Available to Promise (ATP): The Definitive Guide
As we explore the concept of “Available to Promise” (ATP) in this article, you’ll learn how this game-changing strategy in supply chain management can optimize your inventory and maximize profit. We will delve into the intricacies of ATP, contrasting it with safety stock, explaining how it’s calculated, and outlining ways to successfully implement it in your operations.
Key Takeaways:
- ATP is a tool for managing inventory effectively, allowing businesses to keep the minimum amount of a product on hand and match supply as closely to demand as possible.
- ATP differs from safety stock in that it changes according to various factors, such as current inventory levels, sales orders, purchase orders, and safety stock.
- Warehouse management systems (WMS) can calculate ATP numbers in real-time, providing a more accurate look into inventory and product availability.
- Effective implementation of ATP can be a complex process that requires training and integration of supply chain systems, and it might also involve a test cycle to ensure comfort and efficiency.
- Logiwa can help businesses implement ATP, offering a tool for maintaining leaner inventory while improving the customer experience.
What led to the downfall of Kmart, the rise of Walmart, and brought the iconic Ralph Lauren brand to its knees?
Poor inventory management.
Inventory management is tricky for any business. Most companies fear losing customers if they fail to have an item in stock. You may even be tempted to over-stock to “be prepared” for any size order. But storing too much inventory can eat into your profits.
How can you maintain a balance between keeping your customers happy and getting the most profit out of your product?
Enter Available to Promise, or ATP.
Our ultimate guide to available to promise covers the following topics:
BONUS: Before you read further on ATP, download our Warehouse Management Software Whitepaper to see how Logiwa uses real-time tracking to help customers get up to 100% inventory accuracy and improve forecasting.
What is Available to Promise (ATP)?
ATP allows businesses to keep the minimum amount of a given product within their warehouses so that they use their inventory space efficiently. It uses data to match supply as close to demand as possible so that your customers never experience “backorder” status.
If you’re looking for a way to increase both profit and customer satisfaction, available to promise is the ideal way to get ahead of the curve and do stock replenishment in the most effective way.
While available to promise inventory might sound complicated, it’s actually simpler than you think. Available to Promise is an essential piece for managing your supply chain.
Available to promise is the projected amount of inventory you have left available to sell, not including allocated inventory. It allows businesses to control distribution to their customers and predict inventory.
Push-Based ATP
Push-based ATP predicts demand based by including forecasting. This calculation takes into account the anticipated demand in order to predict how much needs to be ordered.
Although the push-based model makes sure that any future increase in demand accounted for, it does run a significant risk for most businesses. If your demand forecasting is off, you will have an inventory ill-prepared to meet your customer demand.
However, the push model can be useful when suppliers expect an increase in sales, such as during the holiday season.
Your push-based available to promise formula may include these elements:
- Quantity On-hand: the amount of product you currently have
- Supply: planned orders, purchase orders, purchase requisitions, etc.
- Demand: sales orders + forecasted demand
Push-based ATP = On-Hand Inventory + Supply – Demand
Pull-Based Available to Promise
The pull-based model, on the other hand, is based on current supply demand. It doesn’t include any forecasting predictions. New businesses who can’t afford to have more inventory than they sell find this method useful.
Available to promise is yet another calculation that depends on a number of factors such as the amount of inventory you currently have, the amount of sales orders you have per day, and whether a purchase order is coming in or not. The rules for calculating pull-based available to promise inventory are pretty simple. They only differ slightly from push-based available to promise:
Your pull-based available to promise formula includes these elements:
- On-hand: the amount of product you currently have
- Supply: planned orders, purchase orders, purchase requisitions, etc.
- Demand: sales orders
+ forecasted demand
Pull-based ATP = On-Hand Inventory + Supply – Demand*
*where demand does not include forecasted demand
Available to Promise or Safety Stock?
Some businesses mistake available to promise for safety stock, but there are key differences between the two. Safety stock refers to keeping a certain amount of additional inventory above the necessary stock in case of an unexpectedly large order or delay in shipment. It’s typically a set buffer amount with little or no fluctuations.
Unlike safety stock, which is typically a set number, your ATP number can change. It’s even possible for your ATP number to be negative!
While a positive value indicates that you have inventory available to sell, a negative value indicates that your inventory is below your safety stock quantity.
