What is open-to-buy planning and why does it matter?

Embracing constant change and delivering outstanding customer experiences is critically important in the face of today’s increasingly informed and fickle consumer. And one thing’s for sure, retail is not for the faint-hearted. Retailers face more competition than ever before due to the evolution of technology that has morphed the traditional shopping experience from being purely physical into the digital realm.

There has been a lot of talk lately about what constitutes the ideal customer experience. Much of this discussion is focused on customer engagement, service, and personalization. What often fails to come up, despite being so core to the shopping experience, is the role that merchandise management has to play. At the end of the day, even the most entertaining, personal shopping experience will be a bust for both the shopper and the retailer if customers don’t leave the store with the item they want. What’s more, retailers can end up in deep financial trouble if they don’t keep a close watch on whether their merchandise plan is in line with their financial obligations and targets.

To remain competitive, retailers should consider investing in open-to-buy planning software to keep an eye on their financial health and grow a successful business.

What is an open-to-buy ?

In the simplest terms, open-to-buy (OTB) is a financial budget for merchandise buyers. By understanding inventory needs from a financial perspective, including revenue and margin, retailers gain insight into their open-to-buy process and ensure the organization will not overspend merchandising budgets.

Why does open-to-buy matter to retailers?

Have the Right Amount of Stock Available at all Times

Open-to-buy planning software is the first step to ensuring you have the right amount of stock available to satisfy demand while ensuring you meet your financial objectives. Having too much inventory (or the wrong products) can impact your cash flow and the markdowns needed to reduce the inventory will lower your margins. On the flip side, not having enough inventory can result in out-of-stocks and lost sales. An open-to-buy planning process supported by intelligent open-to-buy software will ensure that a retailer stocks the right amount of merchandise at the right time, resulting in increased revenues and margins.

Improve Inventory Flexibility

Some industry observers consider traditional open-to-buy to be a shortsighted process due to the typically monthly nature of the process. Retailers should consider augmenting it with other metrics, such as inventory turnover, sales to stock ratio, SKU behavior, and strategy forecast accuracy by demand point (stores and warehouses). Moving to a weekly or bi-weekly open-to-buy cycle in order to improve reaction time also is important. This goes back to a very simple manufacturing principle, that work in process inventory is far from ideal. Change is inevitable and the more inventory you are holding, the harder it’s going to be to react. By increasing open-to-buy frequency you might increase inbound transportation costs or sacrifice order quantity discounts, but in the end, having inventory flexibility will be worth it.

Gain Better Financial Control and Boost Customer Satisfaction

Having the appropriate mix of inventory and knowing how much to buy pre-season and in-season is imperative for better financial control and customer satisfaction. Investing in an integrated open-to-buy planning solution allows retailers to more effectively plan their assortments and purchase inventory with visibility to the financial plan and current inventory position. Aligning their financial goals and assortment plans results in better visibility throughout the planning process to ensure sufficient stock levels are available and that over-buying, stock outs, and missed sales are minimized.

Modern open-to-buy planning software allows retailers to set critical benchmarks to determine performance by measuring inventory turns and gross margin returns, enabling them to analyze the current effectiveness of the plan and intelligently make adjustments needed for improvement.

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2018-11-05T15:33:44+00:00