AVAILABLE TO PROMISE INVENTORY CALCULATIONS

By Peter J Blok, Ph.D.  CSCP, CLTD, CPIM, LSSMBB, PMP,  APICS Master Instructor.

Available to Promise (ATP) is a tool used to show the inventory that is not reserved for existing customer orders and, as such, is available for the sales team to Promise to other customers for rapid delivery.

ATP is typically calculated using one of three methods

  • Discrete
  • Cumulative with Look Ahead
  • Cumulative without Look Ahead

Which method you choose is more a matter of your business operation then calculation complexity or any other reason.

Discrete is best used in situations where the available stock will likely sell very rapidly or it will become unsalable quickly such as the case with foods and pharmaceutical product expiry dates or perhaps seasonal fashion goods.  Both cumulative methods are best used with stock that has a long shelf life and is not likely to expire or fall out of fashion over the planning horizon.

Prior to calculating any ATP, you’ll need to calculate the Projected Available Balance (PAB) and Periods when there must be an MPS delivery event.

Remember, when calculating PAB, we use actual orders to the left of the Demand Time Fence and we use Forecasted demand.

 

 

 

DTF

 

 

 

 

PTF

 

 

Init

1

2

3

4

5

6

7

8

Forecast

 

20

20

20

20

20

20

20

20

Orders

 

18

15

27

22

10

8

6

5

PAB

15

37

22

35

15

35

15

35

15

MPS

 

40

 

40

 

40

 

40

 

 

 

 

 

 

 

 

 

 

 

For purposes of this paper
Lot Size is 40,  Safety Stock is 2,  Demand Time Fence is at period 2,  Planning Time Fence is at period 7.

 

DISCRETE ATP

Consider the master plan below.  PAB is Planned Available Balance for inventory.  MPS is the planned delivery of production/replenishment.

 

 

 

DTF

 

 

 

 

PTF

 

 

Init

1

2

3

4

5

6

7

8

Forecast

 

20

20

20

20

20

20

20

20

Orders

 

18

15

27

22

10

8

6

5

PAB

15

37

22

35

15

35

15

35

15

MPS

 

40

 

40

 

40

 

40

 

ATP disc

 

22

 

-9

 

22

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To calculate in the FIRST PERIOD ONLY:  ATP = On Hand + MPS (period 1) – Sum of customer orders starting at period 1 and up to but not including the period of the next MPS delivery

For our case above  ATP(1) = 15 + 40 – 18 – 15

To calculate the other ATP values you only do the calculation at a point where there is an MPS entry

Then you use the formula   ATP (period N) = MPS (period N) – sum of customer orders from period N up to but not including the period with the next MPS

In our case, we calculate ATP for Periods 3, 5, and 7 since those periods have an MPS entry

  • Period 3 ATP(3) = 40 – (27+22) = -9
  • Period 5 ATP(5) = 40 – (10 + 8) = 22
  • Period 7 ATP(7) = 40 – (6 + 5) = 29

So what does this mean?    When using the Discrete ATP method you are making the assumption that the goods that were identified as being available will either sell or expire before the next MPS period and therefore there is no carry over into future periods.  Is this valid? Maybe. It all depends on your business.  You’ll notice in our example that Period 3 has a negative ATP indicating that if all that available inventory was actually sold in periods 1 and 2  your business wouldn’t be able to fulfill the in hand customer orders in periods 3 and 4.  Knowing this we will reserve some of the ATP from period 1 for use in period 3.

What this does is change the grid to:

 

 

 

DTF

 

 

 

 

PTF

 

 

Init

1

2

3

4

5

6

7

8

Forecast

 

20

20

20

20

20

20

20

20

Orders

 

18

15

27

22

10

8

6

5

PAB

15

37

22

35

15

35

15

35

15

MPS

 

40

 

40

 

40

 

40

 

ATP disc

 

13

 

0

 

22

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The ATP(1) value is reduced by 9 to bring the ATP value in period 3 to zero (0).

