Retail Planning 101: What Is Open-to-Buy?

Open to Buy (OTB) is a key concept in the retail and ecommerce industry, as it helps businesses to manage their inventory and optimize their purchasing decisions. Here is an overview of the basics of Open to Buy and why it is important:

What is Open to Buy?

Open to Buy is a tool that helps retailers and ecommerce companies to plan and manage their inventory. It is a budget that is used to plan and purchase merchandise, and it is based on factors like sales forecasts, inventory levels, and lead times.

How is Open to Buy calculated?

There are several factors that go into the calculation of Open to Buy, including:

Sales forecasts: Businesses use sales forecasts to predict future demand for their products. These forecasts are based on data such as past sales, market trends, and customer demographics.

Inventory levels: Businesses need to track their inventory levels and understand how much product they have on hand. This is important for managing stockouts and excess inventory.

Lead times: Lead times are the amount of time it takes for a supplier to deliver an order. Businesses need to consider lead times when planning their inventory, as it can impact their ability to meet customer demand.

Markdown and clearance plans: Retailers often need to mark down or clear out excess inventory, and these plans can impact the amount of Open to Buy they have available.

Why is Open to Buy important?

Open to Buy is important for retail and ecommerce businesses because it helps them to optimize their purchasing decisions and manage their inventory. By using Open to Buy, businesses can:

Reduce excess inventory: By using Open to Buy to plan their purchases, businesses can avoid overbuying and reduce the risk of excess inventory.

Improve customer satisfaction: By managing their inventory effectively, businesses can ensure that they have the products customers want when they want them, which can improve customer satisfaction.

Reduce costs: By avoiding excess inventory, businesses can reduce their storage and carrying costs, which can improve their bottom line.

Improve cash flow: By managing their inventory effectively, businesses can free up cash that can be used for other purposes, such as expanding their operations or investing in new technologies.

Overall, Open to Buy is an important tool for retail and ecommerce businesses to manage their inventory and optimize their purchasing decisions. By understanding the basics of Open to Buy and why it is important, businesses can improve their operations and better meet the needs of their customers.