What Is Open-to-Buy Planning and How Does It Help Retailers?
By Multidev Technologies · PUBLISHED April 5, 2022
Embracing constant change and delivering personalized customer experiences is critically important in the face of today’s increasingly informed consumer. Retailers face more competition than ever before due to the technological advancements that have modified the traditional shopping experience from purely physical into the digital and omnichannel.
Without understanding what merchandise is coming into your store and what is going out, you will quickly lose control of your store. Too much Inventory, too little Inventory, and unhappy customers are just some of the consequences of losing control. As a result, you will lose money and sales opportunities.
Fortunately, all of these can be corrected quickly, but only if you take heed and start planning.
What is open-to-buy?
An open-to-buy (OTB) is a purchase budget for future inventory orders that a retailer creates for a specific period of time. It helps retailers stock the right amount of the right products at the right time by showing the difference between the amount of stock needed and the amount available.
The Top 5 Benefits of Open-to-Buy for Retailers
There are five key benefits of utilizing open-to-buy planning software to build optimal inventory management and increase customer satisfaction.
1. Optimal Inventory Levels
Open-to-buy planning software is the first step in ensuring you have the right amount of stock available to satisfy demand while meeting your financial objectives. Excess Inventory (or the wrong products) can impact your cash flow, and markdowns needed to reduce Inventory will decrease your margins.
On the other hand, insufficient Inventory can lead to stockouts and lost sales. An OTB planning process supported by intelligent open-to-buy software allows the retailer to stock the right amount of merchandise at the right time. It gives you a clear budget to spend on purchase orders for new products, resulting in increased revenues and margins.
2. Improve Inventory Flexibility
In contrast to quarterly or yearly inventory replenishment, most merchants plan their OTB on a monthly or weekly basis. Your budget will modify accordingly, giving you the flexibility to order more (or less) Inventory in a given week or month.
Retailers might consider augmenting it with other metrics, such as inventory turnover, sales to stock ratio, SKU behavior, and forecasting accuracy by demand points such as stores and warehouses.
Moving to a weekly or bi-weekly OTB cycle is also essential to improve response time. You can manage seasonality; 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, OTB management allows for better planning and preparation for seasonal rushes.
By increasing the frequency of open-to-buy, you could increase inbound freight costs or sacrifice order quantity discounts, but in the end, inventory flexibility is worth it.
3. Identify trends
When it comes to inventory management, it’s safe to assume that there’s always more than meets the eye. What appears to be an obvious trend isn’t always as accurate as you might think. It might start to accelerate earlier than you’d expected. Without an OTB plan, you’d not have enough Inventory to cater to the shoppers buying products earlier than expected.
Creating an OTB plan factors in sales and promotions is also essential. You will lose profits when your marketing departments don’t communicate upcoming sales or promotions with your supply chain team. As a result, Inventory falls short, poor customer experiences, and shoppers don’t get the incredible deals they were promised if there is no stock available to buy.
OTB planning takes all of these factors into account. When planning your inventory budget, you’ll see upcoming flash sales and year-round seasonal patterns, like Black Friday and Cyber Monday. As a result, there won’t be no stockouts during peak sales seasons.
4. Gain Better Financial Control and Boost Customer Satisfaction
Having the right assortment is imperative for a better financial budget and customer satisfaction. Poor inventory management could lead to your organization facing cash flow issues. You need to have a proper assortment and inventory allocation, and an understanding of how much to buy pre-season and in-season. You can maintain a fresh flow of goods, which means your customers will come back.
Investing in an integrated open-to-buy planning solution enables retailers to plan their assortments and purchase inventory more effectively with visibility into the financial budget plan and current stock position.
Integrating their financial goals and assortment plans improves visibility throughout the planning process to ensure sufficient stock levels are available and minimize over-buying, stockouts, and missed sales.
5. Building Retailer Success with Open-to-Buy
Modern OTB planning software allows retailers to set critical benchmarks to determine performance by measuring inventory turns and gross margin returns, allowing them to analyze the current effectiveness of the plan and intelligently make adjustments to improve it.
To stay competitive, retailers who invest in open-to-buy planning software can keep an eye on their financial health and build a successful business, while aligning inventory optimization with revenue goals.
Overall, implementing an open-to-buy plan gives you greater control over merchandising and assures you to buy more of the right items based on current market conditions and your consumers’ buying habits.
ChainDrive Open to Buy Planning Software
ChainDrive OTB software solutions can measure productivity, keep stock, provide recommendations, and factor in market trends. It automates much of the process and generates warnings whenever the merchant needs to act.
Use ChainDrive OTB plan to stop going under or over budget. Know your inventory turnover, run the formula, and sense-check any predictions by comparing them against previous sales data.