An inventory is essential for all retail businesses. Its goal is to maintain enough level of merchandise to suffice sales. But often times, having an appropriate number of inventory may be quite a challenge. Too much inventory may drain your cash flow, but having the opposite would slowdown your possible sales. As the owner, you want to increase inventory levels when sales pick without over buying, knowing enough inventory levels would be easy with Open-to-Buy plans. This tool tells you much inventory levels you need to have within a month but does not tell you the specific merchandise to buy, with this you would be able to make optimum sales.
Open-to-Buy plans may not be appropriate for all types of merchandise. It is most appropriate for a merchandise where items change but classifications and departments remain stable and for seasonal merchandise where items are bought at the beginning of the season and needed to be managed at the end of the selling season. This tool though is not that effective for staple items but it may serve as a budget and a control function for handling finances. Planning an Open-to-Buy plan starts with approximating how much sales is generated for the month or week. The next is to build an inventory plan where you would again approximate how much inventory would suffice your sales and maintain effective item display. After knowing both sales and amount of merchandise, plan for markdowns and adjustments and see how much inventory is needed to cover your sales, markdowns, and adjustments. Finally you must compare actual sales with the Open-to-Buy plan; the difference would be the profit from all your merchandise.
Remember that like any management tool, an Open-to-Buy plan requires an investment, attention to build realistic plans and diligence to maintain the ongoing plan. A well structured plan, allows you to trace the progress of your sales, and helps you identify how much additional inventory is needed during sales pick.