There are seasons when businesses face huge piles of orders. For that, they need the required number of items in the inventory. Not having the right amount of stocks and then accepting orders for a certain amount can lead to confusion, customer distrust and poor social image of the company.
Here is where the “available to promise” or the ATP inventory comes into play. This type of inventory is the kind that has the projected amount of inventory a business needs to have in stock. The amount is regarding the number of orders they have had and are ready to sell.
Using the ATP, companies can keep the minimum amount of a specific item which maximises warehouse space. It also reduces the customers’ chances of seeing those items as “back-ordered”.
Let’s see how this technology and discipline is helping modern supply chains to streamline their orders.
Calculating ATP Inventory
As the name suggests, available to promise alludes to the available quantity of inventory a business can commit to selling shortly. It does not include purchase order allocation. For instance, e-commerce retailers use the ATP calculation to determine the delivery due date.
The ATP calculation is very simple:
ATP = Quantity On Hand + Supply – Demand
Since ATP inventory is a type of inventory analysis, it helps businesses with complex operations to keep a lean inventory while not overextending their capabilities.
This also empowers salespeople to instantly find out where they can deliver a potential customer’s order. Without ATP, salespeople usually have to talk to multiple departments to confirm that the inventory is available and can be delivered by the requested date.
Why is Available to Promise or ATP inventory Key for Multichannel Business Optimisation
More and more companies are competing in multiple channels like wholesale, e-commerce, and brick-and-mortar. ATP supply chains are becoming necessary to meet customer expectations and make sure complex ATP inventory management runs smoothly.
Companies can implement available promises in two ways. It is based on what is called a push-and-pull strategy. With a push strategy, ATP inventory can help forecast future demand. Past sales, combined with growth expectations, dictate what is there in the inventory.
Pull-based ATP is responsive to actual orders placed, so allocation of inventory happens as each order comes into the system. In this situation, supply chains perform ATP in real-time so that they can check resource availability immediately or in batches.
To understand this phenomenon better, let’s take a look at an available to-promise example.
ATP Inventory Example
To calculate an available-to-promise inventory, companies need certain values like:
- Available Inventory
- Expected Supply/ Purchase Orders
- Existing Demand/ Sales Orders
Let’s assume the values mentioned below for the example. You can use the same method to calculate the inventory for days, weeks, months, quarters and years.
You only need actual values in the formula. Never use estimations of the supply chain or demand for these KPIs.
| 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, we start with an ion-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. Once you have the number of available products, you need to input the sales orders in the ATP 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 that are in the inventory.
In the above available 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 see that on 3rd January, the ATP drops to -30. This means they were short of 30 products to fulfil the existing demand. This brings us to Positive ATP and Negative ATP. So, let’s see what these concepts are.
Types of ATP inventory
Positive Available to Promise (ATP) supply chains operate with efficient inventory management, ensuring goods are consistently available to fulfil customer orders. They maintain optimal stock levels, minimising stockouts and delays, enhancing customer satisfaction, and fostering trust. This system facilitates accurate order promising, meeting delivery commitments reliably and potentially gaining a competitive edge.
In contrast, negative ATP supply chains struggle with inventory inadequacies, resulting in frequent stockouts and delayed order fulfilment. This inconsistency leads to dissatisfied customers, damaged reputation, and lost opportunities.
Negative ATP scenarios often arise from poor inventory management practices, forecasting inaccuracies, or supply chain disruptions, necessitating urgent optimization efforts.
Regardless of which type of ATP you have to deal with, you need proper strategies. Strategies in supply chains that help to manage the stability of the supply chain functions.
How is ATP Useful?
When companies automate the system with efficient ERP systems, it helps to analyse the customer demands and adjust the required production schedules accordingly.
- It provides real-time visibility into inventory availability for fulfilling customer orders. It dynamically assesses stock levels, production capacity, and delivery schedules and promises accurate delivery dates to customers, enhancing satisfaction and loyalty.
- It facilitates proactive decision-making, allowing for efficient allocation of resources and optimization of production and distribution processes.
- Additionally, ATP enables better demand planning and inventory control, reducing stockouts and excess inventory costs.
Ultimately, ATP empowers businesses to meet customer demands promptly, improve operational efficiency, and maintain a competitive edge in the market. Knowing the advantages of ATP inventory, let’s see some of the common and popular practices that every supply chain needs to streamline its operations.
Best Practices for ATP
To have a smooth flow of process follow the steps below:
- Efficient Inventory Management: Implement the best inventory management software and ensure that it will allow you to take reports, maintain lean inventory and forecast production schedules.
- While Enlisting Include Suitable People: Communicate the importance of the inventory with all the members. Give a chance to inventory planners, customer service team members, supply chain leaders, and warehouse managers to suggest input during the ATP enlisting process.
- Unify Inventory Data: Retailers employing FATP strategies can unlock revenue potential by maintaining continuous product availability and lowering inventory carrying costs through reduced back stock.
Modern distributed order management systems with FATP capabilities offer real-time data utilisation, preventing overselling and stockouts. They enable seamless integration across sales channels, facilitating market expansion and handling increased order volumes efficiently.
Consolidated inventory data yields insights for optimising pricing, inventory planning, and targeted marketing. Customers benefit from accurate product information and availability across channels, ensuring smooth transitions between online and offline purchases. Centralised inventory management optimises order routing, minimising delays and cancellations.
Applying the Use Cases
FATP or Future-to-Available Promise Inventory is most useful in cases when customers have specific requirements and the retailers want to manage the customer expectations in regards to the product.
FATP works for retail situations where there is the predictability of inventory arriving at a fulfilment location, as well as for fast-moving goods such as seasonal items.
For example, during the back-to-school season, items like lunchboxes, notebooks and backpacks sell quickly in stores and online, requiring raid planning and replenishment across channels.
FAQs: Navigating Available to Promise or ATP Inventory: An Essential Guide
What is the difference between ATP and non-ATP inventory?
ATP (Available to Promise) inventory refers to stock that’s immediately available for customer orders, while non-ATP inventory encompasses items reserved for other purposes or not yet ready for sale.
How to calculate available to promise inventory?
Available to Promise (ATP) inventory is calculated by subtracting allocated inventory, reserved for existing orders, from total inventory· The resulting value is the quantity available for new customer orders at a given time·
What are the best practices of ATP inventory?
Best practices for ATP inventory include implementing robust demand forecasting, maintaining real-time inventory visibility, optimising production and distribution processes, and leveraging advanced inventory management technologies for accurate tracking and allocation·
What are the main future trends for ATP inventory?
Future trends for ATP inventory include the integration of AI and machine learning for enhanced demand forecasting and inventory optimization, the adoption of blockchain technology for transparent and secure inventory tracking, and the expansion of omnichannel capabilities to meet evolving customer demands.
Conclusion
Navigating available to promise or ATP inventory is crucial for businesses to meet customer demands efficiently. It allows them to maintain a competitive advantage. Proper ATP calculation and management practices ensure correct order fulfilment. With experts at Qodenext and future trends like AI integration, blockchain adoption, and omnichannel expansion, ATP strategies will continue to evolve, driving operational efficiency and meeting evolving customer expectations.
