The full form of OTB is Open To Buy.

Open-to-buy (OTB) is an inventory management system that works with your retail business. It’s the amount of merchandise your retail store can buy during a certain time period. In other words, it helps determine the amount of inventory that you will need to purchase to meet customer demand while maintaining a positive cash flow.

Good inventory control is critical to ensuring an adequate level of stock is on hand for the number of sales being generated. Having too much inventory or the wrong type during certain periods can slow your cash flow and reduce profits with too many markdowns. On the other hand, if you under-buy meaning buy too little product and miss sales opportunities, you are not making your potential profit and are damaging the customer experience. A retailer can be sure to stock the proper amount of the right products at the right time by using an open-to-buy plan.

OTB can be calculated in either units or dollars. However, it’s best to use dollars, as there are significant variations in costs between products. OTB is essentially the difference between how much inventory is needed and how much is actually available. This includes physical inventory on hand, in transit, and any outstanding orders.

To take advantage of special buys or to add new products, some of the OTB dollars should be retained for future stock purchases. This also allows the retailer to react to fast-selling items and quickly restock shelves.

Consider maintaining an OTB plan for your business as a whole, but also plan for each category of merchandise you stock. The plan can be maintained on paper, in a spreadsheet, or by purchasing one of the several retail software packages available that contain OTB programs.

An open-to-buy plan is a purchasing budget for future inventory orders that a retailer creates for a specific period. An OTB plan helps a retailer stock the right amount of the right products at the right time by showing the difference between how much inventory is needed and how much is available. This includes physical inventory on hand and in transit, as well as any outstanding orders.

OTB not only helps you better plan inventory purchases, but it’s also a budget that can help you tighten your belt. For example, you might have a total of $100,000 tied up currently in your inventory. Creating an OTB plan can help you carefully manage merchandise across your business for the year. As a result, this kind of planning can help you find “slack” in your inventory budget — even a 10% cost-savings in this example means you’d have an extra $10,000 to invest elsewhere.

An OTB can be calculated in units or dollars, but is usually calculated in terms of cash as there are variations in costs between products. OTB plans are also incredibly flexible — apply it to a single product category, a department, or across your entire retail business.

In some cases, retailers hold back some of their OTB dollars instead of spending their entire budget at one time. Some retailers strategically spend only a part of their OTB budget so they can take advantage of special buys during the selling season or add new products throughout the season.