Available-to-Promise (ATP): Say Goodbye to Excess and Obsolete Inventory
person By Joe Henderson
calendar_today December 9, 2024
Everybody wants more ATP stock
It’s a common fictional trope: the desert island – with pirate treasure! It’s hoarding, and it happens in inventory management, too.
You put your precious haul somewhere so no one could find it. But what if you forget what’s there and how to locate it? No one here remembers either.
There’s a catch to hoarding inventory; it’s critical to your mission, but you must build your treasure map to find it again.
Except it’s not a story; it’s your warehouse.
Our previous article on Calculating Inventory Turnover and reporting standards offers some common inventory management considerations like size or price. Today, we’ll discuss the classes regarding excess and obsolete inventory that can’t be sold and gets stashed away.
Not all lost inventory is the same
Some lost stock is intentional, such as geofencing or channel allocations. In other cases, an inventory planning issue leads to reduced Available-to-Promise, overbuying, or inventory write-offs.
No matter how excess or obsolete inventory got to the island, it will cause a real financial drag on the business if you don’t find it.
Excellent reporting and planning, tied into great execution, are vital to improving ATP stock.
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Here are some classifications and the reasoning behind inventory obsolescence.
Process exceptions in multichannel inventory
What causes exceptions? Exceptions happen because inventory is carved out to serve a defined purpose. It is common in multichannel businesses to allocate inventory for specific kinds of sales.
If you think of it as a Venn diagram, some ATP stock could specifically be for direct sales in the southwest, but the inventory ended up in the northeast, and your rules won’t connect the two. It’s more common to see direct inventory denied to retail replenishment and vice-versa.
Here are some common processing issues that can compromise your Available-to-Promise:
Geofencing
An inventory management practice of protecting inventory for a specific region – states, countries, etc. that is common when planners are aligned to geography. While there can be legitimate reasons – like products labeled for specific countries – generally, it’s in the company’s best interest to free this up as ATP, wherever that might be.
The solution is to review your order management and allocation rules. If they are too strict, relax them to increase sales.
Channel Protections
While the practice has fallen out of favor in an omnichannel market, it was common practice in retail operations to split inventory between Direct-to-Consumer (DTC) and Retail. If retail sales ran hot, you didn’t want to steal from your direct customers. It was in service of customer experience and older sales planning models. The impact could be a pile of retail-only inventory that isn’t moving because it’s unavailable to sell to your direct customers.
The solution is to detect that extra ATP stock by looking at the sales trajectory and highlighting slow movers. Look for SKUs with backorders and cancellations in some areas, but there is Available-to-Promise inventory on the books. Order management software is incredibly useful in keeping you from overselling SKUs you can’t ship when you say you can.
Overselling – How it Happens and How to Prevent it
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Returns Processing
Complex returns processes will have several statuses as items move from received to ATP. It is not uncommon for this to take substantial time or for inventory to languish mid-process. These returns are usually customized for the business, but some examples are quality hold, quality control, and refurbishment. It’s unproductive working capital—tying up floor and shelf space—unless the excess stock is worked promptly.
The solution is discipline. It’s easy to focus on first-sale orders and not allocate time to returning inventory to ATP or promptly returning it to the vendor. The longer you don’t work it, the bigger the problem gets.
Lifecycle your leftovers: expiry, aged, discontinued, obsolete
Sometimes, you just can’t sell everything; not everything goes to plan.
You planned for 100, sold 90, 10 units left at the end of the season. For non-cyclical inventory, this rolls over and adjusts the replenishment cadence. The issue arises when the inventory can’t be sold for a variety of reasons, such as:
- Expiry– It’s important for food, manufacturing, and pharmaceuticals. It is a point of research if the vendor isn’t taking the product back and the buyer isn’t clearing it out of the warehouse. Expiry is usually represented in dollars. Solution: See what can be returned or credited, but start disposal. This inventory is done; clear the shelves.
