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How To Create an Open-To-Buy Plan?
The success of OTB planning depends on the accuracy of projections for each aspect of the formula. Realistic forecasts are essential to achieving actionable results and getting the most out of the OTB concept.
- Step One – Develop a sales plan. It is advisable for small retailers to create monthly sales plans rather than weekly ones. However, highly seasonal businesses can benefit from weekly sales plans.
- Step Two – Set up an inventory plan. Ask yourself how much inventory you need to have to support your projected sales and maintain adequate stock to handle peak sales.
See related: Best Retail Inventory Management Practices: 7 Critical Methods
- Step Three – Once you have established the sales and inventory plans, you can create planned markdowns and inventory adjustments.
See related: How to Write a Discount Offer: Tips for Creating a Great Retail Promo
- Step Four – Create an inventory receipt plan. For any given period, you can insert the remaining numbers into the open-to-buy formula to determine how much inventory you need. Obviously, you should also take the time to compare your projected numbers for a period with your actual numbers. Realism is the central element in determining whether or not your open-to-buy plan provides value.
Open-To-Buy vs. Inventory Management Software
One of the open-to-buy approach limits is that it is not ideal for commodity items. Commodities are products that customers rely on your store to stock. For example, the core products of a grocery store are bread, milk, eggs, fruits, etc.
The core items of a home improvement store may be the plush furniture that you are known for. Whatever these staple items are, it is essential to have them in stock at all times. OTB planning may not be the best method for core items, as you risk losing quantity discounts on orders. In addition, an OTB retail plan only takes into account six parameters.
However, inventory management and financial planning are like a machine with many wheels. You may run into problems if you don’t have the whole picture. Some metrics are missing from the open-to-buy formula, such as order cycle time, inventory carrying costs, and inventory shrinkage.
That’s why it’s best to opt for automated inventory management with inventory management software. The software saves you from manual calculations (which can be subject to errors) or from using spreadsheets and gives you more accurate estimates of your inventory. KORONA POS inventory management software provides users with automated reordering, stock transfers, store order cycles, and even notifications if they’re running out of some products. Click on the button below to learn more about how KORONA POS can help you better manage your items.
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