Running a business often means balancing the risks of too much inventory with the frustration of not having enough stock on hand. Excess inventory ties up cash flow in products that may never sell, while understock prevents you from meeting demand. Both situations erode profit margins and create uncertainty in purchasing decisions, especially when buying needs to be managed across several sales channels or reviewed on a regular basis. The key to avoiding these situations is optimizing and properly utilizing your buying budget.
An open-to-buy (OTB) plan offers a buying budget designed to keep inventory levels aligned with sales targets. Using an open-to-buy system allows businesses to calculate projected sales, track markdowns, and determine exactly how much inventory should be purchased to optimize stock effectively. With advanced OTB tools, small business owners, inventory managers, and financial analysts can create a purchasing plan that incorporates accurate data, forecasts, and historical data into one open-to-buy budget system. This approach transforms open-to-buy planning into a more flexible inventory process that helps safeguard profitability and improve long-term inventory management.
What is an Open-to-Buy Plan?
An open-to-buy, or OTB, plan is a purchasing plan that sets a buying budget for inventory purchases during a defined sales period. The plan compares planned sales with current stock levels, beginning inventory, and markdowns to calculate the capital available for new purchases. This amount becomes the company’s buying budget. The purpose is to ensure enough inventory is on hand to meet customer demand while avoiding excess inventory that increases carrying costs.
An open-to-buy plan refers to the calculation itself, while an open-to-buy system describes the process or tool used to manage and apply the plan to create and update the buying budget on an ongoing basis. The system allows retailers to make adjustments on a monthly or weekly basis, track sales projections, and align their inventory purchase budget with financial goals.
The Open-to-Buy Formula
A standard open-to-buy formula is:
Open-to-Buy = (Planned Sales + Planned End of Month Inventory + Planned Markdowns) – (Planned Beginning of Month Inventory + On-Order Inventory)
This open-to-buy formula gives retailers the amount available for new inventory purchases.
To use the formula effectively, retail merchandise planners usually define:
- Planned beginning of month inventory
- Planned sales for the period
- Planned markdowns
- Planned end of month inventory
- Closing inventory and any purchase orders already placed
Open-to-Buy Plan Example
Consider an apparel retailer projecting sales of $100,000 for the month and anticipating $10,000 in planned markdowns. With beginning inventory valued at $50,000 and a planned end of month inventory of $40,000, the OTB plan calculates an available inventory budget of $20,000 for new orders.
Why Traditional Budgeting Methods Fall Short
Many retailers still rely on spreadsheets or manual calculations to manage their buying budget. While these methods may work for a small set of products, they often fail once the business grows, more sales channels are added, or seasonal patterns become difficult to track. Advanced open-to-buy tools solve problems that traditional approaches cannot, especially when it comes to accuracy and flexibility.
Limitations of Manual Spreadsheets
Spreadsheets require constant updating and often depend on someone entering inventory data by hand. A single mistake in formulas or inputs can have significant impacts moving forward. Businesses that manage stock on a regular basis need reliable data at all times, but manual processes are prone to delays and oversights.
Lack of Real-Time Visibility
Traditional methods rarely provide real-time views of stock levels or sales projections. Without visibility into how inventory is moving, it becomes easy to misjudge projected sales. This creates gaps between anticipated sales and actual sales, leaving the business with either too much inventory or not enough to meet demand.
Difficulty Adapting to Market Changes
Seasonality, promotions, and unexpected shifts in demand often disrupt static buying plans. A spreadsheet or basic budget cannot easily account for these changes. As a result, orders are either placed too late or with the wrong amount, increasing inventory carrying costs and lowering inventory turnover.
Data Scattered Across Channels
Retail planning becomes even more challenging when sales happen across multiple platforms or warehouses. If inventory levels are tracked separately, it is difficult to create a plan that balances inventory across the entire business. Traditional methods struggle to consolidate this information, leaving decision-makers without a clear picture of the inventory that needs to be ordered.
How Open-to-Buy Planning Tools Help Optimize Buying Budgets
An open-to-buy system supported by modern OTB tools gives retailers the ability to manage purchasing budgets with precision. Instead of reacting to shortages or being caught with unnecessary inventory, businesses can create a plan for buying inventory that optimizes inventory levels, aligns with financial goals, and supports overall profitability.
