- Using OTB in Inventory Planner
- Setting Planned Revenue
- Setting Forward Stock Cover
- Additional Considerations
- The Calculation
- OTB and Replenishment
Open-to-Buy (OTB) allows you to input planned revenue goals and optimal stock coverage going into future months to determine a purchasing budget for future inventory orders while taking current stock, received and incoming orders, and markdowns into consideration.
Since many retailers use product categories for planning rather than analyzing hundreds of individual products, plans can be created in OTB at the Category level. This strategy works well when products in the same category behave in a similar fashion, and when categories are mutually exclusive (SKUs only assigned to one category).
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.
Learn more: Open-To-Buy: How to Use This Formula to Better Manage Retail Inventory (Shopify Retail Blog)
Using OTB in Inventory Planner
- Begin by selecting the Open-to-Buy on the left hand navigation bar.
- Select “+ New Plan” at the bottom to start a new plan.
Setting Planned Revenue
- A key consideration is whether or not you’d like to input Revenue & Stock goals at a Total level (Top-Down) or at a Category level (Bottom-Up) for OTB planning. When the Top-Down method is selected (blue arrow) and you input goals at a Total level, Inventory Planner attempts to set the same goals for every category. In this case, revenues for each category will be based on the last 2 month sales distribution.
Adjust the date range you’d like to see in your report as needed (black arrow), then begin inputting your planned revenue goals by month (green circle). You can also select the “Action” button at the bottom > then “Seed from Prior Year” to configure planned revenue goals automatically based on the prior year, or “Seed from Sales Forecasting” to configure planned revenue goals automatically based on your current forecast.
Learn more about how Forecasting and Replenishment is calculated
- For this example, we are calculating planned revenue goals automatically based on a +10% adjustment compared to last year’s actual revenue.
- Select rows using the gear icon in the top right. Compare metrics as you’d like against Last Year (LY) or Two Years Prior (LLY). Select “Reset” anytime to restore to the default rows.
- Remove any unnecessary Categories from the OTB plan by selecting Actions > Category Organizer.
Setting Forward Stock Cover
- Now it’s time to input your stock goals! Enter Forward Cover for next month (eg. Oct) as the number of months you’d like to cover as of the beginning of that month. Inventory Planner will use this information to calculate your Open-to-Buy at Retail for the prior month (eg. Sep).
Open-to-Buy at Retail is the additional stock that should be received during a period to ensure that planned stock goals for the following month are achieved by the end of the current month.
Example: By setting Forward Cover as “3” in October, Inventory will generate OTB in September to ensure that enough stock is received by Oct 1 to cover planned revenue between Oct-Dec. Note: This is the report before Closing Stock in Sep is recalculated based on OTB recommendations.
- Setting Forward Cover at a Total level (Top-Down Planning) attempts to set the cover for each Category. OTB is recommended in Categories only where the Forward Cover goal is feasible.
Example: For “dresses,” OTB of $10,098 in September ensures that the month will close with $12,757 to support Oct + Nov + December revenue (black arrows) by Oct 1.
- If it’s not possible to achieve the goal in a defined period (due to overstock), Inventory Planner does not recommend purchasing additional inventory (shown as OTB at retail) in the Category for the period.
Example: For “bags,” no OTB is recommended since current stock is much higher than 3 months already. There are no changes in this category.
- Every enabled category is reviewed according to these steps. Once the sequence is completed, Inventory Planner provides a summary of categorical Overstock errors.
Opening Stock is then re-aggregated to the Total level using the new recommendations, and Forward Cover is recalculated based on the Overstocked categories.
- Input Margin to calculate Open-to-Buy at Cost.
- Input Average Selling Price to calculate Open-to-Buy at Units.
- Spot Cover: Calculated automatically as Opening Stock / Planned Revenue within the current month. This is also known as “Flat Cover”. In prior versions of OTB, setting spot cover was necessary. Now forward cover should be configured, and spot cover will be calculated automatically (grey arrow).
- Purchase Orders: Existing Purchase Orders and PO Receipts are captured in OTB automatically, and will be reflected at Retail value (black arrow). Planning must happen in retail dollars for an apples-to-apples comparison. Cost is only converted at the end by inputting Margin, as explained above.
- Markdown: Markdowns should also be entered in Retail dollars (red arrow). This value represents the difference in revenue that is expected between selling goods at regular price vs. actual price. To add Markdowns in the OTB table you can select the gear icon in the top right of the screen.
Markdowns = (Gross Regular Revenue - Gross Revenue) * Quantity.
Opening Stock + Actual Purchases + Actual Receipts + Open-to-Buy (OTB)
- Planned Revenue - Markdowns
= Closing Stock
Open-to-Buy (OTB) =
Closing Stock + Planned Revenue + Markdown
- Opening Stock - Purchases
OTB and Replenishment
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 Edit Forecast screen to override the forecast using Open-to-Buy calculations.
To do this, select Forecast Override by Category.
Select categories to override using the checkboxes on the left side.
Then select Bulk Actions at the bottom of the screen to see OTB revenue information for selected categories.
Use the dropdown to select an OTB plan.
And click 'apply'.
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).
- Select “Categories” or any other way you’d like to view reports, then sort however you'd like (eg. sort on "Replenishment Retail" in descending order) to see how Replenishment recommendations break down.
Learn More: How is the forecast and replenishment calculated?
- Select the Details icon (the “i” button) for forecasting and replenishment details. Note: Analysis takes place at the Variant/SKU level. When displayed at a higher level (eg. Category, Vendor) metrics are aggregated.
Learn more: Inventory Planner 101
- Click “45 variants” under a Category (eg. dresses) in Replenishment to display metrics by Variant/SKU. Adjust Filters as needed to view relevant SKUs, then select items using the checkboxes on the left hand side. Finally select “+ New PO” at the bottom left to begin creating a new Purchase Order.
- Once Variants are added to a PO, adjust quantities as needed and/or use the Actions > Scale to Budget feature to adjust the PO to a budget that works with your Open-to-Buy at Cost recommendations.
- The Expected Date on a PO determines which month the “Purchases” metric will increase for in Open-to-Buy.
- Scale the PO budget up or down as needed to align with OTB at Cost recommendations.
- As Purchase Orders are created, you can return to Open-to-Buy anytime to reconcile new purchases with your existing OTB plan. OTB will reduce as new purchase orders are created and received.