top of page

Off-Road Riders

Public·17 members

Open To Buy Planning


Using an OTB formula, retailers create a plan in which they can calculate the money required to purchase future inventory orders for a specific sales period. Or, open-to-buy (OTB) planning lets retailers control inventory and stay cash flow positive.




open to buy planning



Open-to-buy (OTB) is an inventory management strategy and formula businesses use to create buying budgets for specific periods of time. It takes into account expected beginning-of-month and end-of-month inventory, planned sales, and planned markdowns. Basically, an open-to-buy budget tells retailers how much they can spend on inventory at some future date, whether it be the holiday season or the month of May.


With open-to-buy planning, retailers can forecast and spend proportionately to sales, meet demands for popular products, and prepare for seasonal surges. By helping retailers keep track of on-hand inventory compared to what is actually needed, open-to-buy planning reduces excessive spending and minimizes waste.


Say you want to create an open-to-buy plan for the holiday season (November to January) at your clothing store. You anticipate heading into the season with $7,000 of inventory. Last year you made $78,000 in sales during this time. This year, however, your customer base has grown and your business is making slightly more, so you anticipate making closer to $90,000. Additionally, you plan to mark down summer items valued at $3,000 by 20% ($600), and you anticipate having about $5,000 of inventory in stock once the holiday period is complete. With all this, your OTB calculation would be:


While larger businesses and corporations make longer-term open-to-buy plans (quarterly, semi-annually, etc.), those running smaller operations with tighter budgets should use shorter-term plans.


For businesses that see large seasonal spikes, create open-to-buy plans for each week. This will ensure you stay on top of seasonal flows and also help your buyers understand which products need to be ordered at higher volumes more frequently during busy periods.


Understanding your inventory and making accurate projections is a key part of open-to-buy planning, and it all comes down to good inventory management. Make your life easier with a fully integrated POS system with inventory controls, so that you can get automated reports, insights, and real-time data on your inventory.


An open-to-buy plan is a purchasing budget for future inventory orders that a retailer creates for a specific period. It helps a retailer stock the right amount of the right products at the right time by showing the difference between how much inventory is needed and how much is available.


The open-to-buy formula will help you create forecasts for your OTB plan. The values in your open-to-buy are projections, so they may not be perfectly accurate. But a sensible way to check your numbers is if your actual month-end inventory is within 5% of your prediction.


Unlike quarterly or yearly inventory replenishment, most retailers do their OTB planning on a monthly or weekly basis. Your budget will change accordingly, giving you the flexibility to order more (or less) inventory on any given week or month.


Inventory budget should be set well in advance, as inventory purchasing should begin no later than one month prior to opening to account for potential shipping delays and merchandising needs adequately.


OTB calculation is one of the most important tasks to master when starting a retail business. Failing to calculate the open to buy budget can be detrimental for the business, due to stock problems that will soon arise from improper planning. In fact, a lot of retail & ecommerce startups fail, mainly due to cash flow problems created by poor inventory management.


If you were budgeting for a period that starts tomorrow, this would have been your current stock value (at cost). However; since we always budget for a period well in advance (usually 6 months ahead) this would mean calculating your opening stock well in advance.


Once you have defined your sales, margins and opening stocks in the previous steps, you will plug those numbers in one of the Open to Buy tools we discuss below, to calculate your total buying budget.


The retail buying plan template is a very useful tool that is used throughout the year, and not only at the Open to Buy planning time. Once you have ordered your inventory, you can start tracking actual sales and intakes every month in the sheet, and this will allow you to always be on top of your inventory.


Because your stock situation is dependent on your sales performance overall and also the performance of different departments within your stores, it is hard to be 100% accurate on your planning. Usually 5% deviation (up or down) is considered a good result in retail OTB planning.


This is also why we stress again on the fact that OTB planning is an ongoing process. You are advised to keep revisiting and updating your plan with actual sales figures as the months roll in, so you can take any action needed before it is too late.