Aligning Budgets with Target Sales
OTB tools connect the inventory budget directly to forecasts. This makes it easier to see how much retail sales are expected during a given period and how much retail inventory will be required to meet demand. With projected sales linked to purchase orders, retailers can make sure the plan stays realistic and grounded in real sales trends.
Preventing Overstock and Shortages
A well-structured OTB plan reduces the risk of committing an overabundance of inventory to slow-moving products. It also ensures there is enough stock available to meet demand. The open-to-buy budget system highlights gaps between planned sales and beginning inventory so that orders can be issued at the right time with the correct dollar amount.
Improving Cash Flow Visibility
Excess inventory locks up capital that could be used elsewhere in the business. OTB tools give decision-makers a clear view of the inventory that should be purchased and when. This visibility helps maintain healthier cash flow, reduces unnecessary inventory carrying costs, and allows a business to invest in areas beyond inventory planning.
Supporting Long-Term Inventory Management
An open-to-buy plan provides short-term clarity on how much inventory to order for an upcoming sales period, but the open-to-buy system also strengthens long-term planning. Reviewing planned sales, markdowns, and closing inventory on a regular basis improves inventory turnover and helps retailers maintain more flexible inventory strategies.
Advanced Features of OTB Planning Software
Open-to-buy planning in retail is most effective when supported by advanced OTB tools. These platforms provide more than simple calculations, offering features that help retailers manage sales budgets, monitor inventory, and adapt quickly to market shifts.
Real-Time Sales Forecasting
Modern OTB tools integrate sales forecasts with historical data, giving retailers a clearer picture of future sales. This allows a purchasing budget to adjust as customer demand changes. Having access to sales projections reduces the guesswork around exactly how much inventory should be ordered in a given sales period.
Multi-Channel and Multi-Warehouse Planning
Many retail businesses sell across several channels and manage inventory across multiple locations. An open-to-buy system that consolidates stock levels from all sources creates a more accurate buying plan. This ensures the right amount of inventory is available to meet demand without overly committing inventory to one channel or location.
Scenario and “What-If” Planning
An advanced open-to-buy budget system makes it possible to test scenarios before finalizing purchase orders. For example, retailers can see how markdowns, sales targets, or new inventory launches affect their inventory purchase budget. Scenario planning helps retail merchandise planners create a more flexible inventory approach that adapts to shifting market conditions.
Custom Reporting and Dashboards
Open-to-buy planning benefits from clear reporting that compares planned sales against actual sales. Dashboards display beginning inventory, end-of-month inventory, and purchase orders in one place, allowing decision-makers to track how much retail sales are driving results. Access to accurate data on a regular basis strengthens financial budget control and improves inventory turnover.
Integration with Financial and Operational Systems
An OTB plan works best when connected to broader planning systems. Integration with accounting software, inventory management tools, and order platforms ensures inventory information flows seamlessly. This reduces errors, improves efficiency, and creates a buying plan that is consistent with overall business goals.
How Inventory Planner Enhances the OTB Process
Open-to-buy planning delivers the best results when it is powered by reliable data and flexible tools. Inventory Planner’s OTB supply planning system turns the open-to-buy plan from a static calculation into a practical, ongoing process that helps retailers balance inventory and control spending.
Easy to Use
Inventory Planner makes open-to-buy planning straightforward. The platform guides users through setup and data entry, then produces a clear inventory budget connected to forecasts and actual sales. Its intuitive design removes the complexity of manual spreadsheets, while expert support and training are available whenever needed.
Accurate and Reliable
An OTB plan is only valuable if the numbers can be trusted. In Inventory Planner, once the plan is built, it connects directly to demand forecasting. Purchase orders then reflect projected sales, planned markdowns, and incoming stock, with updates made automatically as conditions change.
Flexible for Every Retail Business
Every retailer approaches inventory planning differently. Inventory Planner allows planning in revenue, cost, or units, and budgets can be adjusted by category, brand, or vendor. Incoming purchase orders, warehouse transfers, and assemblies can all be factored in, creating a buying plan that reflects the real movement of inventory across the business.
