The Buying Function - OTB

'OPEN TO BUY' - some very important and relevant points that all buyers and planners need to keep in mind.

For any retail organization , buying is an extremely critical function in merchandising. This process begins with the preparation of the buying plan called the ‘ OPEN TO BUY’ or OTB.

The importance of OTB cannot be overemphasized. Proper OTB planning prevents over-buying, eliminates confusion and consequently enables maximizing profits.

What exactly is OTB ? OTB refers to merchandise budgeted to be purchased during a particular season for which stocks have not as yet been ordered. OTB is a planning tool for any retailer.
An efficient OTB plan has the following elements

1. Forward Sales Planning : Sales plan for the full season or the year with monthly phasing needs to be prepared. This enables one to react to variations in sales plan, reschedule deliveries and cancel and alter purchase orders for the future deliveries as the case may be.
2. Forward Cover : This is based on the planned stock turns. For instance if the planned stock turns for the store is 6 times a year, then the ideal stock holding at any point of time should be equivalent to 2 months stock cover.
3. Opening Stock ; The value of the opening stock is a flow calculation. In OTB planning, the first entry is an estimate. From the 2nd month onwards , the closing stock of the previous month is the opening stock of the current month.
4. Stock Required : This is based on the forward cover planned. If the forward cover is 2 months and the current month is Month 1, then the stock required would be the sum of the forecasted sales on Month 2 and 3.
5. Intake Requirement : Difference between required stock and opening stocks.
6. On Order : Stocks already ordered and due for delivery during the period.
7. Open to Receive : Figure arrived by deducting the stock on order , if any, from the intake requirement. This figure indicates the OTB quantity.
8. Closing Stock : Arrived by taking the opening stock, subtract sales and add the on-order and open-to-receive quantities.

Advantages of an Open to Buy Plan
- Enables calculation of working capital requirement in advance
- Ensures right inventory level to support planned sales and to attain the best Gross Margin return on Inventory (GMROI)
- Enables fresh flow of merchandise at the desired times
- An efficient OTB provides the organization more opportunity for profit.