The fundamental difference between available physical and physical inventory lies in their scope: physical inventory represents the total quantity of an item on hand, while available physical inventory indicates the portion of that total that is uncommitted and ready for use or sale.
Understanding Physical Inventory
Physical inventory refers to the absolute quantity of a specific item that is physically present in your warehouse, storage facility, or any location at a given moment. It is the raw, unadulterated count of all items, regardless of whether they have been allocated, reserved, or are free to be used.
- Key Characteristics:
- Total Count: Represents the entire stock of an item.
- Baseline: Forms the foundation for all other inventory calculations.
- Static View: A snapshot of what is physically "there."
- Crucial for Audits: Essential for reconciliation and verifying stock records against actual counts.
Understanding Available Physical Inventory
Available physical inventory, often referred to as "available to promise" (ATP), is a calculated value that signifies the quantity of an item that is currently unencumbered and can be allocated to new orders, production, or immediate use. This figure is crucial for accurate order fulfillment and production planning as it reflects the true usable stock.
This value is determined by taking the physical inventory and subtracting any quantities that have been physically reserved. Therefore, the available physical quantity for an item is calculated as:
Available Physical = Physical Inventory - Physical Reserved
- Physical Reserved: This refers to the quantity of items that, while still physically on hand, have been committed or allocated to specific future purposes, such as:
- Sales Orders: Items set aside for customer orders awaiting shipment.
- Production Orders: Components reserved for manufacturing a specific product.
- Transfer Orders: Stock designated for movement to another location.
- Quality Control Holds: Items temporarily unavailable due to inspection or testing.
Why the Distinction Matters
Understanding the difference between these two inventory metrics is vital for efficient operations and avoiding common pitfalls like overselling or production delays.
- Accurate Order Fulfillment: By knowing the available physical quantity, businesses can accurately promise delivery dates to customers, preventing backorders and improving customer satisfaction.
- Production Planning: Manufacturers rely on available physical figures to ensure that necessary components are on hand before initiating a production run, preventing costly stoppages.
- Optimized Resource Allocation: It allows for better allocation of warehouse space, labor, and equipment by providing a clear picture of readily usable stock.
- Real-Time Decision-Making: Inventory management systems use available physical to provide real-time insights, enabling agile responses to demand fluctuations.
Key Differences at a Glance
| Feature | Physical Inventory | Available Physical Inventory |
|---|---|---|
| Definition | Total quantity of an item physically present. | Quantity of an item uncommitted and ready for use. |
| Calculation Basis | Actual count of all items. | Calculated: Physical Inventory - Physical Reserved. |
| Purpose | Baseline for total stock; auditing. | Determining what can be sold/used now; order promising. |
| Status | All items, committed or uncommitted. | Only uncommitted and usable items. |
| Relevance for Orders | Shows total potential; not direct for new orders. | Direct indicator of what can be fulfilled immediately. |
Practical Example
Imagine a retail store that sells Product A:
- Physical Inventory: The store has 100 units of Product A in its backroom and on the shelves.
- Physical Reserved:
- 20 units of Product A have been put aside for a customer's online order that will be picked up tomorrow.
- 10 units of Product A are earmarked for a promotional display being set up next week.
- Available Physical Inventory:
100 (Physical Inventory) - 20 (Reserved for Order) - 10 (Reserved for Display) = 70 units
In this scenario, while the store physically has 100 units, only 70 units are available physical and can be sold to a walk-in customer right now or allocated to a new online order.
Optimizing Inventory Management
Effective inventory management often hinges on the precise tracking of both physical and available physical quantities. Utilizing a robust inventory management system is crucial for maintaining real-time accuracy and supporting complex calculations.
- Regular Cycle Counts: Conduct frequent, small-scale inventory counts to ensure that physical inventory records are accurate.
- Automated Reservation Logic: Implement systems that automatically reserve stock upon order placement to keep available physical figures up-to-date.
- Demand Forecasting: Combine accurate inventory data with sales trends and forecasts to anticipate future needs and optimize stock levels.
