Open-To-Buy: How to Plan Your Sales?
When a product starts selling well, it’s common practice in retail to stock up on that item. However, a random spike in sales can be a misleading false alarm and stocking up on goods based on a gut feeling can become quite an expensive miscalculation.
But how does one, then, accurately forecast what to stock up on, without getting caught in emotions and unrealistic expectations? A sales plan is a critical part of the planning process and should be compiled by month, or in some seasonal businesses, even by week.
This Is How the Sales Process Usually Takes Place in Retail:
Plan – How much should I buy of each product?
Wholesale – Did I buy too much or too little?
Storage – Does the product get to its assigned location?
Sales – Can I sell all the items at full price?
Surplus – What is the loss margin resulting from discounts?
Sales plans are usually based on prior sales. However, there are additional factors a merchant should take into account – changes in local and international economic conditions, the statistics office’s consumption forecast, competitors’ decisions to open new stores, etc. Furthermore, retail sales follow trends and holidays.
Nobody, not even the store’s manager or longtime employee, could possibly take all those factors into account. That’s what the Open-To-Buy planning tool is for – it helps estimate how many percentage points the sale of a specific product group is expected to increase or decrease in the future.
What is OTB?
In short, Open-To-Buy or OTB helps you compile a purchasing plan and determine correct quantities. It takes note of the items or products you have in stock and compares these to what you expect to sell.
OTB let’s you know what your store needs, making sure you always order the correct amount and thus avoid surplus and deficit. In short, it guarantees efficient sales.
What Solutions Does OTB Provide?
In retail – and especially in seasonal businesses – OTB helps you decide how much to buy but not necessarily, which products to stock up on.
OTB’s core formula is known to every experienced retailer:
Sales + Ending Inventory – Beginning Inventory = Purchases
The formula can be applied by unit, price or retail sales – whatever suits your business best.
To determine how much you need to order, you first need to decide how much you want to leave in stock. For example, you’ve got 2 units of a specific item, expect to sell 6 units but also want to keep 3 units in stock for the upcoming week.
So, how much should you order?
Let’s insert the numbers into the formula: 6 + 3 – 2 = 7
According to the calculation, you need to order 7 units.
OTB as Software
Obviously, you don’t have to take stock manually – you can leave it to software that measure productivity, keep stock, provide recommendations, etc. This type of software also factors in market trends and other economic indicators. Erply provides a strategic OTB software solution in collaboration with Targetta.
The program indicates the actions required to meet the sales plan, helps set goals and compares actual results to the plan to allow the merchant to make conclusions and corrections.
The software has been created to keep stock in check and warn the merchant when something is running low. It also takes into account the company’s turnover and uses it to forecast investment volume by months, weeks or seasons. The software helps you make decisions faster and create a more accurate plan.
OTB software helps save heaps over the long run but is itself quite expensive and thus often unattainable for small companies. This is why Erply has decided to offer an alternative.
Erply’s Software Will Keep Stock for You
Several software companies offer warehouse management systems, i.e. WMS that are in charge of managing transport, orders and accounting. Erply has taken it a step further.
Erply has also automated the stocking up process, with the warehouse management module available in our standard package.
The module enables you to determine minimum and maximum quantities for goods to keep stable stock levels and forecast orders based on your sales history.
The software alerts you whenever you need to stock up on something.
What Options Does Erply’s Warehouse Management Offer?
- You set the minimum quantity for goods;
- The software alerts you when stock levels are approaching minimum;
- The software tells you how much to order once the critical level has been reached;
- You can set the recommended quantity;
- You don’t have to keep track of stock levels;
- All the relevant information is neatly packaged into one report;
- All relevant information can be accessed with one click;
- You can set the accounting period to a week, month or season;
- Included in Erply’s standard package.
If you’re using bar codes, it’s easy to keep an eye on sales, orders, stock levels, any details on the movement of goods and all your logistics. Erply’s points of sale software makes everything simple and carefree.
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