Introductory purchasing & Inventory management: open to buy

1. Introductory purchasing & Inventory management: open to buy Gretchen graham & sarah Johnson

2. Open to buy (OTB) • Your checkbook. • It’s what you can (should) spend in any given time period on inventory based on how often you want to turn your inventory. • OTB: What is it? • What do you need to make an OTB calculator? • 1. Visibility of existing and on order inventory • 2. Turn Goal • 3. Forecast of future sales

3. Open to buy (OTB) What you need to make otb • Your checkbook. • It’s what you can (should) spend in any given time period on inventory based on how often you want to turn your inventory. • OTB: What is it? • What do you need to make an OTB for your store? • 1. Visibility of existing and on order inventory • 2. Turn Goal • 3. Forecast of future sales Visibility of existing and on order inventory Turn Goal Forecast of Future Sales

4. What you need to make otb • 1. Visibility of existing and on order inventory Option 1 Option 2 • Value of current inventory: $28,000 • Past due from January: $1,000 • POs in February: $10,000 • POs in March: $8,000 Visibility of existing and on order inventory Turn Goal Forecast of Future Sales

5. What you need to make otb • 2. Turn Goal • A measure of the number of times inventory is sold/used in a period of time, usually 12 months. • What is turn? • Cost of Goods Sold (COGS) • _______________________ • Average Inventory Visibility of existing and on order inventory Turn Goal Forecast of Future Sales

6. What you need to make otb • 2. Turn Goal • Why would you want a fast turn? (Not a lot of inventory on hand, order more) • Cash flow • Trendy items • Expensive items • Large in dimension • Shipping is free • Item rank • New item • Predictable seller Visibility of existing and on order inventory Turn Goal Forecast of Future Sales

7. What you need to make otb • 2. Turn Goal • Why would you want a slow turn? (More inventory on hand, order less) • Cash flow • Non-Trend items • Cheap items • Small in size • Shipping is expensive • Item rank • Unpredictable seller • Source not reliable Visibility of existing and on order inventory Turn Goal Forecast of Future Sales

8. What you need to make otb • 2. Turn Goal • Which would you think each item/category would have? Slow! Fast! Slow! Fast! Fast! Slow! • Tubes • Apparel • Chamois Butter • Food • Car Racks Visibility of existing and on order inventory Turn Goal Forecast of Future Sales

9. What you need to make otb • 3. Forecast of future sales • - Look at past sales to predict future sales • Considerations: • Did you have a big sale/closeout last year? • Was the weather exceptional? (Poor or good) • - New item/category? Look at something similar Visibility of existing and on order inventory Turn Goal Forecast of Future Sales

10. What you need to make otb • 3. Forecast of future sales • “Top Down” Approach • Start at the top – what is your yearly sales goal? • With that yearly sales $ amount you can divide where your sales will be between categories within your store Visibility of existing and on order inventory Turn Goal Forecast of Future Sales

11. What you need to make otb • 3. Forecast of future sales • - “Bottom Up” Approach • Start at the bottom– combine the forecasts you already have to get your yearly sales goal (by item/category). • With that yearly sales $ amount you can see where your sales will be between categories within your store Visibility of existing and on order inventory Turn Goal Forecast of Future Sales

12. Open to buy (OTB) • Your checkbook. • It’s what you can (should) spend in any given time period on inventory based on how often you want to turn your inventory. • OTB: What is it? • What do you need to make an OTB calculator? • 1. Visibility of existing and on order inventory • 2. Turn Goal • 3. Forecast of future sales

13. Final Otb calculation • Open to Buy • = • Inventory Target – Projected Inventory • <<see spreadsheet for calculations>>