Open-to-Buy Planning: The Weekly Discipline That Keeps Buyers Honest
OTB is not a formula, it is a weekly self-imposed spending cap. How to compute it, run it, and use it to catch drift before it becomes a mid-season markdown emergency.
Table of contents+
Monday, 9:15 AM. A category buyer opens the OTB report, sees the March receipt plan at $420,000, actual receipts to date at $310,000, on-order for the balance of the month at $95,000, and the sales-driven planned receipt need revised upward by $40,000 after a stronger-than-expected weekend. Somewhere on that screen is a number that says how much room is left to book new POs before Friday. That number is the open-to-buy. If it is a positive $55,000, the buyer can act on the three vendor offers waiting in the inbox. If it is a negative $12,000, the buyer either cancels an existing PO, pushes receipts into April, or accepts an inventory overrun that will pull inventory turnover down for the whole quarter. The math is arithmetic. The discipline is the job.
What OTB actually is
Open-to-buy is the dollar amount of inventory a buyer is authorized to receive during a specific future period, most commonly a month, that has not yet been committed to a purchase order. Every dollar of unnecessary receipt is a dollar of working capital tied up on the shelf, a dollar of exposure to markdown risk, and a dollar less available for the fast-turning categories that would have generated a better GMROI. OTB is the mechanism that keeps a buyer tactical enthusiasm within the strategic plan the merchandising leadership signed off on.
The formula, in operator terms
OTB = Planned End-of-Period Inventory + Planned Sales + Planned Markdowns - Beginning Inventory - Receipts Already Booked - On-Order Committed
Every term is measurable and reconcilable to a specific line on a real report. The buyer runs this subtraction every week. A positive OTB means room to book new POs. A negative OTB means the plan is already breached and something has to give.
The worked example
A women apparel buyer runs the April plan for a career-wear category.
| Line item | Amount |
|---|---|
| Planned End-of-April Inventory | $380,000 |
| Planned April Sales | $520,000 |
| Planned April Markdowns | $35,000 |
| Beginning-of-April Inventory | $410,000 |
| Planned April Receipts | $525,000 |
April opening plan for the category.
Planned April Receipts = 380,000 + 520,000 + 35,000 - 410,000 = $525,000. Fast-forward to April 15: Receipts already booked $310,000. On-order committed for April 16-30 delivery $145,000. Total committed to April so far $455,000. Remaining Open-to-Buy = $525,000 - $455,000 = $70,000. The buyer has $70,000 left for the last 15 days of April. A $50,000 vendor opportunity fits. A $95,000 opportunity does not, unless the buyer negotiates delivery into May or cancels part of an existing PO.
What-if 1: Sales trend accelerates 8 percent
Revised planned sales climbs from $520,000 to $562,000. Planned receipts jumps to $567,000. Remaining OTB rises from $70,000 to $112,000. Stronger sales unlock more receipt authority.
What-if 2: Beginning inventory was actually $445,000, not $410,000
The physical count came in $35,000 higher than the ledger showed. Planned receipts drops to $490,000. Remaining OTB shrinks to $35,000. A stale count silently inflates or deflates OTB by the count error.
What-if 3: Two on-order POs slip from April to May delivery
$60,000 lifts out of April, freeing OTB by $60,000 but blocking the same amount of May OTB. The buyer has traded April flexibility for May constraint.
Why OTB is weekly, not monthly
Buyers who look at OTB only at month-end discover breaches too late. By the last week of the month, most receipt POs are already committed to specific delivery slots. Weekly OTB review catches drift while it is still fixable. This is the sell-through rate discipline applied to the buying side of the equation, triggering action on the leading indicator (sales trend at week two) rather than the lagging one (aged inventory at month end).
OTB and the rest of the merchandising stack
Sales trend feeds OTB. As weekly sell-through numbers come in, planned sales should be revised, which in turn revises planned receipts and OTB. Inventory turnover checks OTB: if OTB has been consistently positive while turnover is falling, the plan itself is over-optimistic. Markdown planning depends on realistic OTB: retailers who plan markdowns into the initial buy (per the Markdown Pricing Guide) rarely have mid-season OTB emergencies. GMROI reflects OTB discipline over a full year.
