Open-to-Buy (OTB)
Definition
A purchasing budget that tells you how much inventory you can still buy for a period without overstocking, based on planned sales and target ending inventory.
Want a deeper explanation?
Formula
Open-to-Buy = Planned Sales + Planned Ending Inventory − Beginning Inventory − Inventory on Order (all at cost)OTB is how retailers stop buying on gut feel. It ties purchase orders to a sales plan and a cash plan, so the buying team and the finance plan agree.
It needs updating as actual sales come in. Watch for: purchase orders placed without checking what is already on order, which is how double-buys and overstock happen.
Example
Planned sales at cost $120,000 + target ending inventory $200,000 − beginning inventory $180,000 − $60,000 already on order = $80,000 left to buy.