Open-to-Buy (OTB) Planning: What It Is and How It Can Benefit Your Retail Business
By Multidev Technologies · PUBLISHED April 11, 2023
As a retailer, one of the biggest challenges you face is managing your inventory. You need to find a balance between having enough inventory to meet demand and having too much inventory that puts a strain on your finances. That’s where open-to-buy (OTB) planning comes in. Open-to-buy planning is an inventory management method that helps retailers plan, budget, and control their purchasing activities. With an OTB plan, you can make informed decisions about what to buy, when to buy, and how much to buy based on your sales forecasts and merchandise plans. In this article, we’ll look at what OTB planning is, its benefits for retail businesses, and some tips for successful implementation. Whether you are a small store or a large chain of stores, OTB planning can be a game changer for your retail business.
What is Open-to-Buy (OTB) Planning?
Open-to-Buy (OTB) planning is a retail inventory management system that helps business owners determine how much inventory they can afford to buy within a specific period. It is a budgeting tool that allows retailers to plan and allocate their resources effectively. The goal of OTB planning is to balance inventory levels with customer demand and maximize profitability.
OTB planning takes into account a variety of factors, including sales projections, historical data, and current inventory levels. By considering these factors, retailers can calculate how much inventory they need to purchase and when to purchase it.
Benefits of Open-to-Buy (OTB) Planning
- Improved Inventory Management
One of the most significant benefits of OTB planning is improved inventory management. By using this system, retailers can ensure they have the right amount of inventory at the right time. This prevents overstocking or understocking, which can lead to lost sales, increased carrying costs, and decreased profitability.
- Increased Profitability
OTB planning helps retailers optimize their purchasing decisions, which can lead to increased profitability. By purchasing the right amount of inventory at the right time, retailers can reduce carrying costs and improve cash flow. This, in turn, can increase overall profitability.
- Better Cash Flow Management
OTB planning can also help retailers better manage their cash flow. By accurately forecasting inventory needs and purchasing accordingly, retailers can ensure they have enough cash on hand to cover expenses and invest in growth opportunities.
- Enhanced Sales Performance
By using OTB planning, retailers can optimize their inventory levels and ensure they have the right products when customers demand them. This can lead to enhanced sales performance, as customers are more likely to make a purchase when they find what they’re looking for.
Tips for Successful Open-to-Buy (OTB) Planning
- Use Historical Data
When developing an open-to-buy plan, it’s critical to use historical data to project sales and determine inventory needs. By looking at past sales trends, retailers can make more accurate forecasts and avoid buying excessive or insufficient inventory.
- Be Flexible
While OTB planning is an essential tool for inventory management, it’s essential to be flexible. Retailers should be prepared to adjust their plans based on changing market conditions or unexpected events, such as supply chain disruptions.
- Regularly Review and Adjust
To ensure the effectiveness of OTB planning, retailers should regularly review and adjust their plans. This can help identify areas for improvement and optimize purchasing decisions.
- Consider Automation
Finally, retailers may consider automating their OTB planning process. By using software solutions, retailers can streamline the process and improve accuracy.
In conclusion, Open-to-Buy (OTB) planning is a powerful tool for retail inventory management. Retailers can improve profitability, cash flow, and sales performance by optimizing inventory levels and purchasing decisions. With the right approach and tools, OTB planning can be a game-changer for your retail business.
Successful OTB planning in any business requires full data integration, and retail management is no different. ChainDrive (OTB) planning is fully integrated with the centralized database, so plans are flexible, dynamic, and specific to your business. If you want to improve your inventory management and increase your profitability, request a free live demo with ChainDrive experts.