Open-To-Buy Model of Management Retail Buying

Management of Retail Buying
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Management of Retail Buying
This discussion will focus on the Open-To-Buy, OTB, model of managing retail buying. OTB is a model that supports the retailer to budget for inventory, in a given period, in a way that ensures that the planned (desired) inventory equals the actual inventory at the end of the budgeting period. This system helps to cut down on occurrences of underbuying or overbuying that can negatively impact the business. The provided OTB chart will be analyzed to answer questions related to retail overbuying, overspending, and seasonality concerning OTB distribution.
An overbuying situation arises when there are differences in the budgeted or planned inventory cover and the actual inventory cover. In this case, the planned inventory cover is lower than the actual inventory cover. This scenario stems from a variety of factors that include; earlier than expected shipping in of orders by the suppliers, in which case the proceeding period’s orders might come in earlier than was expected, thereby adding to the current month’s inventory, reduced actual sales than earlier estimated will lead to the availability of extra inventory than planned at the end of the period and causes beyond the control of the business mostly outside the company, e.g., changes in strategies employed by the competition, environmental factors, micro, and macro-economic factors, etc.
To ensure that buyers (retailers) do not overbuy, the following three measures should be taken;
* Planning a promotion. A promotional approach will lead to increased sales that eventually reduces the actual inventory cover in the proceeding month.
* Increasing the proceeding month’s estimated sales. This will ensure that the overbuying situation does not persist into the subsequent month(s). This can work well if the situation is not a result of external factors.
* Revision of the budgeted proceeding month’s OTB. This ensures the actual inventory cover matches the planned inventory cover by forestalling an instance of overbuying. This can be achieved through a redistribution of the proceeding month’s OTB to cut down on instances of overstocking.
The months in which there are available dollars imply that at the end of the month, the actual inventory was lower than the planned (desired) inventory. Drawing from the OTB chart, the following table shows the months that had available dollars;
Month

Actual Inventory ($)

Desired Inventory ($)

Available Dollars ($) (Des. -Act.)