When a customer puts something in their online cart only to find out at the point of purchase that it’s unavailable, it’s infuriating for the customer and bad for your business. Not only does it damage your brand loyalty, it’s also almost entirely preventable using an inventory strategy called available to promise (ATP).

Available to promise is a process for evaluating the amount of inventory you can sell and deliver to customers over a specific timeframe. Learn how available-to-promise inventory works, and how you can implement it to manage your inventory levels and meet customer expectations.

What is available to promise (ATP)?

Available to promise (ATP) is a strategy for calculating how much inventory a company can sell in a projected time period based on available inventory and incoming supply. Ecommerce businesses can use this strategy to determine how many units of a particular product are available to sell to customers in a specific future time frame and use that information to make decisions about stock replenishment and pricing promotions. This allows you to maintain lean inventory levels that meet future demand without overstocking—which can decrease profitability through higher storage costs.

How to calculate available to promise

There are two types of available-to-promise inventory, each with its own ATP calculations. 

Pull-based ATP

Pull-based ATP is a reactive strategy that compares available inventory for a particular product with current demand based on existing customer orders. This is a useful tool for companies that want to focus their inventory management efforts on delivering products to clients who have already issued purchase orders and customers with outstanding sales orders. Here are the key components of a pull-based ATP calculation:

• On-hand inventory. This includes the total amount of inventory your company has in warehouses or distribution centers for a specific product, including your safety stock—the extra inventory you have available for surges in demand.

• Supply. In this context, supply represents the amount of inventory a company can source within a designated period of time (such as 30 or 60 days) if you don’t already have that inventory on hand. This can include units that have sold out but will be available again from manufacturers during that time frame, available stock from supplier partners or wholesalers, and inventory stored at a company’s distribution center that needs to be transferred to the correct fulfillment warehouse.

• Sales orders. This is the total number of your sales orders, from online purchases on your own site or app to those from other sales channels (like third-party marketplaces or retail partners).

Using these three numbers, merchants can calculate pull-based ATP for a product using this formula:

(On-hand inventory + Supply) – Sales orders = Pull-based ATP

Push-based ATP

Push-based ATP uses the components of pull-based ATP to evaluate inventory—on-hand inventory and supply—but it also includes demand forecasting, which is the practice of analyzing data to predict future customer demand. Push-based ATP considers both current sales orders and the expected demand of future sales for a product over a specific period of time. 

Businesses can determine the projected amount of future sales using a variety of sales forecasting strategies, including analyzing historical sales data, AI predictive models, identifying consumer trends with your target audience, and broader market factors such as new regulations or a bump from holiday sales.

Here is the formula for calculating push-based ATP:

(On-hand inventory + Supply) – (Sales orders + Forecasted demand) = Push-based ATP

Available to promise vs. other inventory strategies

Available to promise is only one of several ways that merchants can evaluate their inventory needs. Here’s a breakdown of three other popular inventory approaches:

Available to sell

Available-to-sell (ATS) inventory refers to the current inventory available for sale in a retail store or online. It does not include any open purchase orders or units that were bought but haven’t shipped yet. 

Here are the key differences between ATS and ATP inventory:

• Purpose. The purpose of ATS inventory is to evaluate the product availability of a particular unit for immediate sale to customers. ATP inventory helps businesses evaluate how well they can meet customer demand over a set period of time.

• Scope. ATS inventory involves fewer considerations than ATP, since it doesn’t factor in future demand.

• Formula. Calculating ATS inventory requires a different formula: 

Inventory on hand – (Outstanding purchase orders + Outstanding sales that haven’t been shipped + Future sales that have already been processed) = ATS

Safety stock

Safety stock, also known as buffer stock, is a set amount of inventory set aside for unexpected product shortages. These shortages can happen due to unexpected periods of high customer demand, damaged merchandise, and supply chain disruptions.

