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Available-to-Promise (ATP) inventory: definition, formula & examples

Doug Pohl

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Constantly juggling inventory levels while trying to keep up with customer demand and avoiding stockouts or backorders is a balancing act that can leave you feeling like you’re always one step behind.

But what if there was a way to take control of your inventory management and make confident decisions that keep your customers happy and your bottom line healthy?

Enter Available-to-Promise (ATP) inventory management. It may sound like just another buzzword, but it’s actually a real game-changer.

This article breaks down exactly what ATP is, how it works, and how you can put it into practice in your own business. We’ll walk you through the process step-by-step, sharing insider tips and real-world examples along the way.

What is Available-to-Promise inventory?

Available-to-Promise inventory is a key concept in supply chain management that can help your business reduce production and holding costs, while still meeting forecasted demand.

It represents the portion of your stock that you can guarantee to your customers for delivery within a specific timeframe. In essence, ATP inventory the quantity of a product you can confidently sell without risking stockouts or delays.

While you might be familiar with “on-hand inventory,” ATP represents a subsection of that category, accounting for additional factors, such as:

  • Forecast production schedules
    Upcoming manufacturing plans that impact stock levels
  • Reserved stock
    Inventory set aside for existing customer orders
  • Safety stock
    A buffer to prevent stockouts due to unexpected demand or supply chain disruptions
  • Transit times
    The duration required for products to reach your warehouse or customers.
available to promise (atp)

To successfully track all of these moving parts, you’ll likely need a supply chain management solution that integrates information from all of your different data sources, like third-party vendors, logistics providers, and manufacturing production schedules. This will help you determine how much Available-to-Promise stock you have remaining after you’ve factored in all of these variables.

Using an efficient inventory management system that helps you get clarity on your Available-to-Promise inventory can provide you with accurate, real-time data that helps mitigate the risk of stockouts and backorders, leading to lower cancellation rates and happier customers.

You’ll also have valuable insights on which products are most popular and which ones are sitting on the shelves, so that you can to optimize your production schedules to meet customer demand and avoid tying up capital.

By integrating ATP into your supply chain management processes, you can automate order promising, reduce manual intervention, and boost overall efficiency.

Why does Available-to-Promise matter in supply chain management?

Many companies see 20%-30% of their inventory wind up as “dead stock.” These are the slow-moving products on your warehouse shelves that are now obsolete or aren’t expected to sell, and they typically get liquidated or tossed in the trash.

But by prioritizing an efficient inventory management system, your company can maintain lean inventory (or “just in time inventory“), producing only enough product to meet forecasted demand, so you can reduce dead stock and protect your resources.

Tracking your Available-to-Promise inventory can give your business granular insights into your supply chain and production schedule so that you’ll be able to match inventory levels to customer demand. You can make informed decisions about when to reorder products and how much to keep in stock. This optimizes your working capital and reduces the costs of holding excess inventory.

It’s also easy to optimize your production schedule based on Available-to-Promise insights. By analyzing historical ATP data and considering factors like seasonality, promotions, and market trends, you can make more accurate predictions about future demand. From there, you can fine-tune your production and procurement strategies, to maintain lean inventory and stay one step ahead of the game.

In the face of supply chain disruptions, such as raw material shortages or transportation delays, ATP helps you quickly identify alternative sourcing options and develop contingency plans. By knowing exactly how much inventory you have available and when you can promise delivery, you can make informed decisions to minimize the impact of disruptions.

available to promise (atp)

How to calculate Available-to-Promise inventory

Calculating your Available-to-Promise inventory is crucial for making accurate delivery promises to your customers. While the basic formula for ATP is straightforward, there are several advanced considerations that can help ensure the most accurate and reliable ATP calculations.

Basic ATP formula

ATP = On-hand inventory + Expected supply – Allocated stock – Backorders

  • On-hand inventory: The current physical stock in your warehouse
  • Expected supply: Incoming stock from production, purchases, or transfers
  • Allocated stock: Inventory reserved for specific orders or customers
  • Backorders: Outstanding orders that cannot be fulfilled with current stock

Advanced considerations

To refine your ATP calculations and make them more accurate, consider the following factors.

  • Lead times for replenishment orders
    Incorporate the time it takes for new stock to arrive from your suppliers or production facilities. This ensures you don’t take sales orders for stock that won’t be available in time.
  • Safety stock and buffer levels
    Account for the minimum inventory levels you maintain to prevent stockouts and cushion against demand fluctuations. This helps you avoid overcommitting your inventory.
  • Production capacity
    Factor in your production capabilities and any constraints that may impact your ability to replenish stock quickly. This prevents you from promising stock that you can’t produce in time.
  • Supplier reliability and risk assessment
    Consider the reliability of your third-party suppliers and any potential risks that could impact their ability to deliver on time, including geopolitical tensions or weather-related interruptions. This helps you plan for potential delays and adjust your ATP calculations according to different risk scenarios.

Real-World ATP calculation examples

  • Simple calculation with immediate order promise
    Suppose you have 100 units of a product on hand, and you expect to receive another 50 units from your supplier next week. You have already allocated 30 units to existing orders and have no backorders. That means your Available-to-Promise inventory is 120 units.

