to supply process flow to make several decisions concerning supply chain management. The available to promise KPI can serve as the mediator between the planning and execution stages of the supply chain. It also mediates between inventory management and order fulfilment.
What are the Benefits of Available to Promise Inventory?
Available to promise inventory can help you track and manage inventory levels. This in turn affects several supply chain decisions. Here are a few benefits of available to promise inventory for supply chain management:
- Estimate Inventory Levels
- Estimate Supply Requirements
- Prevent Understocking & Overstocking
- Schedule Order Fulfilment
- Optimise Warehouse Management
- Estimate Shipping Delays
- Estimate Delivery Lead Times
- Estimate Sales & Marketing Targets
Alongside these benefits, available to promise inventory tracking is also crucial for several supply chain strategies such as just-in-time delivery, omnichannel fulfilment, continuous flow, and so on. Furthermore, calculating available to promise inventory also plays a crucial role in supply chain automation.
Available to promise inventory is one of the most important metrics for supply chain management. It helps you understand the flow of inventory and make decisions concerning all preceding and succeeding processes in the supply chain.