If you are tired of constantly running out of your store’s best-selling items or having an excess of merchandise you can’t sell, you may be struggling to manage your retail inventory effectively. Here’s a step-by-step guide to help you plan your merchandise purchases.
In this post we will show you the ins and outs of open-to-buy and how to optimize your inventory for maximum profitability. It doesn’t matter if you’re an owner, a small business manager, or a retail professional. These steps will help you master inventory planning and open-to-buy.
Open-to-buy or OTB is an inventory planning and control practice used in retail to determine the amount of merchandise a company can purchase in a specific period of time. This system is based on sales projections, current inventory levels and financial objectives to calculate what the planned purchases should be. The objective is to avoid overstocking and understocking, ensuring a balance between supply and demand.
Inventory planning is essential for any business, large or small. Inefficient inventory management can lead to problems such as out-of-stocks, which prevent you from satisfying customer demand or overstocking, which results in unnecessary costs and decreased profitability.
Effective inventory planning allows you to maintain a balance between supply and demand, ensuring that you always have enough of the best-selling products and avoiding overstocking of products that do not sell. In addition, good inventory planning allows you to optimize your purchases, reduce storage costs, and minimize lasses due to obsolescence.
Open-to-buy system components
The open-to-buy system consists of several key components that you should understand before you begin planning your inventory. Theses components help you calculate the amount of inventory you need to buy to meet customer demand.
The first component is “beginning stock” which refers to the amount of inventory on hand at the beginning of a given period. The second component is “saleable inventory” which includes the opening inventory plus purchases made during the period. On the otherhand, we have “committed stock”, which refers to the amount of inventory that has already been sold or reserved for customers. The last component is “stock on hand”, which is the amount of inventory that is available for sale.
STEP 1: ANALYZE HISTORICAL SALES DATA
The first step in mastering open-to-buy planning is to conduct a through analysis of your historical sales data. This will help you identify demand patterns, seasonal trends, other factors that may affect your future sales.
To perform this analysis, you need to collect data from previous periods and organize it in an easy-to-understand format. Use data analysis tools, such as spreadsheets or specialized software, to visualize your data and draw meaningful conclusions.
By analyzing your historical sales data, you can identify top-selling products, demand trends and peak and off-peak periods. This knowledge will help you make informed decisions about how much inventory to purchase to meet customer demand.
STEP 2: DETERMINE DESIRED STOCK LEVELS
The next step in open-to-buy planning is to determine the desired inventory levels for each product. These inventory level are based on factors such as expected demand, supplier lead time, and available warehouse space.
To determine desired stock levels, you can use demand forecasting techniques such as weighted moving average or exponential smoothing. These techniques help you forecast future demand and determine appropiate inventory levels to avoid shortages or overstocks.
In addition, to considering expected demand, it is important to consider other factors such as demand variability, supplier lead times, and supplier minimums. These factors can affect desired inventory levels and should be considered in your inventory calculations.
STEP 3: CALCULATE YOUR AVAILABLE INVENTORY BUDGET
Once you have determined your desired inventory levels, it is time to calculate your inventory budget. This budget will help you determine how much money you can allocate to purchasing new products in a given period of time.
It is important to keep in mind that the available inventory budget can vary depending on factors such as promotions or expected sales. Therefore, it is a good idea to regularly monitor your sales and adjust your budget accordingly.
STEP 4: MONITORING AND ADJUSTING THE PENDING PURCHASE PLAN
With your inventory budget calculated, it is time to regularly track and adjust your upcoming purchase plan. This involves monitoring your sales, comparing them to your forecasts, and making adjustments to your purchase plan as needed.
Remember that inventory planning is not a static process, but should be reviewed and adjusted on a regular basis. We recommend that you keep detailed records of your sales, track your forecasts and make adjustments to your purchasing plan as needed to avoid shortages or averstocks.
Common challenges in open-to-buy planning and how to overcome them
While open-to-buy planning is a powerful tool for optimizing your inventory, it can also present challenges. Some of the most common challenges include lack of accurate historical sales data, demand variability and lack of integration between inventory and sales systems.
To overcome these challenges, it is important to use data analysis tools to collect and analyze accurate sales data. In addition, you can use deman forecasting techniques and regularly adjust your forecasts as the market changes. It is also advisable to have integrated inventory and sales systems to make it easier to manage and track your inventory.
To sum up…
Open-to-buy planning is an essential tool for any business that wants to manage its inventory effectively. By analyzing historical sales data, determining desired inventory levels, calculating the available inventory budget, and regularly monitoring and adjusting the open-to-buy plan, you can optimize your purchases and maximize your profits.
While open-to-buy planning can present challenges, such as lack of accurate data or demand variability there are tools and software that can help you overcome these challenges. Research and test different options to find the best solution for your company.
Remember that inventory planning is an ongoing and dynamic process. Keep detailed records of your sales, regularly review your forecats, and adjust your buying plan as needed to maintain a balanced and profitable inventory.
In Cosin we work with the best software for retail managemente, Retail Pro, thanks to its reports you can obtain data of your sales at any time to make the open-to-buy calculation of yout products and not suffer from stockouts and unnecesary storage of material.