    ATP = 100 (on-hand) + 50 (expected supply) – 30 (allocated stock) – 0 (backorders) = 120 units
  • Calculation with delayed availability due to production timelines
    Let’s say you have 50 units of a product on hand and 20 units are allocated for existing orders. You have no outstanding backorders, but your production facility requires 2 weeks to manufacture an additional 100 units. In this scenario, your Available-to-Promise inventory is 30 unites, despite the additional 100 units coming soon.

    ATP = 50 (on-hand) – 20 (allocated stock) – 0 (backorders) = 30 units
available to promise (atp)

How a lean inventory approach optimizes performance

By providing real-time visibility into your available stock, ATP allows you to streamline operations, reduce errors, and make data-driven decisions that help keep your costs down.

Streamlined order processing

ATP enables faster sales confirmation by instantly checking stock availability against customer requests before automatically confirming sales orders. By calculating ATP, you can confirm orders quickly and accurately, boosting your overall order fulfillment efficiency.

Optimized picking and packing

Using inventory management software to track ATP supports your warehouse operations, particularly in the picking and packing stages. Your warehouse staff can easily see which items are ready to be picked and packed, reducing the time spent searching for products or waiting for stock updates.

Reduced shipping errors

Reliable stock information provided by ATP minimizes the risk of incorrect shipments or product substitutions. With accurate, real-time data on your available inventory, you can arm your customer service team members with the insights they need to support customer inquiries and boost customer confidence in your fulfillment process.

Improved warehouse workflow

ATP data can help prioritize your warehouse activities based on customer demand, like picking and packing orders for popular items or optimizing the storage locations of fast-moving goods. This improves your overall warehouse workflow efficiency and helps you meet customer expectations for fast and accurate order fulfillment.

Data-driven decision making

By analyzing historical ATP data alongside warehouse performance metrics, you can identify trends, anticipate future demand, and make informed decisions that help optimize stock levels to minimize holding costs.

Using Available-to-Promise for omnichannel fulfillment

Your customers expect a seamless shopping experience across multiple channels, whether they’re buying online, in-store, or through a mobile app. But that requires keeping accurate tabs on your inventory with insight and communication across all of your systems and platforms.

To create a cohesive experience across all sales channels, it’s worth considering an omnichannel fulfillment strategy that pairs real-time inventory data with forecasted demand to ensure accurate stock availability and efficient order fulfillment. This is where Available-to-Promise inventory shines.

Centralized inventory view

In an omnichannel environment, ATP inventory provides a single source of truth for stock availability across all channels, giving you a centralized view of your inventory in real time.

This centralized inventory view helps you convey accurate stock information to customers across all of your sales channels; ensures you have enough safety stock on hand; prevents stockouts by syncing inventory data; and makes it easier to forecast demand.

Fulfilling orders from optimal locations

ATP also supports dynamic routing for order fulfillment. By analyzing factors such as geographic proximity to the customer, stock levels at each location, shipping costs and timelines, and store capacity and workload, ATP can help you make intelligent decisions about where to fulfill each order from, optimizing for speed, cost, and efficiency.

For example, if a customer places an online order for a product that’s available both in a nearby store and a distant warehouse, ATP can recommend fulfilling the order from the store to minimize shipping time and cost.

Alternatively, if the store has limited stock or capacity, ATP may suggest fulfilling the order from the warehouse to ensure timely delivery without overburdening the store.

Advanced ATP strategies

While the basic principles of Available-to-Promise inventory management are essential for most ecommerce businesses, several advanced strategies can take your ATP processes to the next level.

Capable-to-Promise (CTP) is an extension of the ATP concept that takes your production capacity into account when calculating availability. While ATP focuses on the inventory you have on hand or expected to receive, CTP also considers your manufacturing capabilities and capacity constraints.

Collaborative ATP involves sharing ATP data across your supply chain network, including suppliers, manufacturers, inventory planners, and distributors. By providing real-time visibility into inventory levels and expected demand, collaborative ATP enables better planning and decision-making across your entire operation.

Soft allocations refer to the concept of tentative reservations or customer inquiries within the ATP process. Unlike firm allocations, which represent confirmed orders, soft allocations allow businesses to manage potential demand without committing inventory until an order is finalized.

Some use cases for soft allocations include:

  • Managing high-volume, low-commitment orders, such as those from online marketplaces.
  • Providing customers with provisional availability information for planning purposes.
  • Prioritizing and managing competing demands for limited inventory.
Meet customer expectations by managing inventory effectively with ATP.

Best practices for implementing ATP

Without real-time visibility into inventory levels, you’re more likely to experience stockouts, leading to lost sales and frustrated customers. A reliable Available-to-Promise system is essential for mitigating these challenges and improving overall business performance.

To ensure a successful ATP implementation, we recommend the following best practices:

  • Data accuracy
    Make sure your inventory data is accurate and up-to-date, because this forms the foundation of your Available-to-Promise system. Regularly audit your data and implement processes to maintain its integrity.
  • Software integration
    Choose an ATP software solution that seamlessly integrates with your existing systems, such as your ERP, WMS, and e-commerce platforms, to provide a holistic view of your inventory.
  • Change management
    Educate and support your inventory planners on their distinct roles in adopting the new system, and develop clear steps with attached timelines to minimize disruptions.

At Red Stag Fulfillment, we help clients optimize their inventory management processes every day. In our experience, businesses that lack an Available-to-Promise system often face significant challenges.

Reach out now to learn how we can help you unlock the power of ATP and drive long-term success for your business.

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