- Aged– Reflects the organization’s definition of ‘slow selling’. If you have quantities on the books that are too long, this is a yellow flag in the buying process. Orders are too high, or sales have dropped off. This is not expiry – unusable – it is tied up working capital. Solution: Cancel outstanding orders, start markdowns, adjust safety stock, and restock points.
- Discontinued– Primarily in fashion or other seasonal products. It’s not expiry, but it can’t be sold. Some retailers will have ‘last chance’ bins for discontinued inventory but often it can be found orphaned in the DC because the buyer will take a hit for a fire sale. It’s a continuous improvement target as even orphaned stock creates carrying costs and a profitability drag for the entire business. Solution: See what can be returned or credited. If not, push promos, markdowns, and other liquidation strategies and clear the shelves.
- Obsolete****inventory – Inventory that can no longer be used because a newer product has been introduced. It can be repair parts in MRO inventory or reflect last year’s MacBook. Obsolete inventory is psychologically similar to Discontinued inventory, but for different reasons. Solution: See what can be returned or credited. Obsolete inventory may be a write-off unless it can be offloaded to an aftermarket vendor. Don’t be tempted to keep it unless you offer a services and repairs program.
Between exceptions and leftovers, you should identify most of your marooned inventory. The key is to make sure these apply to your business. If you don’t process your own returns, skip that category. Similarly, obsolete inventory may not apply to your industry. Be thorough in your search, but don’t get into a snipe hunt.
Put your ATP reporting to work
On top of these ATP inventory management best practices, you must be able to consider different slices of inventory in the business context. Otherwise, ATP stock becomes invisible to a distributed order management system (DOM) if you have one (or plan to add one).
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This isn’t the fault of the technology. You shouldn’t want to sell things of dubious quality to your customers. However, finding and addressing Available-to-Promise inventory is being fiscally responsible.
It is an opportunity to address those units and move them back into ATP stock or off the books and out of valuable stocking locations.
Apply reporting standards and build a process for quickly finding, evaluating, and disposing of obsolete inventory before your exceptions become a significant headache.
Deposco improves Available-to-Promise
Solutions that integrate OMS and WMS with supply chain planning improve inventory management natively. So you don’t have to tie up excess capital, overbuy, or sweat over how formulas should be applied.
Deposco increases your ATP and competitive advantage by providing real-time visibility, inventory accuracy, operational efficiency, and analytics in a converged platform.
Unlike siloed systems, this seamless approach enables data-driven inventory management decisions, ensuring you can make reliable commitments to your customers about product availability and on-time delivery.
Supply Chain Convergence: Why Now?
The applications that plan for inventory must work hand in hand with those that handle inventory. Learn why you should unify supply chain planning and execution.
Frequently Asked Questions
Still have questions? We're here to help! Speak with our team!
How does ATP inventory help businesses optimize order fulfillment?
Available-to-Promise (ATP) inventory provides real-time data on stock availability, enabling businesses to improve order accuracy and fulfillment speeds, thereby enhancing customer satisfaction and reducing excess inventory.
What is the difference between Available to Promise (ATP) and Capable to Promise (CTP)?
ATP refers to the portion of inventory uncommitted and available-to-fulfill new orders, while Capable to Promise (CTP) considers production capacity and resource availability to determine when products can be delivered.
Why is Available to Promise an important component of your supply chain management or inventory platform?
ATP in your inventory platform or supply chain management platform ensures accurate stock visibility across channels. This helps prevent overselling, stockouts, and order commitments that you can't keep.
What is an obsolete stock policy, and why is it necessary?
An obsolete stock policy outlines procedures for identifying, evaluating, and disposing of inventory that is no longer sellable or in demand, helping businesses free up valuable storage space and reduce holding costs. Meet with Deposco for guidance in getting a handle on your ATS.
How can businesses prevent overbuying inventory?
Businesses can prevent overbuying inventory by implementing integrated OMS and WMS (warehouse management systems) that scale to include Planning. These provide real-time inventory visibility, ensuring procurement decisions align with actual demand and reducing excess stock.