OPEN TO

BUY
PLANNING
(OTB)
By: Harith Shaari
What is Open To Buy Planning?
! In a nutshell: an inventory planning system
for managing:
! The right amount of inventory (quantity).
! The right stuff (inventory).
! At the right time.
! OTB is essentially the difference between
how much inventory is needed and how
much is actually needed.
! To avoid FISH inventory from happening.
Myths About OTB
! OTB only for fashion related stores.
! OTB is complex and full of constraints.
! OTB calculation is complicated.
! OTB needs extensive retail software to be
implemented.
! OTB budgeting is difficult conduct.
Benefits of OTB
! Leads to greater productivity, eliminating
unnecessary inventory level. Inventory is slower
converted to cash compared to other current
assets.
! Improves cash flow.
! Helps to ensure an adequate amount of inventory
on hand to support the level of planned sales.
! Places restraints on merchandise commitments so
the store does not receive too much new
merchandise too early in the season or not
enough.
Benefits of OTB
! Ability to estimate in advance the amount of
cash that will be required to be invested in
inventory from month to month for the
coming season.
! Establishes goals so actual performance can
be compared to the plan, thereby pointing
out those areas where corrective action
needs to be taken.
! An inventory reminder of Dont Buy What
Wont Sell.
Simple OTB System
STEP 1
Plan annual
sales and
markdowns
STEP 2
Plan
average
stock level,
turnover,
and
beginning
of month
stocks
STEP 3
Run OTB
calculation
every
month.
STEP 4
Adjust
monthly
stock level
using OTB
projections.
OTB Formulation
OTB = EOMInvetory + PlannedSales + PlannedMarkdowns ! BOMInventory !OnOrder
How Do We Calculate OTB?
FORMULA EXAMPLE (OTB FOR FEBRUARY)
Desired EOM Inventory RM 27,000 (Feb EOM = Mar BOM)
+ Planned Sales RM 8,000 (Feb Plan)
+ Planned Markdowns RM 500 (Feb Plan)
= Inventory Required RM 35,500
- BOM Inventory RM 18,000 (Feb BOM)
= Open to Receive RM 17,500
- On Order RM 10,000 (Feb On Order)
= Open to Buy RM 7,500
Sample of OTB Planning
6-Month OTB
Planning
Month
Feb Mar Apr May Jun Jul
BOM Inventory
155,000 150,000 152,000 157,000 157,000 165,000
Planned Sales
47,000 48,000 50,000 50,000 52,000 48,000
Planned
Markdowns
1,000 750 750 1,000 1,500 1,000
Open to Buy
43,000 50,750 55,750 51,000 61,500 37,000
EOM Inventory
150,000 152,000 157,000 157,000 165,000 153,000
Q & A