| POSITIVE VS. NEGATIVE ATP |
||||||||
| Day 1 | Day 2 | Day 3 | Day 1 | Day 2 | Day 3 | |||
| Current Inventory | 10 | 6 | 4 | Current Inventory | 10 | 6 | -2 | |
| Sales Order | 4 | 2 | 2 | Sales Order | 6 | 8 | 2 | |
| Purchase Order | 0 | 0 | 6 | Purchase Order | 0 | 0 | 20 | |
| Safety Stock | 4 | 4 | 4 | Safety Stock | 4 | 4 | 4 | |
| ATP | 6 | 4 | 8 | ATP | 4 | -2 | 16 | |
POSITIVE VS. NEGATIVE ATP
| Day 1 | Day 2 | Day 3 | |
| Current Inventory | 10 | 6 | 4 |
| Sales Order | 4 | 2 | 2 |
| Purchase Order | 0 | 0 | 6 |
| Safety Stock | 4 | 4 | 4 |
| ATP | 6 | 4 | 8 |
| Day 1 | Day 2 | Day 3 | |
| Current Inventory | 10 | 6 | -2 |
| Sales Order | 6 | 8 | 2 |
| Purchase Order | 0 | 0 | 20 |
| Safety Stock | 4 | 4 | 4 |
| ATP | 4 | -2 | 16 |
As you can see in the tables above, available to promise value is determined by a variety of factors, including:
- Current inventory levels: this inventory is what you have on hand for immediate shipping. Anything that isn’t allocated can be promised to a customer.
- Sales orders: sales orders are documents that confirm a sale. A supplier will issue them to buyers prior to delivery. Inventory in a sales order is committed to a customer even though it’s still in your warehouse.
- Purchase orders: these documents originate with the buyer, and are used to order products. Once accepted, it becomes a binding agreement between the buyer and supplier.
- Safety stock: as stated above, safety stock is the buffer amount of stock you keep in case new inventory is delayed or a large order comes in.
How Does a Warehouse Management Software Calculate Available to Promise?
Before tools like warehouse management systems (WMS) were available, available to promise calculations didn’t exist.
When businesses received a purchase order, the sales rep had to call around to the various warehouses to check inventory levels and reorder points and calculate the date they could fulfill the order. Then they would inform the customer.
Today, a WMS can do all of the work that sales reps used to do behind the scenes, and calculate ATP numbers in real-time.
A WMS uses this value to create a well-constructed report. WMS can create new purchase orders if the amount is negative to help you avoid overselling. In fact, they can also notify you if your ATP is positive to help your ecommerce sales increase. This, in turn, increases customer satisfaction. It’s a win-win!
Because available to promise gives businesses a more accurate look into their inventory and total product available, they can provide more reliable information to customers about available inventory quantities and expected delivery dates.
Businesses often rely on extremely specific time tables for their product. If a restaurant requires a specific ingredient for their recipe or a farmer needs feed for their livestock, they need an accurate estimation to know when a product is due to arrive. What was once an extra bonus that certain companies offered, available to promise is now essential in modern business.
Competition for customer satisfaction is fierce and expectations are higher than ever. This expectation has been passed on to inventory and supply chain management, so ATP is essential to becoming an efficient and dependable operation.
Don’t Let Your Inventory Become a Liability: Poor inventory accuracy leads to a host of issues that cut into your margins. Learn how Logiwa integrates all your sales channels and provides real-time inventory tracking.
Beginning to Use ATP
Although available to promise is essential for any modern business, actually beginning to use available to promise can intimidate some companies. Any new program can be a headache for a business owner and some newcomers to available to promise may be tempted to quit initially.
In order to make sure that your business isn’t affected by the change in process, here are some tips to make transitioning to ATP smoother.
Instruct Supply Chain Leaders on ATP
As your team learns to utilize available to promise initially, there may be an initial dip in service levels. It’s important to explain what ATP is, why it’s important and prepare leaders for this initial dip. The support of supply chain leaders is vital for success in utilizing ATP. Your employees may become disheartened if they find that their initial supply chain KPI’s start to slip.
Assure them that they will stabilize and provide them with the support they need to make it successful.
Involve Operations Personnel
In addition to the leaders, customer service reps, salespeople, inventory planners, and warehouse and inventory control software managers all play an important part in the success of your ATP formula. Educate the personnel on order-taking, inventory management, fulfillment, and warehouse practices to help them understand the process better. The more that they understand and are given the chance to offer input, the smoother the process will go.
Start Slowly and Simply
It can take a while before everyone is comfortable using ATP, so start with the basics. Once everyone is assured that the basics work properly, you can move on to more complicated and sophisticated rules. Don’t overwhelm staff and leadership, and keep it simple in the beginning.
Integrate Your Supply Chain Systems and Partners
If you outsource any part of your process, such as warehousing to a 3PL, make sure that their 3PL Software is integrated with yours. It’s a small step that can be easy to overlook when setting up a new system, but it is vital for getting the most accurate inventory information.
Without the important information that they have, there isn’t enough data on whether orders can be completed on time. Make your information as accurate and up-to-date as possible by making sure that your ATP is linked with any third party.
Lower the Stakes with a Test Cycle
Realistic test scenarios are the best way to prepare everyone for the change that is about to take place. The test cycles provide essential early exposure and training to customer service reps and inventory planners on the types of situations that they may run into and how to use the ATP. Your team needs to be comfortable with the data before it goes live. They will have confidence using ATP, and any mistakes that happen during a test cycle will have minimal ramifications.
With proper briefing and training, the addition of ATP will give your business the edge over competitors. It doesn’t need to be a headache, and by planning ahead you can mitigate the pains that can come from updating technology.
