How to Plan Open to Buy (OTB) for eCommerce Stores

Planning inventory effectively is a cornerstone of success for eCommerce businesses, and one of the most powerful tools for achieving this is Open to Buy (OTB). While traditionally used by brick-and-mortar retailers, OTB has become invaluable for online stores aiming to maintain balanced stock levels, minimize holding costs, and maximize cash flow.

Let’s explore how to create an effective Open to Buy plan tailored to your online store’s unique needs, from understanding the basics to calculating OTB with precision.

What is Open to Buy for Retailers and eCommerce Merchants?

Open to Buy (OTB) is an inventory planning and purchasing strategy that allows retailers to control their inventory budget by forecasting what, when, and how much to buy. Traditionally used by physical stores, OTB has gained relevance in eCommerce for maintaining balanced inventory levels and optimizing purchasing schedules.

For eCommerce merchants, OTB is essential in aligning purchasing decisions with fluctuating consumer demand, reducing the risk of both overstocking and stockouts.

By implementing an OTB approach, merchants can better manage the financial impact of unsold inventory, especially during unpredictable periods like holiday seasons.

Why is Open to Buy Important?

Open to Buy is a strategic tool that helps eCommerce businesses in several ways:

Improves Cash Flow Management:

By setting clear budgets for purchases, OTB helps in managing cash flow more effectively. This is especially beneficial for smaller or seasonal businesses where liquidity is essential for scaling.

Reduces Overstock and Holding Costs:

Overstocked items tie up capital and incur holding costs, which can erode profit margins. OTB helps maintain a balanced inventory level to meet demand without overstocking.

Enhances Forecasting and Demand Planning:

OTB requires regular assessments of future sales trends. This forward-looking approach ensures that merchants have enough stock to meet demand, especially during peak times.

For example, an eCommerce store specializing in seasonal apparel might plan its OTB differently throughout the year, adjusting for high-demand periods such as summer and winter, and scaling back in off-peak months.

Check Best Inventory Management Strategies for DTC Stores that provide valuable insights here, especially for direct-to-consumer brands managing frequent inventory turnover.

How to Plan Open to Buy?

The use of software in OTB planning automates the forecasting and purchasing processes, helping businesses respond swiftly to changes in sales patterns. Inventory management tools, like Fabrikatör, can simplify OTB by automating data collection, analyzing past sales trends, and generating forecasts based on real-time data.

Benefits of Software for OTB:

With inventory management software, businesses can:

• Set up automatic alerts for reorders.
• Access real-time analytics to make data-driven decisions.
• Integrate OTB plans with other aspects of the supply chain, improving overall inventory efficiency.

OTB Software for Shopify and Other Platforms:

Platforms such as Shopify benefit significantly from OTB software. Merchants can leverage inventory planning apps to track sales trends, manage stock, and set purchasing limits.

Open to Buy Formula

Understanding the OTB formula is essential for accurate planning. The basic formula is:

Open to Buy=Planned Sales+Planned End Inventory−Current Inventory\text{Open to Buy} = \text{Planned Sales} + \text{Planned End Inventory} - \text{Current Inventory}

Open to Buy=Planned Sales+Planned End Inventory−Current Inventory

• Planned Sales: Estimate the expected sales for the period.
• Planned End Inventory: Decide how much inventory should be left at the end of the period to maintain optimal stock levels.
• Current Inventory: Determine how much stock is already on hand.

For instance, if an online footwear store expects $10,000 in sales for the month, aims to end with $5,000 in inventory, and currently has $2,000 in stock, its OTB calculation would be:

10,000+5,000−2,000=13,00010,000 + 5,000 - 2,000 = 13,000

10,000+5,000−2,000=13,000

This calculation shows that the store should budget $13,000 for purchases to meet its sales targets without overstocking.

Best Practices for Effective OTB Planning

1. Regularly Review Sales Data: Keep sales data current to adjust OTB as needed. Demand can fluctuate based on seasonality, promotions, and market trends.
2. Integrate with Demand Forecasting: OTB should work in tandem with demand forecasting to ensure that purchases align closely with anticipated customer demand. The 5 Inventory Forecasting Benefits for Shopify post offers further context on how demand forecasting can support OTB decisions.
3. Utilize OTB for Financial Planning: OTB isn’t just for inventory; it’s a powerful financial tool. By controlling purchasing costs, OTB helps businesses allocate funds to other areas, such as marketing or expansion.

How Fabrikatör Helps with Open to Buy

Fabrikatör streamlines the Open to Buy process by integrating advanced inventory management and demand forecasting capabilities tailored specifically for eCommerce. With Fabrikatör, you gain access to real-time analytics and automated data insights that help you set precise purchasing budgets, prevent overstock, and adapt swiftly to changing market demands.

Its intuitive platform simplifies OTB calculations, tracks key metrics, and provides actionable recommendations, so you always have the right amount of inventory at the right time.

For eCommerce stores looking to enhance cash flow and reduce inventory costs, Fabrikatör is a powerful partner in achieving efficient and profitable Open to Buy planning.

In conclusion, Open to Buy planning is a strategic asset for eCommerce merchants, helping them balance inventory levels, minimize holding costs, and maintain healthy cash flow. With the right tools, like inventory management software and demand forecasting, OTB becomes an integral part of a sustainable business growth strategy.