Open to buy forecasting is a simple method for managing inventory investment for a retail organisation.
Open to Buy Forecasting
Retail organisations understand the importance of having an effective buying and planning process across their business and supply base to manage inventory invesment. Designed, implemented and maintained correctly, an Open to buy forecasting process can create a more responsive and agile supply chain that will deliver high levels of customer service by sourcing and supplying the correct inventory to each retail store. Supply chain agility and response is achieved by smoothing demand after analysing OTB performance against planned inventory at store level.
Our approach to OTB forecasting
A Turn Key Solution will develop and implement a rules based OTB forecasting process for your organisation which allows retailers to become more profitable by being able to manage inventory investment with greater visibility at store level. By working on the demand drivers that influence the OTB forecasting process, we are able to minimise variability of forecast demand by creating a more responsive and cohesive supply chain through the application of statistical forecasting techniques at item, brand, category or store level.
The aim is to collaborate with your customers and their suppliers to achieve greater levels of visibility across the supply chain as part of the OTB formulation process. Having the right technology, tools and processes in place creates the opportunity for making timely, accurate and informed decisions for inventory investment.
Open to buy forecasting process
The "Open to buy OTB" method is usually a spreadsheet based system which contains a combination of static data sets and dynamic data sets. The static data sets being: item master files, vendor master files, relevant planning parameters and item costings. The dynamic data sets would be transactional inventory, purchases and movement data.
The object of the "Open to buy model" is to distribute a capped financial investment across brands, categories, product classess, or stores based on a set of defined rules that the business implements as its stocking policy. Usually developed on a monthly cycle, the final set of numbers becomes a buying plan to support a sales forecast of merchandise that is about to be recieved.
Open to buy formula
The formula for an open to buy is: OTB = Planned Sales + Planned Markdowns + Planned Closing Inventory - Planned Opening Inventory - Inventory in Transit or On Order.
Benefits of OTB
The OTB process provides the benefits of:
- Visibility of planned inventory level that is designated to a specific store
- Planned cash flow management is visible and driven by store allocation
- Inventory on hand balancing is easier by analysing historic sales performance
- Sales plan versus actual sales makes future buy plan adjustments easier
- Places a spend control at store level for better inventory investment
In a retail organisation, business representatives manage this process and develop a first cut OTB forecast based on their knowledge of markets, customers and past supplier delivery performance. Some retail businesses are able to collaborate with their customers during that month and work towards developing their open to buy planning requirements based on their specific market or classification level. Other small retail businesses which service mass market customers may adopt statistical forecasting methods that are better suited to high volumes of data.
A more advanced process may involve the development of an aggregate assortment plan, which uses the layout plan at fixture level within each store. This will include provision for new product launches, high mark downs, promotional items, GWP, PWP and any marketing collateral that supports the final product presenation or sale.