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What is Open-to-Buy Planning + The Top Three Benefits for Retailers

16 Dec 2021

Embracing constant change and delivering outstanding customer experiences is critically important in the face of today’s increasingly informed consumer.

And one thing’s for sure: Retail planning is not for the faint-hearted.

Retailers face more competition than ever before due to the evolution of technology that has morphed the traditional shopping experience from being purely physical into the digital and omnichannel realm.

What is open-to-buy ?

In the simplest terms, open-to-buy (OTB) is a financial budget for merchandise buyers. By understanding inventory needs from a financial perspective, including revenue and margin, retailers gain insight into their open-to-buy process and, as part of their merchandise financial planning, ensure the organization will not overspend merchandising budgets.

Why does open-to-buy matter to retailers?

There has been a lot of talk about what constitutes the ideal customer experience.

Much of this discussion is focused on customer engagement, service, and personalization.

What often fails to come up, despite being so core to the shopping experience, is the role that merchandise management has to play.

At the end of the day, even the most entertaining, personal shopping experience will fall short for both the shopper and the retailer if customers don’t leave the store with the item they want. What’s more, retailers can end up in deep financial trouble if they don’t keep a close watch on whether their merchandise plan is in line with their financial obligations and targets.

To remain competitive, retailers who invest in open-to-buy planning software are able to keep an eye on their financial health and grow a successful business, while aligning inventory optimization with revenue goals.

The benefits of open-to-buy

In building market share and increasing customer satisfaction, there are three key benefits in utilizing open-to-buy planning software.

 

1. Reach Optimal Inventory Levels by Having the Right Amount of Stock Available

Open-to-buy planning software is the first step to ensuring you have the right amount of stock available to satisfy demand while ensuring you meet your financial objectives. Having too much inventory (or the wrong products) can impact your cash flow and the markdowns needed to reduce the inventory will lower your margins.

On the flip side, not having enough inventory can result in out-of-stocks and lost sales. An open-to-buy planning process supported by intelligent retail planning software will ensure that a retailer stocks the right amount of merchandise at the right time, resulting in increased revenues and margins.

 

2. Improve Inventory Flexibility

Some industry observers consider traditional open-to-buy to be a shortsighted process due to the monthly nature of the process.

Retailers should consider augmenting it with other metrics, such as inventory turnover, sales to stock ratio, SKU behavior, and strategy forecast accuracy by demand point (stores and warehouses).

Moving to a weekly or bi-weekly open-to-buy cycle in order to improve reaction time also is important. This goes back to a very simple manufacturing principle, that work in process inventory is far from ideal. Change is inevitable and the more inventory you are holding, the harder it’s going to be to react.

By increasing open-to-buy frequency you might increase inbound transportation costs or sacrifice order quantity discounts, but in the end, having inventory flexibility will be worth it.

 

3. Gain Better Financial Control and Boost Customer Satisfaction

Having the appropriate assortment mix is imperative for better financial control and customer satisfaction.

You need the right mix of inventory–and proper inventory allocation–as well as an understanding of how much to buy pre-season and in-season.

Investing in an integrated open-to-buy planning solution allows retailers to more effectively plan their assortments and purchase inventory with visibility to the financial plan and current inventory position.

Aligning their financial goals and assortment plans results in better visibility throughout the planning process to ensure sufficient stock levels are available and that over-buying, stock outs, and missed sales are minimized.

 

Building Retailer Success with Open-to-Buy

Modern open-to-buy planning software allows retailers to set critical benchmarks to determine performance by measuring inventory turns and gross margin returns, enabling them to analyze the current effectiveness of the plan and intelligently make adjustments needed for improvement.

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