Let’s say a furniture company, Sunshine Decor, sells via multiple channels: online, via wholesale, and brick-and-mortar stores.
To meet customer expectations and to prevent stockouts and backorders, the retailer must regularly and accurately estimate how much stock it will have on hand in a given period of time.
There are several inventory KPIs and metrics a company can track, but if Sunshine Decor wanted to specifically forecast an amount of stock that is currently available for future orders only, then it would need to calculate what’s known as “available-to-promise (ATP)” inventory.
In this article, we discuss what ATP is, how to calculate it, and how to easily monitor stock availability across channels.
What is available-to-promise (ATP) inventory?
“Available-to-promise (ATP)” inventory refers to inventory levels that a business can guarantee to have in stock to process future customer orders.
By calculating ATP, a direct-to-consumer (DTC) brand can monitor inventory more efficiently and reduce stockouts and backorders while also optimising warehouse capacity.
It’s easy to confuse ATP inventory with other related inventory terms: available to sell, capable to promise, and safety stock.
Available to promise vs. available to sell
It’s important to note that available-to-promise inventory is different than “available to sell” inventory, which is another common inventory term.
Available-to-sell inventory refers to how many items are available currently for customers to purchase.
The main difference is ATP inventory is a future-focused inventory metric (however, it can put current sales orders into consideration, more on that later).
Unlike ATP, available-to-sell inventory includes finished goods that are ready to sell instantly.
Available to promise vs. capable to promise
While ATP is a demand forecasting term, “capable-to-promise (CTP)” is a more complex inventory metric that considers multiple parts of the ecommerce supply chain, including production and resource capacity.
ATP takes into account inventory on hand, while CTP considers inbound purchase receipts, supplier lead times, alternative sourcing options, and availability of raw materials and labour.
CPT is a great inventory metric to track if a business was thinking about expanding and needed to understand if it’s possible to fulfil a higher level of sales without backorders or stockouts. But it’s not always necessary, and ATP is simpler to calculate.
Available to promise vs. safety stock
Safety stock is the extra stock that retailers maintain in their warehouses to use in case of an unprecedented surge in demand or if there is a delay in production or inventory delivery.
The main difference between ATP and safety stock is what the inventory is specifically allocated for.
For example, based on current demand and production resources, Sunshine Decor can guarantee 300 units of a dining chair will be available within the next 3 months.
But for safety stock, they set aside 100 units of the same dining chair to fulfil orders only if inventory runs lower than expected.
It’s important to also note that safety stock value doesn’t usually fluctuate, while ATP value can change on a daily basis.
Available-to-promise inventory formula and calculation
Large brands and companies employ the ATP model to ensure profitability and reduce inventory write-offs. It’s also often used for companies that have a B2B ecommerce model.
But any type of online business can benefit from calculating ATP inventory to help meet customer expectations and to make sure high-demand products never go out of stock.
There are a couple variations to the ATP formula, but the basic calculation is:
ATP = (Quantity On Hand + Supply Inventory) – Demand
Here is what each of the variables stand for:
- Quantity on hand: The amount of items available for immediate sale.
- Supply inventory: The amount of inventory ordered or produced. (Note: this is not to be confused with inventory of supplies a business needs to operate.)
- Demand: The projected amount of items a business will sell in the near future.
Let’s refer back to the furniture company, Sunshine Decor. Let’s say the company has 100 chairs remaining in stock by the end of January, and it produces 300 chairs every month.
In February, Sunshine Decor signed on a B2B customer and they want to order 200 chairs.
(100 +300) – 200 = 200
For all other orders, Sunshine Decor can allocate 200 units of chairs to meet demand in the month of February, despite the one-off B2B order.
ATP supply chain implementation: pull-based vs. push-based
There are two ATP methods a business can choose to use: pull-based or push based.
The push-based ATP analysis includes inventory forecasting. This is particularly useful if you expect to see a major uptick in sales (say, around the festive season) or a massive drop (seasonal or otherwise).
