Introduction
Balancing how much inventory you need with customer demand has always been one of the biggest challenges for retailers. Too much stock ties up capital, takes up valuable storage space, and often leads to heavy markdowns just to move excess inventory. Too little stock results in missed sales opportunities, frustrated customers, and weakened brand loyalty. For many businesses, this balancing act becomes even more complicated when dealing with seasonality, promotions, and shifting consumer trends to meet customer demand .
The solution is not simply to guess better or rely on instinct. Retail businesses that want to remain competitive need a system that transforms raw sales data into actionable insights. This is where open-to-buy (OTB) reporting comes in. Open-to-buy planning is not just another spreadsheet or budgeting tool. It is a structured approach to merchandise planning that uses the open-to-buy formula to ensure purchasing decisions are guided by accurate forecasts and strategic goals rather than gut feeling.
For retail business owners, inventory managers, and financial planners, open-to-buy in retail provides the clarity needed to make smarter inventory purchases, improve cash flow, and protect margins. With the help of open-to-buy software, these benefits can be achieved more efficiently and with less risk of human error.
What is an Open-to-Buy (OTB) Report?
An OTB report is a financial planning document that calculates how much money a retailer has available to spend on new inventory during a specific period, usually a month or a quarter. Think of it as a budget that helps you decide exactly how much inventory to purchase by bridging the gap between what you plan to sell and your current inventory levels.
In the retail and eCommerce space, open-to-buy planning plays an essential role in ensuring that businesses maintain the right inventory levels. The purpose is not simply to limit spending but to direct purchasing power toward the products most likely to sell. Without accurate open-to-buy planning, it is easy to overbuy items that linger on shelves or underbuy top performers that customers want.
The benefits of an open-to-buy report include:
- Preventing excess stock that eats into profit margins.
- Avoiding stockouts that drive customers to competitors.
- Improving cash flow by aligning purchases with revenue potential.
- Supporting growth strategies by ensuring that budgets reflect future demand.
For retailers, especially those managing multiple channels such as online stores, marketplaces, and physical locations, open-to-buy planning provides a unified framework to make informed buying decisions.
How Do You Calculate Open-to-Buy?
The formula for calculating open-to-buy is straightforward:
Planned Sales + Planned End Inventory – Planned Beginning Inventory = Open-to-Buy
Each component plays an essential role:
- Planned Sales: The projected sales revenue you expect to generate in a given period.
- Planned End Inventory: The inventory level you want to have remaining at the end of the period.
- Planned Beginning Inventory: The stock you already have at the start of the period.
Example:
Imagine your business forecasts $100,000 in sales for April. You want to finish the month with $40,000 in stock, and you are starting the month with $30,000 worth of inventory.
The calculation looks like this:
$100,000 + $40,000 – $30,000 = $110,000
This means you have $110,000 available to invest in new inventory for April. If you spend more than this, you risk overstocking. If you spend less than your planned sales, you might not have enough products to meet demand.
Why Accurate Data Matters for Inventory Planning
The effectiveness of the open-to-buy calculation depends on accurate forecasting and up-to-date inventory records. If your actual sales don’t meet your projections or stock levels are misreported, your OTB numbers will be misleading. This is why many businesses choose to use open-to-buy software solutions. By integrating directly with sales channels and inventory management systems, these tools ensure that data feeding into the formula is reliable and current.
How OTB Reports Help Prevent Overstocking and Stockouts
Retailers often ask how open-to-buy reports can make a tangible difference in day-to-day operations. The answer lies in the way accurate open-to-buy planning creates balance between demand and supply.
When used consistently, open-to-buy reports provide:
- Better cash flow control: By allocating budget only where it is needed, businesses avoid tying up money in slow-moving stock.
- Healthier profit margins: Avoiding excess inventory reduces the need for markdowns and clearance sales.
- Improved customer satisfaction: Having the right products in stock at the right time builds customer trust and encourages repeat business.
