August 2023 - 32

TECHNOLOGY
H
ave you heard of open-to-buy (OTB) inventory
management? OTB management is an essential
tool for running a healthy business. But what
exactly is OTB, and why is it so important?
According to a Harvard Business School study, seven to
21% of consumers facing a stockout will keep shopping
but not purchase a substitute product, while 21 to 43%
of consumers will go to another store to purchase the
desired item. These numbers reveal that retailers can
potentially lose nearly half of their planned purchases
when a customer experiences a stockout. Inventory
management is a core component of a successful retail
store, and OTB's goal is to help you get your stock right.
OTB management is an inventory-planning method
used by retailers to better determine what products
to order and how much of each is needed. It involves
making plans for upcoming sales and markdowns,
as well as accounting for the beginning and ending
inventory levels each month.
If you want to learn more about OTB inventory
management, you're in the right spot. Let's dive right in.
What is OTB Inventory?
OTB is a formula used in retail inventory management.
It refers to the amount of money left in your budget for
inventory purchases, essentially determining how much
of your merchandise you should buy for the upcoming
season or month. In short, it's the amount of inventory
you must purchase throughout a given time period.
Calculating this helps retailers to manage stock levels,
predict what products will sell and make informed
decisions about buying and stocking new merchandise.
Open-to-Buy
Inventory Management
Key for Retailers
OTB management is an inventoryplanning
method to better determine
what products to order and how much
of each is needed.
By Martial Amoussou
32 | LAWN & GARDEN RETAILER | AUGUST 2023
32 |
How to Calculate OTB
The formula used to calculate OTB is: OTB = planned
sales + planned markdowns + planned end-of-month
inventory − beginning-of-month inventory.
Let's say your store plans to have $40,000 in sales for
the month of June, along with $20,000 in markdowns,
and you anticipate having $10,000 in inventory at the
end of the month. The store also starts the month of
June with $30,000 in inventory.
By plugging these numbers into the formula, the
store's OTB for June is $40,000, meaning the store
can purchase up to $40,000 worth of merchandise to
replenish its inventory for the month ahead.
Benefits of OTB
Every retail store owner knows the importance
of keeping inventory levels on point. It helps to
maximize profits by having all products in stock while
avoiding the costs associated with overstocking. OTB
inventory planning is a major part of overall retail
inventory management - it allows store owners to
plan, forecast and manage their inventory according
to their sales goals.
OTB offers several benefits to help you run your retail
business more efficiently. One benefit is a realistic,
August 2023

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