The formula for push-based ATP is:
ATP = (On-Hand Inventory + Supply) – (Sales Orders + Forecasted Demand)
On the other hand, the pull strategy for ATP doesn’t put future demand into consideration. The analysis is done based on current sales orders only.
The formula for pull-based ATP is:
Pull-Based ATP = (On-Hand Inventory + Supply) – Sales Orders
Available-to-promise inventory tips
You can easily implement an ATP tracking process into your overall inventory strategy with the right technology and resources.
Here are some tips to help you get started.
Monitor your inventory
- What’s the average amount of inventory on hand?
- What are my best-selling products?
- What levels of inventory are required for each SKU to meet demand?
The easiest way to monitor your inventory is by implementing an inventory tracking process that allows for more visibility in real time.
This can be done by defining specific inventory KPIs and have processes in place to help keep your logistics team responsible for monitoring inventory, from production lead times to inventory on hand, to current sales orders.
On the supply chain side, I just throw in what we placed at the factory into a WRO in the ShipBob dashboard, and I can see how many units we have on-hand, what’s incoming, what’s at docks, and so on. I can see all of those numbers in a few seconds, and it makes life so much easier.”Harley Abrams, Operations Manager of SuperSpeed Golf, LLC
Along with processes and monitoring KPIs, implementing an inventory management system or an ERP inventory system can help eliminate human error, save time, and track inventory in real time.
Many inventory tracking systems can easily integrate with a warehouse management system (WMS), so you can track warehouse activity and inventory levels all in one place. This is useful if a business allocates inventory across channels or fulfilment centres.
Inventory tracking systems, like ShipBob’s built-in inventory management tool, allow you to view historical order data to forecast inventory, manage SKUs, and view inventory levels in real time.
“ShipBob’s software helped us better understand where we should grow next. In the beginning, it was difficult to easily calculate how much we were selling in each region. ShipBob’s ideal distribution algorithm enabled us to see not only where our customers were based, but where we should allocate inventory to best meet demand.”
Natalia Lara, CMO of Oxford Healthspan
Encourage ATP adoption
There are so many different ways to track inventory efficiently, but it’s highly encouraged to adopt a system to track ATP inventory.
It’s a great tool to help your team track demand and make better business decisions, such as when to run a sale, take on a new B2B customer, or expand your sales channels.
Whether it’s tracking inventory on hand, calculating future demand, or deciding how much to hold in safety stock, an omnichannel fulfilment provider like ShipBob can help automate the process.
ShipBob’s fulfilment platform comes with built-in inventory management software to improve visibility of inventory flow across distribution centres in real time.
Not only does ShipBob make it easy to track inventory by automating the process and providing more visibility, you also spend less time on logistics in general by outsourcing fulfilment to the experts.
ShipBob partners with you to help your team make better decisions, save on costs and time, while also making it easier to expand your business — even globally!
Recently, our Merchant Success Manager, Himanchali, provided an overview of our past few months’ inventory distribution and found that around 20% of our orders would have been more economical if had they been shipped from a more central fulfilment centre. This was helpful, as we’re looking to streamline costs next year.”Peter Liu, Co-founder of RIFRUF
Available-to-promise inventory FAQs
Below are answers to the most common questions about available-to-promise inventory.
What is the difference between on-hand and available inventory?
On-hand inventory is what is currently present in the warehouse or storefront for sale. Available-to-promise (ATP) refers potential inventory levels that can meet meet future orders within a given period of time.
What does ATP stand for in the supply chain?
In supply chain management, ATP stands for available-to-promise inventory. This metric is used to help retailers keep their supply chains lean while ensuring they can meet demand.
What is the purpose of available-to-promise quantity, and how is it different from on-hand inventory?
On-hand inventory refers to currently available quantities of SKUs for sale. On the other hand, ATP is a forecast of how many SKUs will be available for sale without placing backorder requests.
How can ShipBob help with ATP inventory?
ShipBob’s inventory management tools automate much of the inventory tracking process and provides visibility into inventory flow and future inventory demand. Within ShipBob’s fulfilment dashboard, merchants can view inventory data to calculate ATP inventory.