Open-to-Buy Planning: Enabling Smarter Purchasing Decisions with Budget Control

Effective inventory management relies on finding the right balance between stock levels and budget constraints—a task made achievable through Open-to-Buy (OTB) planning. This essential financial planning tool helps retailers and supply chain managers control purchasing by defining how much inventory is needed for upcoming sales periods without overcommitting budgets.

With OTB, businesses can minimise stock outs, prevent overstock, and respond quickly to market changes, all while aligning inventory purchases with financial goals. Let’s explore how OTB planning enables smarter, data-driven purchasing decisions and supports better budget management.

The Basics of Open-to-Buy Planning

Open-to-Buy planning revolves around establishing purchasing budgets based on projected sales, inventory turnover, and cash flow needs. By setting a controlled budget for new inventory within specific timeframes (often monthly or seasonally), OTB allows companies to forecast their purchasing needs accurately while staying within financial limits. The process calculates the funds available for future purchases by considering factors such as on-hand inventory, planned markdowns, expected sales, and any current open orders.

The OTB formula typically looks like this:

OTB = Planned ending inventory + Planned Sales + Planned Reductions - Beginning Inventory - On-order inventory

This formula provides a transparent view of how much budget remains for purchasing during the designated period. With this insight, retailers can make strategic buying decisions, ensuring they meet customer demands without exceeding financial constraints.

Advantages of Open-to-Buy Planning

1. Enhanced Inventory Control
   OTB planning provides a structure for inventory control, reducing the risk of overstock or stockouts. For example, studies reveal that 60% of retailers experience improved inventory accuracy when using OTB planning as part of their purchasing strategy​. This balance is critical in preventing unnecessary markdowns due to excess stock and maintaining product freshness, especially in industries like fashion and technology, where trends and demand shift rapidly.
2. Financial Transparency and Budget Alignment
   With OTB, companies gain real-time visibility into their spending. Since the OTB budget is adjusted regularly based on current inventory levels and market conditions, managers can allocate funds wisely, avoiding cash flow disruptions. This approach aligns inventory purchases closely with financial targets, allowing businesses to optimise their cash resources more effectively.
3. Agility and Market Responsiveness
   An OTB plan empowers businesses to remain agile in response to market fluctuations. Retailers like Target use OTB planning to adjust their budgets dynamically, capturing opportunities to invest in trending products while minimising stock risks. This flexibility helps them address consumer demand shifts in real time, enhancing competitiveness in a fast-paced market.

Conclusion: OTB Planning with Merchmix

Effective OTB planning can transform inventory and budget management, creating a strong foundation for data-driven purchasing decisions. For businesses ready to embrace smarter inventory control, platforms like Merchmix provide comprehensive OTB planning tools powered by AI and predictive analytics. With Merchmix, companies can track inventory in real-time, make budget adjustments based on demand forecasts, and reduce stock-related financial risks.

Merchmix’s advanced AI insights and OTB functionalities enable businesses to make smarter purchasing decisions, aligning budgetary controls with inventory needs to thrive in competitive markets. Embracing OTB with Merchmix allows businesses to stay agile, optimise inventory, and maintain financial discipline, setting the stage for long-term success in a dynamic market landscape.