 

 

CUMULATIVE ATP with LOOK AHEAD ATP-CL

Here the operating assumption is that there is a good chance that inventory that was available in a prior period is still available in the next periods with an MPS event.  These are going to be materials that do not expire and/or have a long market lifetime.

The calculations are more complex but the end result may seem more satisfying to the typical practitioner. The method also takes into consideration BackLogs so for shops that operate with the occasional backlog this is a good way to see how you can plan your way out of a backlog situation.

 

 

 

DTF

 

 

 

 

PTF

 

 

Init

1

2

3

4

5

6

7

8

Forecast

 

20

20

20

20

20

20

20

20

Orders

 

18

15

27

22

10

8

6

5

PAB

15

37

22

35

15

35

15

35

15

MPS

 

40

 

40

 

40

 

40

 

ATP disc

 

13

 

0

 

22

 

29

 

ATP-CL

 

22

 

13

 

35

 

64

 

 

 

 

 

 

 

 

 

 

 

ATP-CL(period 1) = On Hand + MPS(period1) – Backlog(period 1) – Order(1) + sum(MPS(period N) – Customer Orders (N)) for all periods N up to but not including the next MPS where there is NOT a backlog.

In the grid above  ATP-CL(1) = 15 + 40 -18 – 15 = 22

ATP-CL (period N) = ATP-CL(per N-1) – Backlog (period N) – sum( MPS(period X) -BL (period X) ) for all periods X up to but not including the next MPS where there is NOT a backlog

Period 3   ATP-CL(3) = 22 + 40 -27 -22 = 13

Period 5   ATP-CL(5) = 13 + 40 – 10 – 8 = 35

Period 7   ATP-CL(7) = 35 + 40 – 6 – 5 = 64

What does this mean?    The look ahead capability of this method allows us to reserve inventory for the demand situation in Period 5.  You can see that as the reduced ATP in period 1 when compared to the discrete method. Be careful, this is only a valid tactic when the material you’re making has the shelf life or market life so it can be held in reserve for the required periods.

The observant reader will notice an alternate technique for calculating Cumulative ATP with look ahead.  That is. Calculate the Discrete ATP first, then apply look ahead to those values to get the values for Cumulative ATP with Look Ahead.

 

CUMULATIVE ATP WITHOUT LOOK AHEAD ATP-C

Here the operating assumption is that there is a good chance that inventory that was available in a prior period is still available in the next periods with an MPS event.  These are going to be materials that do not expire and/or have a long market lifetime.  The other assumption is that we only consider orders in periods where there is production. Orders in periods without production are not considered.  This may be valid in environments where there is a significant amount of changes to orders or when cancellations are common.

The calculations are more complex than the discrete method but simplified when compared to the cumulative with look ahead method

 

 

 

DTF

 

 

 

 

PTF

 

 

Init

1

2

3

4

5

6

7

8

Forecast

 

20

20

20

20

20

20

20

20

Orders

 

18

15

27

22

10

8

6

5

PAB

15

37

22

35

15

35

15

35

15

MPS

 

40

 

40

 

40

 

40

 

ATP disc

 

13

 

0

 

22

 

29

 

ATP-CL

 

22

 

13

 

35

 

64

 

ATP-C

 

22

 

35

 

65

 

99

 

 

To calculate in the FIRST PERIOD ONLY ATP = On Hand + MPS (period 1) – Sum of customer orders starting at period 1 and up to but not including the period of the next MPS delivery

Period 1   15 + 40 -18 – 15 = 22

For all subsequent periods ATP-C(Period N) = ATP-C(Period N-1) + MPS (Period N) – Orders(Period N) Use MPS and orders in the MPS period only

Period 3   ATP-C(3) = 22 + 40 – 27 = 35

Period 5   ATP-C(5) = 35 + 40 – 10 = 65

Period 7   ATP-C(7) = 65 + 40 – 6 = 99

So what does this mean?  First, you’ll notice that the values with this calculation can be much higher than the other methods in periods past the first. This is clearly due to not considering future orders in MPS periods. Is this a valid assumption? Perhaps only in environments that experience a lot of order changes. It does represent a worst-case scenario with respect to inventory on hand.