Available-to-Promise (ATP) is a crucial element in supply chain management. It basically forecasts the quantity that can be produced on or before a chosen date to deliver the order that has been placed by the customer.
Based on the data of materials and proper resource allocation ATP can be derived. It is also important to consider the demand factor while predicting the ATP.
Formula for calculating Available-to-Promise (ATP)is
ATP= Total Supplies – Total Demand in a given date range.
Methods of calculating Available-to-Promise
There are three methods of calculation that are used to calculate ATP
1. Discrete ATP: In this method, the calculation of ATP is based on the value of ATP in the main schedule. For example, the first period of ATP is the sum of starting inventory and MPS quantity minus backlog for all periods until the unit is scheduled again.
For other periods, it is the quantity that has been scheduled for that specific period minus client commitments for this and other periods until the other quantity is scheduled in the MPS.
2.Cumulative ATP with a look ahead: It is the sum of ATP from the previous period and MPS of the period minus the backlog of the period minus the sum of the difference between the backlogs and MPSs of all future periods until the point production exceeds the backlogs.
3.Cumulative ATP without look ahead: It is the sum of ATP in the previous period and the MPS, minus the backlog in the period being considered.
Categories of Available-To-Promise (ATP)
It is divided into two categories, Push and pull strategies.
A push strategy is nothing but real-time ATP. Here, the quantities and delivery due dates are derived based on the demand that has been forecasted. Based on regular production trends the inventory and operation capacity are deduced.
With appropriate scheduling, real-time ATP can be easily computed. Since it involves pre-planning and being ready for unexpected production requirements, this is more favored than the pull strategy.
In a pull strategy, the available quantity of the materials and the due dates are calculated only after a confirmed order is received from the customer.
How is ATP useful?
When this process is automated with efficient ERP systems, it helps to analyze the customer demands and then helps in adjusting the required production schedules accordingly.
It even assists the customers to easily understand when they can expect the delivery for the orders placed.
Available-to-promise and Safety stock
Are Available-to-Promise and safety stock same?
No, Available-to-promise and safety stock are totally different from each other. Safety stock is an extra retained stock above the necessary stock in case of delay in the shipping of materials when unexpected order comes.
Safety stock is a set number. But ATP number can be changed. A positive number of ATP refers to available inventory to sell, and a negative number refers to the unavailability of inventory that is below the safety stock level.
That means safety stock refers to must-keeping inventory and ATP refers to the amount of inventory that you can sell at any given time.
Following are the factors that decides the value of ATP
- Safety stock: It is the safe amount of stock that has to be kept to fulfill the unexpected large order comes in case of delayed inventory.
- Present inventory level: It is on-hand inventory that can be delivered immediately to the customer.
- Purchase order: It acts as a mandatory agreement between vendor and customer. Customer originates this document.
- Sales order: This is the document that originates by the vendor to confirm the sale and it is issued to the customer before the delivery of products.
Get more definitions about available-to-promise (ATP) and other ERP related terms here.