Get Ahead with Available to Promise
In order to stay ahead of the competition and create a profitable business, utilizing the best technology and techniques are no longer an option. Customers have come to expect fast and accurate service and businesses that don’t keep up will find themselves outpaced and left behind.
Logiwa can help you maintain leaner inventory while improving your customer experience by generating ATP reports.
Consider adding Available to Promise to your processes to get your business ahead today with Logiwa. Schedule your free demo by clicking here.
Related Terms
Work in process inventory means inventory that is partially completed or in a stage of production. Learn your work in process formula and how to manage it by reading this blog.
Are there other options for ecommerce outside of Amazon? Yes! New warehouse technology is helping brands and sellers avoid the Amazon Effect.
With the right reporting technology, you can have both the real-time data you need to optimize day-to-day warehouse operations and the intelligence you need for longer term decision making.
Amazon’s Fulfillment by Amazon services can help you get your products to your customers quickly. The FBA calculator can show you how much you can earn.
Proper planning, effective onboarding, and continuous improvement are the three keys to effective software implementation.
FAQs
What is Available to Promise (ATP) in supply chain management?
Available to Promise (ATP) in supply chain management is a strategy that allows businesses to efficiently manage their inventory. It matches supply with demand as closely as possible to avoid overstocking and backorders, maximizing both profit and customer satisfaction.
How does ATP in supply chain differ from safety stock?
ATP differs from safety stock in that safety stock is a set amount of extra inventory kept on hand to buffer against unexpected demand or delays in shipment, whereas ATP is a dynamic figure that can change frequently. It indicates the amount of inventory available for sale, not including allocated inventory.
What role does Available to Promise inventory play in improving customer satisfaction and profitability?
ATP contributes to improving customer satisfaction and profitability by ensuring the right amount of inventory is available to meet customer demand without overstocking. This leads to efficient inventory usage, lower storage costs, improved order fulfillment, and thus greater customer satisfaction and profitability.
What is push-based ATP and how is it calculated?
Push-based ATP uses demand forecasting to predict future inventory requirements. It considers the current on-hand quantity, planned orders, and anticipated demand to calculate the ATP. However, it carries a risk if the demand forecasting is inaccurate.
What is pull-based ATP and how is it different from push-based ATP?
Pull-based ATP is based on current demand and supply without considering any forecasting predictions. It is useful for new businesses who can’t afford to overstock. It follows a similar calculation to the push-based method, but without the forecasted demand in the demand factor.
How does a Warehouse Management Software (WMS) calculate Available to Promise?
A Warehouse Management Software (WMS) calculates ATP by considering various factors such as current inventory levels, sales orders, purchase orders, and safety stock. By integrating data from these sources, it can determine the ATP number in real-time.
How can a WMS assist in managing ATP for improved inventory management?
A WMS can facilitate ATP management by providing real-time tracking of inventory levels and order statuses, enabling quick and accurate calculations of ATP. It can generate purchase orders if ATP is negative to prevent overselling, or notify users when ATP is positive to potentially increase sales.
What steps can a business take to start implementing ATP in its operations?
To start implementing ATP, businesses can follow a few steps: Train supply chain leaders on ATP, involve operations personnel, start with basic ATP calculations before moving on to more complex rules, integrate ATP with third-party systems, and conduct test cycles to get the team comfortable with the process.
How can ATP contribute to increased accuracy in inventory prediction and control?
ATP can increase accuracy in inventory prediction and control by providing a real-time, data-driven estimate of available inventory for sale. This can help prevent overstocking and understocking, leading to improved inventory management.
How can Logiwa’s WMS help businesses maintain lean inventory and improve customer experience using ATP?
Logiwa’s WMS can generate ATP reports, helping businesses maintain lean inventory while enhancing customer experience. By providing accurate, real-time information on available inventory, Logiwa can facilitate efficient order fulfillment and inventory management.
What elements are included in the available to promise formula?
The elements included in the ATP formula are: On-hand inventory, supply (planned orders, purchase orders, etc.), and demand (sales orders plus forecasted demand for push-based ATP, and sales orders without forecasted demand for pull-based ATP).
Why should businesses consider integrating ATP into their supply chain systems?
Businesses should consider integrating ATP into their supply chain systems to gain accurate insights into their inventory status and to make better, data-driven decisions regarding inventory management, which can improve overall operational efficiency.
How can ATP help businesses provide more reliable information to customers about available inventory quantities and expected delivery dates?
With ATP, businesses can provide more reliable information to customers about available inventory quantities and expected delivery dates because it gives a real-time view of available stock based on current inventory levels and demand.
What does a negative ATP value indicate about a business’s inventory status?
A negative ATP value indicates that a business’s inventory is below its safety stock quantity. This can signal a potential problem in meeting customer demand and may require urgent replenishment.
Why is understanding and using ATP essential for modern business and supply chain management?
Understanding and using ATP is essential for modern business and supply chain management because it enables businesses to balance inventory levels with demand, minimizing overstocking and understocking. This leads to cost savings, better customer service, and improved operational efficiency.