In the simplest terms, open-to-buy (OTB) is a financial budget for merchandise buyers. By understanding inventory needs from a financial perspective, including revenue and margin, retailers gain insight into their open-to-buy process and, as part of their merchandise financial planning, ensure the organization will not overspend merchandising budgets.


To remain competitive, retailers who invest in open-to-buy planning software are able to keep an eye on their financial health and grow a successful business, while aligning inventory optimization with revenue goals.


hbspt.cta.load(395829, '992eeefc-e2b5-4336-accb-43f917e6cc29', "useNewLoader":"true","region":"na1"); The Benefits of Open-to-BuyIn building market share and increasing customer satisfaction, there are three key benefits in utilizing open-to-buy planning software.


Open-to-buy planning software is the first step to ensuring you have the right amount of stock available to satisfy demand while ensuring you meet your financial objectives. Having too much inventory (or the wrong products) can impact your cash flow and the markdowns needed to reduce the inventory will lower your margins.


On the flip side, not having enough inventory can result in out-of-stocks and lost sales. An open-to-buy planning process supported by intelligent retail planning software will ensure that a retailer stocks the right amount of merchandise at the right time, resulting in increased revenues and margins.


Investing in an integrated open-to-buy planning solution allows retailers to more effectively plan their assortments and purchase inventory with visibility to the financial plan and current inventory position.


Aligning their financial goals and assortment plans results in better visibility throughout the planning process to ensure sufficient stock levels are available and that over-buying, stock outs, and missed sales are minimized.


In retail planning, open-to-buy (OTB) is one of the most important concepts to understand. By calculating your OTB you can ensure maximum profitability and keep your inventory management practices on target. Here are the simple steps to calculating your OTB.


Since many retailers use product Categories, Brands or Vendors/Suppliers for planning, rather than analyzing hundreds of individual products, plans can be created in OTB at the Category, Brand or Vendor/Supplier level. This strategy works well when products in the same category, Brand or from the same Vendor/Supplier, behave in a similar fashion.


OTB is particularly useful for merchants planning for a highly seasonal business, companies with many new products being introduced, and businesses with aggressive revenue goals that need to be considered.


If it's the case that stock will run out before the end of the corresponding month, we suggest setting the planned revenue = to the opening stock. In this example, we can't receive anything until June, so I zeroed out the forward cover of April, May, and June:


Open-to-Buy Planning is designed as a cash flow planning tool. By inputting planned revenue goals and forward stock cover goals for every month, Inventory Planner suggests how much stock should be purchased beyond stock that has already been received (if applicable) or that is scheduled to arrive on purchase orders.


Use the Replenishment Report for Variant/SKU level forecasting and replenishment analysis, and to create Purchase Orders using replenishment recommendations. Replenishment is an output of your Forecast Method & Settings, Forecast Edits, and your planning period (lead time + days of stock).


This is where open to buy planning comes into play. It tells you how much inventory should be on hand at the beginning of any given month and how much new merchandise should be received during the month to maintain your optimum inventory levels.


There are four basic steps to creating a simple, effective open to buy system for good inventory management. They can be done on a computer using sophisticated programs or more simply using pencil, paper, and a calculator. The first three steps are usually done once a year and, when completed, give you a complete open to buy plan for the upcoming year.


Just to note, while an Open To Buy can be prepared at many levels, it is most effective when prepared at a classification level. That is because sales planning, as well as forecasting, needs to be done at this level rather than by brand.


Fully-integrated to the centralized database, ChainDrive Open-to-Buy retail software offers the flexibility, dynamic controls and user-definable views you expect from a high-end retail management software to seamlessly handle planning in units, dollars and/or at cost, down to sub-class.


ChainDrive Open-to-Buy pos system empowers the user with beneficial functionality such as the ability to lock and unlock a single data cell or an entire sub-level plan. This OTB feature ensures that in planning mode, areas you want frozen and thus not affected by additional or ongoing adjustment will be maintained. 041b061a72


bottom of page