Open-to-Buy Planning: A Practical Guide

Open-to-buy (OTB) planning is the discipline that prevents retailers from over-buying. It is a monthly framework that ties inventory investment to sales plans, markdowns, and target stock levels. Every successful buying organization runs OTB. Every disorganized one runs out of cash mid-season.

What is open-to-buy?

Open-to-buy is the dollar value of new inventory a buyer is authorized to receive in a future period. It is calculated by subtracting expected ending inventory and on-order receipts from planned ending inventory. The result is a dollar (or unit) ceiling that disciplines buying activity.

The OTB formula

OTB = Planned Sales + Planned Markdowns + Planned End-of-Month Inventory − Beginning-of-Month Inventory − On-Order Receipts. The output is the dollars (or units) you can commit to in the period without overshooting your inventory plan.

A worked example

A buyer plans $200,000 of sales next month, $20,000 of markdowns, and wants $300,000 of ending inventory. The beginning inventory is $280,000 and on-order receipts are $80,000. OTB = 200,000 + 20,000 + 300,000 − 280,000 − 80,000 = $160,000. The buyer can commit to $160,000 of new orders for delivery in that month.

How to use OTB in practice

OTB should be reviewed weekly during the buying cycle. When sales overperform, OTB expands; when they underperform, OTB contracts. The discipline is the same in either direction. Over time, OTB review separates buyers who manage to a plan from buyers who buy what they like and hope it sells.

The bottom line

Open-to-buy is the single most-leveraged buying discipline in retail. Implement it monthly, review it weekly, and tie buyer incentives to OTB adherence. The result is healthier inventory, better cash flow, and less mid-season firefighting.