An open-to-buy plan is an inventory management tool to help you figure out how much inventory should be ordered on a monthly basis to meet your sales projections.
Most retailers use product categories for planning rather than analyzing hundreds of individual products. This strategy works well when products in the same category behave in a similar fashion.
Please note: It is essential to have mutually exclusive categories, where each SKU is only assigned to one category, in order for OTB planning to work correctly
Before using the Open-to-Buy report
- Set planned revenue for categories, by warehouse or for the entire business. When planned revenue is set for the entire business, Demand Planner automatically sets revenues for categories based on the current and previous month’s sales distribution.
- Set forward stock cover for categories. This indicates how long you would like inventory and purchases for that month to last. You can use the current number as the basis, reducing it if you know that you're currently overstocked or increasing it if you have a lot of stockouts.
If you purchase inventory for the next four months and plan to make another purchase in four months time, your stock cover will be as follows:
The open-to-buy budget for the current month is computed using the following formula:
OTB = Closing stock + Planned sales + Markdown - Opening stock - Purchases
In the example above, there is enough stock to last until the 4th month. However, in order to start the next month at $120,000 at retail inventory value, $120,000 worth of stock must be brought into the business otherwise the inventory value will be $0 after the 4th month.
Another example is when goods are purchased every month, to keep 2 months worth of inventory in the warehouse at all times.
Seeding planned sales
Planned sales can be seeded automatically from the last year or the forecasted sales. Click Actions at the bottom of the page to see seeding options.
Retail, cost or units
Demand Planner allows you to create open-to-buy plans in retail, cost, and units. Planning in inventory cost gives you the actual budget to spend on each category. Planning in units helps you to estimate if you have capacity in your warehouse.
To get the OTB at cost, enable cost-based fields in the report by clicking on the gear icon in the upper right corner.
Once margin is set, OTB at cost will be computed automatically.
To get the OTB at units, 'average product price' should be added to the report.
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.
Existing Purchase Orders and PO Receipts are captured in OTB automatically and will be reflected at Retail value. Planning must happen in retail dollars for an apples-to-apples comparison. Cost is only converted at the end by inputting Margin.
Markdowns should also be entered in Retail dollars. 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.
Exclude obsolete categories
If you’d like to exclude categories from planning the can be disabled from Actions > Category Organizer.
"What if" plans
You can also create different versions of a plan for “what if” analysis. This helps to simulate what will happen if you have more sales or the stock days change. Retailers use this modeling to understand the impact of moving performance variables and their impact ultimately on cash flow.