OTB Features in Inventory Planner
- Plan in revenue, cost, or units: Set your open-to-buy budget based on sales targets, available purchasing budget, or forecasted demand.
- Plan by category, brand, or vendor: Segment the OTB budget for greater precision in planning.
- Factor in purchase orders: Include incoming stock in open-to-buy calculations so that new inventory is not overlooked.
- Consider transfers and assemblies: Account for stock already moving between warehouses or products being assembled in-house.
- Plan using tags: Create groups of products with tags and apply OTB budgets to those custom groupings.
- Work in retail weeks or calendar months: Choose between calendar-based periods or a 4-5-4/4-4-5 retail week structure to improve year-over-year comparability.
Common Pitfalls in OTB Budgeting and How to Avoid Them
Even strong planning can go off track without the right process. Many retailers face budgeting mistakes that lead to financial strain or missed opportunities. An system powered by advanced open-to-buy tools helps avoid these traps by turning guesswork into structured planning.
- Relying on poor data: Incomplete or inaccurate inventory data leads to purchase orders that do not match sales targets. OTB tools prevent this by pulling in accurate data from sales, inventory, and purchasing systems automatically.
- Ignoring seasonality and promotions: Financial budgets that overlook planned markdowns or seasonal spikes result in either too much inventory after peak sales or not enough when demand rises. Forecast-driven OTB plans adjust for these cycles.
- Treating OTB as a one-time task: Open-to-buy planning in retail works best when updated on a monthly or weekly basis. Modern OTB tools automate comparisons between planned sales and actual sales, then update purchase recommendations.
- Overlooking on-order and transfers: Failing to account for incoming purchase orders, assemblies, or transfers across warehouses inflates budgets. An open-to-buy system ensures these factors are included.
- Relying too much on instinct: Gut instinct cannot replace structured planning. OTB tools build a financial budget around forecasts and projected sales, giving managers data-driven confidence in how much retail inventory to order.
The ROI of Advanced OTB Planning Tools
The purpose of open-to-buy planning is to make purchasing budgets work smarter. Advanced OTB tools show retailers the amount of inventory to buy, when to buy it, and how to keep spending aligned with financial goals. The result is a plan that optimizes budgets, protects spending, and drives profitability.
Financial Benefits of Smarter Budgeting
- Lower carrying costs: Optimized budgets prevent overspending on inventory, which reduces the expenses tied to storage, insurance, and unsold goods.
- Stronger cash flow: When the inventory purchase budget is aligned with projected sales, retailers avoid overspending and free up retail dollars for other areas of the business.
- Higher inventory turnover: A well-balanced purchasing budget ensures enough stock to meet demand without over committing, improving turnover rates, and increasing profit margins.
Operational Benefits of Budget Optimization
- Better visibility into spending: OTB tools consolidate inventory information, purchase orders, and forecasts into one view, making it clear how every dollar in the budget is being used.
- More flexible adjustments: Retailers can adapt budgets on a monthly or weekly basis to reflect promotions, seasonality, or changes in customer demand. This keeps the buying plan aligned with reality.
- Greater confidence in planning: Retail merchandise planners and financial analysts know their buying plan is supported by reliable data, reducing the risks of overbuying or underbuying.
Long-Term Value for Purchasing Budgets
Over time, advanced OTB planning builds a cycle of smarter spending. Budgets are continuously refined through comparisons of anticipated sales and actual sales, which improves forecasts and creates more reliable purchasing decisions. Instead of questioning the volume of retail inventory to order, retailers know the exact inventory that fits within their budget, leaving them free to invest the remaining capital in growth.
Optimize Your Buying Budgets with Confidence
An open-to-buy plan supported by advanced OTB tools ensures every purchasing budget is tied to reliable forecasts, accurate inventory data, and financial goals. With Inventory Planner, retailers can create an open-to-buy system that balances inventory, protects cash flow, and shows how much inventory to buy in each sales period. Book a demo today to see how Inventory Planner can help you optimize your buying budgets and turn your purchasing plan into a reliable path to growth.