Inventory can be difficult for even experienced companies to manage. That’s where available-to-promise (ATP) proves useful: It enables companies to sustain a balance between customer satisfaction and profitability.
Available-to-promise is a model that allows businesses to store only the minimum amount of required products so that they can more effectively manage inventory levels. This helps companies avoid the dangers of overstocking products, while at the same time allowing for on-time replenishment of any low products.
As a fundamental part of effective supply chain management, the available-to-promise strategy keeps enough products available to be sold, and anticipates future required product amounts based on data-based forecasts. If you’re worried about overstocking, or about running out of a certain product in your warehouses, available-to-promise is a viable option for your business.
Examples of Available-to-Promise at work
The available-to-promise model in action allows companies to stock enough products to maintain normal business operations, without having too much of one item at any given time.
Companies that use the available-to-promise model effectively can see increased profitability and strong growth. One such company, Walmart, deploys an available-to-promise model that keeps warehouse inventory low and the majority of available products on the floor. This allows for more efficient usage of any warehouse space, with only a small risk of running out of a particular product.
Costco is another company that makes effective use of the available-to-promise model. Costco invests heavily in effective supply chain management, one of its main pillars. This allows Costco to exercise the available-to-promise model, to reduce expenses and stock an average of only 3,700 Stock Keeping Units per warehouse.
How to calculate Available-to-Promise
Calculating available-to-promise for your business is a relatively simple undertaking. Complete the following formula for an accurate breakdown of your available-to-promise capabilities:
Available-to-promise = Quantity on hand + Supply – Demand
This formula includes the following elements:
- Quantity on hand, the total number of products that are immediately available to a company;
- Supply, the total stock of a product available for sale;
- Demand, the amount of a specific product that consumers are willing to purchase.
Fortunately, inventory management systems can do a lot of the heavy lifting for you when it comes to calculating your business’s exact available-to-promise figure. As part of your company’s regular inventory analysis, calculating your available-to-promise data should become routine for your company. You can leverage this formula to improve sales and more accurately predict purchasing trends.
Available-to-Promise vs. Capable-to-Promise
Another common method for inventory analysis, capable-to-promise (CTP) refers to a system that forecasts customer demand to determine production levels. Through CTP, companies look to predict consumer purchasing habits as accurately as possible. Then, they pair demand forecasts with specific product amounts to minimize inventory.
ATP and CTP have a few differences, which can make one strategy better than the other depending on your situation. Companies that primarily focus on products that have been manufactured or purchased should use the ATP model. However, companies that also consider factors like purchase receipts, alternative manufacturing options, and labor costs should consider CTP processes.
The increased number of variables that CTP introduces into business operations may benefit some businesses, and prove distracting for others.
Companies without significant labor costs or several possible manufacturers can minimize supply chain hassles when using ATP processes. Conversely, companies that need to consider supplier delivery times, production costs, and other advanced metrics could use CTP models for more accurate consumer-activity forecasts.
Available-to-Promise vs. Safety stock
If a company is wary that a certain product is in danger of completely selling out, they may use a safety stock — an extra amount of that product held in a warehouse in case it is needed.
One of the main differences between safety stock and an ATP approach to inventory management is the fact that ATP numbers can change, while safety stock figures typically remain the same. A company’s safety stock is often a set amount of extra inventory, while its ATP represents a number of products that can vary as its formula’s variables change.
Best practices for Available-to-Promise
The available-to-promise model helps businesses keep costs low and profitability high — as long as their forecasts regarding consumer habits remain correct. Implementing ATP processes effectively for your business can mean the difference between sustained growth and a stock that runs out of customers’ favorite products.
Monitor every aspect of your inventory as part of strict supply chain management. This will help prevent the possibility of inventory shrinkage, while connecting customers with the products they’re looking for.
Perhaps the main way to achieve successful available-to-promise processes is to use software that makes continued customer satisfaction easy. You can achieve this through a product that integrates with both Microsoft Dynamics AX and Microsoft Dynamics GP. Powerful software enables you to collect and use customer data that informs inventory processes.
Available-to-promise is a strategy that hinges on your company’s ability to collect and use customer data to consolidate inventory without running out of any one product. For a consumer-centric e-commerce model that prioritizes the customer experience, Sana Commerce for Microsoft Dynamics GP creates a vibrant online storefront while collecting deep user data that informs supply chain management.
You can also meet and exceed online customer expectations through a web store that integrates with Microsoft Dynamics AX. This product enables customer self-service while collecting valuable insights that will allow you to scale your business through data-driven inventory conclusions.
Looking for more guidance?
Download our Supply Chain and E-Commerce Guide to learn about fulfillment and inventory across the supply chain.