For example, a fashion retailer entering the holiday season might use open-to-buy planning to increase investment in winter outerwear while scaling back orders for summer apparel. Similarly, a home goods store could adjust open-to-buy budgets to account for a promotional campaign on kitchenware.
The bigger impact, however, is financial stability. By aligning purchases with revenue goals, businesses can better predict cash flow and plan for growth. Instead of scrambling to react to shortages or liquidate surplus stock, proper open-to-buy planning gives managers confidence in their purchasing strategies.
What Information Do You Need to Create an OTB Report?
To build a reliable open-to-buy report, retailers need a few key data points:
- Sales forecasts for the period in question, broken down by category or product line.
- Beginning inventory levels that are accurate and up-to-date.
- Target ending inventory levels that reflect sales goals and replenishment timelines.
- Planned markdowns or promotions that could impact sales volume.
- Lead times from suppliers to ensure stock arrives when it is needed.
Collecting this information can be time-consuming if done manually. Inaccuracies in any of these areas can distort the open-to-buy calculation, which is why automated tools have become so valuable.
Common Mistakes Businesses Make with OTB Planning
Even though open-to-buy reporting is straightforward in principle, retail businesses often make mistakes that weaken the process and limit its value. Below are some of the most common pitfalls to watch for and how to address them.
1. Relying on Spreadsheets Alone
Basic spreadsheets may work during the early stages of a business, but they can quickly become an inefficient approach as your inventory needs become more complicated. Small errors in formulas or forgotten updates can throw off an entire plan, leading to too much inventory or not enough.
2. Forecasting Problems
An OTB plan is only as good as the forecasts behind it. Any errors in analyzing historical sales data can completely throw off the plan’s accuracy. To strengthen forecasting:
- Adopt smarter forecasting methods that go beyond simple trend lines. Retailers can use AI-driven tools or advanced analytics to reveal demand patterns that are not obvious with traditional methods.
- Use multiple data sources rather than relying only on past sales. This includes upcoming promotions, competitor activity, seasonal trends, and external conditions such as weather or economic changes.
- Regularly review and refine projections as new information becomes available. Forecasting should be treated as an ongoing process of learning and adjustment.
3. Weak Communication Between Teams
Open-to-buy requires coordination across departments. When buying, merchandising, finance, and marketing are not on the same page, the result is inconsistent plans, poor inventory management, and lost sales. To keep everyone aligned:
- Set up regular touchpoints and shared dashboards so information is visible across teams.
- Create shared financial objectives and performance measures so departments understand how their work contributes to the bigger picture.
- Connect your OTB platform with other core systems like ERP, POS, and marketing tools so every department has access to the same data.
4. Overlooking Seasonality and Promotions
If open-to-buy planning is based only on average sales patterns, it ignores the peaks and valleys that define retail. The actual sales of holiday periods, back-to-school shopping, or special campaigns can dramatically change demand. Failing to account for these shifts in expected sales almost guarantees overbuying at some points and shortages at others.
5. Depending on Instinct Instead of Evidence
While experience can guide decisions, relying only on intuition for future sales is risky. The open-to-buy process is designed to remove guesswork and replace it with data-backed insights. Decisions made without hard numbers often lead to mismatched budgets and poor inventory management.
6. Poor Data Quality
Reliable open-to-buy reporting depends on accurate, complete, and consistent information. If product details, historical data, supplier lead times, or customer data are missing or inconsistent, the entire plan suffers. To maintain solid data foundations:
- Run audits to catch and correct errors.
- Ensure all key information is collected and updated consistently.
- Standardize formats and definitions across systems to avoid confusion.
7. Inflexible Systems
Retail moves fast, and any open-to-buy system that cannot adapt to sudden changes will hold a business back. Unexpected shifts in demand, supply chain delays, or new competitive pressures require flexibility. A strong OTB system should:
- Enable quick updates when conditions change.
- Allow scenario planning to test how different outcomes would affect retail inventory levels.
- Provide customizable reporting so managers can focus on the metrics most relevant to their goals.