Safety stock and available-to-promise inventory go hand in hand, as safety stock is an important part of determining total supply for ATP formulas. Not all businesses that have safety stock will also necessarily use it to calculate ATP, so here are some ways that safety stock is distinct on its own:

• Purpose. The purpose of safety stock is to keep a certain amount of product available for immediate sale to cover gaps in inventory when stock runs low, whereas the goal of ATP inventory is to calculate how much inventory will be available for customers to purchase over a specified period of time.

• Flexibility. Once a business determines appropriate safety stock levels for a particular product, the goal is to maintain those levels consistently. When levels start to deplete, businesses replenish that inventory as soon as possible. By contrast, ATP inventory levels fluctuate regularly based on changing variables like increasing customer demand or supply chain issues.

• Calculations. The calculation of safety stock results in a number from zero to hundreds or thousands of units, depending on business needs, and it never produces a negative number. Conversely, ATP inventory levels can shift between a positive quantity (representing an amount of units available to promise for sale) and a negative ATP quantity—meaning the demand outweighs the inventory, which results in a negative number.

Capable to promise

Capable to promise (CTP) is an inventory strategy used to evaluate how well production meets customer demand. Capable-to-promise inventory is similar to available-to-promise inventory, since both focus on meeting future demand over a set period of time. However, CTP also includes information about a company’s production capacity. 

Here are the key differences between CTP and ATP:

• Purpose. The purpose of CTP inventory is to determine if a business has the manufacturing or sourcing capacity to generate enough inventory to meet customer demand. The goal of ATP inventory is to evaluate how effectively a business can meet customer demand over a set period of time based on available inventory and incoming supply. 

• Scope. Calculating CTP involves more considerations than ATP, since it also factors in the impact of the production process. For example, CTP calculations could include factors such as the availability of production labor, raw materials, and production equipment.

• Complexity. CTP is a more comprehensive inventory framework for businesses that manufacture their own products or work closely with manufacturers to create products. ATP is a simpler and more effective inventory framework, and is particularly useful for dropshipping businesses or businesses that source products from “third-party suppliers. 

How to manage available-to-promise inventory

• Use a warehouse management system
• Provide access to real-time ATP inventory levels
• Use AI tools for customer demand planning

Here are some best practices to consider when managing ATP inventory for your own business.

Use a warehouse management system

A warehouse management system (WMS) is a software tool that automatically tracks inventory levels. This type of inventory management software can generate ATP reports that provide real-time visibility into where your products are located—if you use different storage locations—and provide accurate inventory data for what you have on hand and what is currently on the way.

Provide access to real-time ATP inventory levels

If you’re using a WMS, consider sharing access with multiple key employees, including your inventory planners, warehouse staff, and marketing or sales teams—especially if your business sells on multiple channels. 

Providing access to inventory data can help you improve your operational efficiency, since different team members can check on real-time levels without reaching out and waiting for inventory managers to respond. For example, a sales team with access to your WMS can check on the current inventory levels of a product right away to avoid overselling units that are in short supply—which can result in disappointed customers who can’t receive what they just bought.

Use AI tools for customer demand planning

Using AI tools for demand forecasting can help you monitor historical sales data and buying patterns as well as social media analytics, shifting consumer sentiment, and external trends like rising inflation or economic turmoil in a particular market. Some of the quantifiable customer demand metrics your AI tool could monitor include:

• How quickly your products move. Inventory turnover rate is the amount of total inventory that is sold, used, or replaced during a specific reporting period. A low inventory turnover rate for a particular product represents slower sales and less demand, whereas a higher inventory turnover rate indicates higher demand for that product.

• How long your inventory can last. Days sales in inventory (DSI) is a metric that quantifies the average number of days it would take to sell the entire existing quantity of a particular product. A lower DSI means that a certain product is in high demand, while a higher DSI represents lower demand that doesn’t require immediate attention for restocking.

• Fulfillment issues. A back order rate is the percentage of orders that a company cannot immediately fulfill because of insufficient stock. 

• When it’s time to reorder. A reorder point is a specific inventory level set for a particular product that indicates when new inventory needs to be acquired to replenish your stock. You can calculate your reorder point by multiplying the average daily sales for a product by the lead time that it takes for a supplier to deliver an order to your warehouse and adding that number to your safety stock.