The four failure modes
- Not running OTB weekly. The single largest source of breaches. Put a standing 30-minute weekly review on the buyer calendar.
- Stale beginning inventory. OTB math is only as accurate as the opening balance. Reconcile to physical counts monthly at minimum.
- Ignoring in-transit vs delivered timing. A PO scheduled April 30 versus May 3 makes a $200,000 difference to April OTB versus May OTB.
- Not adjusting the plan when the market changes. Build a monthly plan-revision cadence with the planner.
When OTB becomes negative
A negative OTB does not automatically mean cancel a PO. It means a decision is required. Three levers, in order of preference: push non-critical receipts into the next period; cancel a low-priority PO before the vendor incurs costs; or accept the overrun and plan the recovery. Cancelling POs mid-flight week after week is the sign of a buyer who is not running weekly OTB. Suppliers pick up on the pattern and start padding their commitments in response, which raises costs.
The takeaway
Open-to-buy is a weekly discipline that keeps a buyer tactical enthusiasm within the strategic inventory plan. Run OTB every week. Keep beginning inventory honest through cycle counting. Track on-order at the delivery-week level. Adjust the plan when the market moves. Use OTB as a decision-support tool, not a spending permission slip: the point is not to spend every dollar of authorized receipts, it is to receive the right dollars at the right time to hit the inventory turnover, GMROI and gross margin targets the season plan committed to.
Frequently Asked Questions
How often should a retail buyer run the OTB reconciliation?+
Weekly for most categories. A-class categories with high dollar velocity or short lead times benefit from twice-weekly reviews. Monthly is too infrequent. By the time a monthly report catches drift, most receipt POs are already committed to specific delivery windows.
Does OTB work at the SKU level or the category level?+
Both, but category-level is the operating standard. SKU-level OTB requires far more data hygiene than most operations sustain reliably. Drill into SKU-level only when investigating specific overruns or opportunity buys.
Can OTB be positive while a category is over-inventoried?+
Yes, and this is a common trap. If the plan itself was set with optimistic sales assumptions, actual on-hand can exceed intended even while OTB shows headroom. Run inventory turnover and DIO alongside OTB monthly.
What is the difference between planned receipts and OTB?+
Planned receipts is the total dollar amount authorized to arrive in a period. OTB is planned receipts minus receipts already booked minus on-order committed. Planned receipts is a period-level ceiling. OTB is the running headroom left within that ceiling.
When should a buyer trim planned receipts mid-month?+
When actual sales are trailing plan by more than 5 to 7 percent at the two-week mark and the trend appears sustained. Trimming early avoids the deeper mid-season markdown that follows over-receipt into soft demand.
Should opportunity buys be accepted if they blow OTB?+
Sometimes. If the buy is deeply discounted on a top-selling SKU with proven velocity, the extra receipt often pays for itself before the next OTB cycle. If it is on a slow-moving assortment, the OTB constraint is protecting the buyer.
Should OTB include planned markdowns?+
Yes. Markdowns reduce ending inventory value without corresponding cash outflow. Omitting them understates authorized receipts and starves the category.
Which categories most benefit from tight OTB discipline?+
Slow-turning, trend-sensitive categories where over-receipt turns into deep markdowns fast: apparel, footwear, home decor, seasonal categories. Fast-turning consumables can operate with looser oversight.
Can you tie OTB directly to GMROI?+
Not directly as a formula, but the disciplines are tightly coupled. Every dollar of over-receipt from loose OTB raises the average inventory denominator in GMROI without a corresponding lift in gross profit. Sustained OTB overruns show up as GMROI drag one to two quarters later.
Is there software that automates the weekly OTB reconciliation?+
Most modern merchandise planning systems (Oracle Retail, SAP Retail, JDA, RELEX) automate the reconciliation and flag breaches by exception. The mistake is treating the software output as the decision. The software surfaces the number; the buyer still makes the call on which lever to pull.
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