Avoiding these mistakes requires a structured process, regular updates, and in many cases, the support of open-to-buy software that reduces reliance on manual oversight.
When Should a Business Start Using OTB Reporting?
The answer is simple: the sooner the better. Even small businesses benefit from having a structured approach to purchasing.
Signs that it is time to implement OTB reporting include:
- Frequent financial issues caused by tying up money in excess stock.
- Regular markdowns or clearance events to offload slow-moving products.
- Stockouts of popular items that leave customers disappointed.
- Difficulty forecasting demand across multiple channels or product categories.
In short, if inventory management feels unpredictable or if purchasing decisions often lead to surprises, it is time to adopt OTB. Retailers that implement open-to-buy planning earlier often find they can scale faster because their purchasing processes are more disciplined.
How Inventory Planner Simplifies OTB Reporting
Open-to-buy planning is powerful, but it can feel overwhelming when handled manually. Inventory Planner transforms the process into something clear, reliable, and easy to act on. Its OTB supply planning tool helps retailers build plans they can trust, all while saving time and reducing complexity.
Easy to Use
OTB does not need to be complicated. Inventory Planner makes the process straightforward by guiding you through the data entry and instantly providing a clear, actionable budget. The platform is designed to be intuitive, so you can quickly see how your open-to-buy plan fits into your sales forecasts. And whenever questions arise, expert support and training resources are available to help.
Highly Accurate
Once an open-to-buy plan is created, it can be linked directly to your demand forecasting with just a click. This connection means that buying recommendations are based on the most current information, giving you confidence even when market conditions are uncertain.
Flexible for Every Business
No two retailers manage inventory the same way, and Inventory Planner reflects that reality. Its OTB tool adapts to different inventory planning approaches, allowing you to toggle between styles without juggling complicated spreadsheets. Whether you want to work in revenue, cost, or units, Inventory Planner provides the flexibility to meet your unique needs.
Key OTB Features in Inventory Planner
- Plan by revenue, cost, or units: Retailers can set budgets based on planned sales revenue, available purchasing budgets, or forecasted unit demand. This makes it easier to align OTB plans with the way your business measures performance.
- Plan by category, brand, or vendor: Merchants can segment open-to-buy budgets at a detailed level. Planning by vendor should be approached with care if supplier relationships change mid-period, but the flexibility is there when needed.
- Include purchase orders: Incoming stock for any location can be factored into your open-to-buy plan, ensuring that upcoming deliveries are not overlooked when setting budgets.
- Factor in transfers and assemblies: Businesses that assemble products in-house or move inventory across warehouses can incorporate those quantities into open-to-buy planning, making location-specific budgeting more precise.
- Tag-based planning: Custom tags let you group products however you choose, allowing for flexible open-to-buy planning that reflects your business structure.
- Retail weeks or calendar months: To improve comparability year-over-year, Inventory Planner supports both standard calendar months and 4-5-4 or 4-4-5 retail week structures.
By simplifying the process, Inventory Planner allows retail leaders to focus on strategy rather than data entry. It also reduces the risk of human error, which is one of the leading causes of failed open-to-buy planning.
Take Control of Your Buying Strategy
Open-to-buy reporting provides a clear and actionable framework for retailers to manage inventory budgets effectively. By calculating how much to spend on new stock, an OTB plan prevents both overstocking and stockouts, improves cash flow, and supports long-term financial goals. The information required to create an OTB report may seem simple, but without accurate data and consistent updates, the process can become unreliable.
This is why open-to-buy software solutions such as Inventory Planner have become essential. Automating calculations, integrating with sales data, and providing advanced forecasting make OTB reporting easier, faster, and more reliable. Businesses that adopt OTB early gain a competitive advantage, since their purchasing decisions are grounded in data rather than guesswork.
Struggling with open-to-buy planning? Inventory Planner makes it easy to set budgets, track spending, and align purchases with sales forecasts. Book a demo today and take control of your buying strategy.