What Is Open-to-Buy? - A Guide to OTB Inventory Management

What Is Open-to-Buy? – A Guide to OTB Inventory Management


Why is Open-To-Buy Critical For Retailers?

Open-to-buy is essential for retailers because inventory accounts for the most significant expense in retail. As a result, the investment in inventory must be productive, accurate, and timely. Not offering a product when your customers want it leads to lost sales and unsatisfied customers. At the same time, having so much inventory that you can’t sell it fast enough results in markdowns that erode margins. Open-to-buy inventory planning will allow you to estimate the amount of stock you need to keep your business operations stable.

See related: How to Calculate Gross Profit Margin- A Guide For Retailers and SMB Owners

Who is OTB suitable for?

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.

This strategy is also beneficial for retailers who deal with many SKUs, such as apparel brands. It’s also helpful for highly seasonal businesses, where retailers need to buy the right amount of inventory early and gradually decrease the supply by a predefined endpoint.

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.

And, of course, since OTB planning is based on historical product sales data, it’s only a feasible strategy if the business is using an appropriate POS system.



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