Open To Buy Definition

Open To Buy Definition

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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.

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.

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.

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.

A successful open to buy plan tells you what your retail outlet needs, so you can streamline your retail operations and order the correct amount of inventory every time. When implemented correctly, an open to buy retail plan prevents merchandise deficits and surpluses.

Seasonal businesses, in particular, can benefit from better control over the supply of different products. With demand changing from month-to-month and even week-to-week, open to buy allows for better inventory management and better preparation with your assortment planning for seasonal rushes.

Overall, compiling an open to buy plan gives you more control over merchandising and ensures that you can buy more of the right items, per current market conditions and the purchasing habits of your consumers.

Use the open to buy formula to create forecasts for your open to buy plan. Remember, the values plugged into the formula are not hard numbers. They are projections. For this reason, OTB will never be 100% accurate.

What makes the open to buy formula so useful is it can be applied not just to a retail store as a whole, but to different categories of products, product sub-classifications, and even individual products that are a part of the inventory system.

The value of open to buy management revolves around making accurate projections for each aspect of the formula. Realistic predictions are critical to getting actionable results and getting the most out of the OTB concept.

Obviously, you should also take the time to compare your projected figures for a period with your actual figures. Realism is the central tenant to whether your open to buy planning provides value or not.

While open-to-buy planning is a replenishment tool used by all types of businesses, it is not suitable for all commodity categories. The industries that will benefit most from OTB are those where product specifications change regularly, but the classifications and subclassifications of those products remain the same.

Finally, open-to-buy planning is not designed for everyday items. Your most popular items, such as soft drinks or small accessories, are better suited to run on an automatic replenishment schedule. This is especially true for items that sell consistently throughout the year with no real peaks and dips in sales figures.

Retailers adopt the open-to-buy approach because it is an inventory management strategy that allows for optimal stock levels, more flexible inventory, and the identification of product trends that are likely to be appreciated by consumers.

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.

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.

Generally, market orders should be placed when the market is already open. A market order placed when markets are closed would be executed at the next market open, which could be significantly higher or lower from its prior close. Between market sessions, numerous factors can impact a stock's price, such as the release of earnings, company news or economic data, or unexpected events that affect an entire industry, sector, or the market as a whole.

A price gap occurs when a stock's price makes a sharp move up or down with no trading occurring in between. It can be due to factors like earnings announcements, a change in an analyst's outlook or a news release. Gaps frequently occur at the open of major exchanges, when news or events outside of trading hours have created an imbalance in supply and demand.

The next chart shows a stock that \"gapped down\" from $29 to $25.20 between its previous close and its next opening. A stop order to sell at a stop price of $29--which would trigger at the market's open because the stock's price fell below the stop price and, as a market order, execute at $25.20--could be significantly lower than intended, and worse for the seller.

In a similar way that a \"gap down\" can work against you with a stop order to sell, a \"gap up\" can work in your favor in the case of a limit order to sell, as illustrated in the chart below. In this example, a limit order to sell is placed at a limit price of $50. The stock's prior closing price was $47. If the stock opened at $63.00 due to positive news released after the prior market's close, the trade would be executed at the market's open at that price--higher than anticipated, and better for the seller.

Open order refers to an order placed to buy or sell securities but is not filled or canceled until it matches specific criteria. When an asset is available for trade, the deal initiator has the option of keeping it open until all conditions are met, such as price and time.

In other words, these orders are initiated due to delayed execution of securities purchases and sales. Investors can track their open order status by keeping a tab on the securities market and then executing accordingly. 59ce067264

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