What Is Open to Buy?
Open to Buy (OTB) is a financial planning tool something like a budget, but focusing specifically on inventory. OTB considers not only inventory on hand, but also merchandise in transit to the store and planned future orders.
OTB is also used to refer to the funds allocated by the OTB system. In this sense, OTB can be looked at as the difference between current inventory and planned end of month inventory, considering sales and markdowns.
You could therefore say that you use OTB, and also that your OTB for a given item is a certain number of dollars.
Say you currently have $100,000 in on-hand inventory and intend to have $100,000 in inventory in place at the end of the month. If you expect to have $50,000 in sales and no markdowns, you must also have $50,000 in OTB.
It’s possible to think of OTB in units rather than in dollar amounts, and of course, OTB planning can encompass any time frame, whether weekly or seasonal. The best way to approach OTB planning will depend largely on your category.
As inventory is ordered and sold, OTB will change. OTB can be a critical tool in planning, helping to avoid overstocks from enthusiastic responses to sales as well as understocking.
Try an OTB calculator to see just how it works.
OTB planning is largely conducted on the retail side of the equation.