Comparing Available to Promise and Capable to Promise: Which is best for me?
Companies, particularly B2C retailers, hate it when they run out of inventory. Stockouts not only cost businesses potential sales, but they also adversely impact customer satisfaction, positive reviews, and future repeat business. But keeping too much inventory on hand “just in case” can also be a dangerous strategy. Unsold inventory represents a significant cost, particularly if the products are subject to spoilage or seasonal demand.
With more and more companies competing across multiple channels – wholesale, brick-and-mortar, and online – maintaining the right balance of lean inventory while avoiding stockouts or overstocking can be challenging.
Two methods of anticipating product availability for new orders are Available-to-Promise (ATP) and Capable-to-Promise (CTP). Both estimate available products to sell immediately or by a specific date. The difference is how they arrive at that figure. ATP considers the current and planned orders less the committed items. CTP uses a similar calculation but also includes the additional production capacity of your manufacturing and assembly process.
Available-to-Promise (ATP)
ATP looks at how many items are currently present in inventory or can be expected to arrive (based on outstanding production orders, purchase orders, or transfers between warehouses) within the time frame specified, less the expected demand and other commitments (outstanding sales orders) for the product over that time period.
ATP calculations use either the push method or the pull method. The pull method is focused on current supply less commitments:
Pull-ATP = (Beginning Inventory Stock + Planned Orders) – (Outstanding Sales Orders)
The push method also takes into consideration demand fluctuations and includes a demand-forecasting component:
Push-ATP = (Beginning Inventory Stock + Planned Orders) – (Outstanding Sales Orders + Demand Forecast)
The risk of using Push-ATP over Pull-ATP is if the demand forecast is inaccurate.
Example of ATP
For example, suppose a company makes and sells remote-controlled airplanes and drones. It has ten drones in inventory and anticipates making another 20 next week. There is an outstanding sales order for five drones during that time frame. That means they have 25 drones available to promise:
Pull-ATP = 10 (beginning stock) + 20 (planned orders) – 5 (outstanding sales orders) = 25
Capable-to-Promise (CTP)
As opposed to what is available to deliver to customers, Capable-to-Promise looks at how much product the company can commit to having available to customers by accounting for items that can be available that are not currently in inventory or on order. This calculation is similar to ATP but adds the production capacity of the company and what can be ordered from vendors as well.
When a new order is received, CTP will provide a realistic date to fulfill that order. This helps the company meet its current commitments while avoiding changing production orders.
CTP is a more complex calculation than ATP because it must look at multiple facets of its production capacity.
Example of CTP
To continue the example of drone manufacture, consider the company’s production process. Suppose a single drone is comprised of a chassis, four propellers, four engines (one for each propeller), logic for the device, radio controls, and a remote controller. Suppose that each item is supplied to the company preassembled except for the engines, which the company makes themselves.
To calculate the ability to manufacture additional drones over what is already planned involves several pieces of information, for instance:
- How many assembly resources (workstations, staff) are available?
- Do we have the components in stock to fabricate additional drones (chassis, propellers, engines, etc.)?
- Do we have the necessary sub-assembly components for the engines?
- Do we need to order additional components? What are the lead times for those components?
- How much time does it take to assemble the engines?
- How much time does it take to assemble the drone?
As you can see, the deeper we go into multi-level BOMs, the more complex the calculations.
However, if the company receives a large special order, CTP will accurately assess when that order can be fulfilled.
Comparing Available-to-Promise (ATP) and Capable-to-Promise (CTP)
If sufficient stock in inventory covers all current and expected demand, ATP and CTP will provide the same value. Since ATP is less complex to calculate, it is advisable to run ATP first. Otherwise, CTP is the preferred method to calculate the earliest an order can be fulfilled.
Find out more
Microsoft Dynamics 365 Business Central supports both Available-to-Promise and Capable-to-Promise. Watch this video to learn how to set up ATP and CTP in Business Central.
Read our blog to learn about other key performance indicators that affect manufacturers, distributors, and suppliers.