Open To Buy (OTB) Planning

Open to Buy (OTB) Planning

Merchandise planning for retailers

Open to buy (OTB) is a term used in retail management to refer to the amount of money or inventory that a store has available to purchase new merchandise.

It is calculated by subtracting the store’s projected end-of-month inventory and outstanding orders from the store’s budget or credit limit.

The resulting amount is the amount of money or inventory that the store can “openly buy” in order to replenish stock or make new purchases.

By regularly calculating the OTB, retailers can ensure that they have enough inventory to meet customer demand without overstocking and tying up valuable financial resources.

By keeping inventory levels in line with demand, retailers can reduce the likelihood of having to mark down overstocked items, which can negatively impact profitability.

By monitoring the OTB, retailers can ensure that they have enough cash available to purchase new merchandise, which can help to maintain healthy cash flow.

By regularly monitoring the OTB, retailers can allocate resources more effectively by allocating them to high-performing products and categories.

By regularly monitoring the OTB, retailers can have better forecasting ability to predict the future trends of their inventory.

By having better forecasting ability, retailers can negotiate better with their suppliers and vendors.

By having the right product available at the right time, retailers can improve the customer experience and increase customer satisfaction.

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Open to Buy (OTB)

is a key concept in retail management that refers to the amount of money or inventory a store has available to purchase new merchandise. Retailers use this system to manage their inventory levels, increase profitability, and improve cash flow management. In this post, we will explore the concept of OTB in more detail, including how it is calculated, the benefits of using an OTB system, and how retailers can implement it in their stores.
 

Calculating Open to Buy

Calculating the OTB is relatively simple. It involves subtracting the store’s projected end-of-month inventory and outstanding orders from the store’s budget or credit limit. The resulting amount is the amount of money or inventory that the store can “openly buy” in order to replenish stock or make new purchases. For example, if a store has a budget of $100,000 and a projected end-of-month inventory of $50,000, the store’s OTB would be $50,000.
 
open to buy

Implementing Open to Buy in Your Store

For folks that are not familiar with what open to buy (OTB) here is a summary of how it could be implemented manually outside of our solution. Implementing an OTB system in your store can be relatively straightforward, but it does require some planning and organization. Here are some steps that retailers can take to get started:

1. Set a budget

Determine how much money or inventory you have available to purchase new merchandise.

2. Project your end-of-month inventory

Use your historical sales data to project your end-of-month inventory levels.

3. Calculate your outstanding orders

Add up the value of all outstanding orders that you have placed with suppliers and vendors.

4. Subtract your projected end-of-month inventory and outstanding orders from your budget

This will give you your OTB.

5. Monitor your OTB regularly

Regularly check your OTB to ensure that you have enough money or inventory to purchase new merchandise.

6. Adjust your budget and inventory levels as needed

If you find that you are consistently over or under budget, adjust your budget or inventory levels accordingly.

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