Overview
Open-to-Buy (or OTB) is an inventory planning strategy used to work out how much inventory to buy.
It allows you to determine a purchasing budget for future inventory orders by inputting planned revenue, cost or sales in units goals and optimal stock coverage going into future months, while taking current stock, markdowns, and received and incoming orders into consideration.
Rather than analyzing hundreds of individual products, OTB can create plans grouped at the Category, Brand, Vendor/Supplier or IP Tag level, which is useful when products in those groups behave in a similar fashion.
Note: The Open-to-Buy planner works best when items are mutually exclusive (i.e. SKUs are only assigned to one category, brand or vendor).
OTB is particularly useful for merchants planning for a high seasonal business, companies with many new products being introduced, and businesses with aggressive revenue goals.
To access the OTB planner, select “Open-to-Buy” on the left-hand navigation bar.
Learn more: Open-To-Buy: How to Use This Formula to Better Manage Retail Inventory (Shopify Retail Blog)
Learn more: Open-To-Buy webinar from Inventory Planner
The calculation
Open-to-Buy is calculated using several variables, including your opening inventory and planned closing inventory, your actual purchases and receipts during the month, and your planned revenue and planned markdowns.
The formula is:
Open-to-Buy (OTB) =
Planned closing stock + Planned revenue + Planned markdowns
- Opening stock - Purchases
Where:
Planned closing stock is the planned value of stock on hand at the end of a time period.
Planned revenue is the target amount of revenue you want to make in the period.
Planned markdowns is the expected value of markdowns you are expecting to apply in the period.
Opening stock is the value of stock on hand at the beginning of a time period.
Purchases is the value of stock expected to arrive on purchase orders in the period.