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.

Available-to-promise

Available-to-promise helps to create available amounts of requested items. It focuses to manage demand and match that with the production plan. Hence it supports order processing and fulfillment.

Its functionalities are generally merged with the enterprise management software system.

Available-to-promise formula

Formula for calculating Available-to-Promise (ATP)is

ATP= Total Supplies – Total Demand in a given date range.

ATP will be positive or negative

Positive and Negative ATP

Factors that help to find out ATP

  • Current inventory: On-hand products that are readily available for urgent shipping.
  • Sales order: It is a report that upholds the sale. This report will be issued by the vendor to the customer before shipping the products to the customer’s place. The quantity of the product in the sales order is committed quantity to the customer even though it is in your stock.
  • Purchase order: It is a document created by the customer. When it is approved, it acts as an agreement between the customer & the vendor and is used to order the goods.
  • Safety stock: It is the stock you need to hold to face the sudden demand and delayed inventory.

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.

Formula for push strategy contains factors like

  • On-hand inventory: Currently available products
  • Supply: Purchase order, planned order
  • Demand: demand forecast and sales order

ATP = On-hand Inventory+Supply-Demand

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.

Pull strategy does not consider forecasts. Hence this method is suitable for start ups because they will be not in the situation to mange excess inventories.

Formula for pull strategy is same as push strategy with small difference. It contains

  • On-hand inventory: Currently available products
  • Supply: Purchase order, planned order
  • Demand: Sales order

ATP = On-hand inventory+supply-demand, where demand contains only sales order

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.

Best practices for ATP inventory

For smooth flow of process, follow the below steps

  1. Have an efficient inventory management system: Implement the best inventory management software and make sure that it will allow you to take ATP reports, maintain lean inventory, and forecast production schedules.
  2. While enlisting ATP include suitable persons: Communicate the importance of ATP with all the team members and let them know how ATP influences them. Give a chance to inventory planners, customer service team members, supply chain leaders, and warehouse managers to suggest input during the ATP enlisting process.
  3. Get confidence with demo: Take your own time to understand the process until your team gets confidence. Make sure there will be no overload of staff.

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.

Get more definitions about available-to-promise (ATP) and other ERP related terms here.

   

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