Weighing the Benefits of 'Open to Buy'

Lauren Gibbons Paul -- Expert Business Source, 2/16/2007 12:49:00 PM

When buying the goods that stock their stores, retailers can use all the help they can get to curb spending. Sure, most buyers have a notion of how much inventory they need at a given time and how much they should spend on it. But in the day-to-day grind of running a business, it’s easy to lose track of inventory costs. If that’s the case for your retail business, it may be time to consider open-to-buy (OTB) merchandising software.

OTB systems – which have been around for decades – add discipline to inventory management through advanced forecasting techniques and automated calculations of ideal inventory levels based on various criteria. This means you buy only the goods you need when you need them, saving upfront costs and minimizing excess inventory that ultimately ends up in the markdown bin.

It’s far too easy, particularly for a small retailer, to be caught in a cash crunch resulting from excess inventory, says Linda Carter, president of The Retail Management Advisors, a Dallas-based retail consulting firm. “Often, by the time I am called in to help, it is already too late.”

Carter’s firm offers these potential benefits for retailers implementing an OTB system:

• Increased sales: A fresh flow of new merchandise encourages customers to shop more often.
• Increased profits: OTB systems help you control both your inventory levels and spending at market, so you can take advantage of in-season special buys with higher markup.
• Increased cash flow: By reducing your inventory investment, you can improve your cash flow and decrease your debt.

The good news: Small and mid-size retailers have more choices today on how buy OTB. They can purchase standalone software packages, “rent” OTB under the software as a service model, or implement it as part of a larger retail management system (RMS).

For example, Open to Buy Wizard, a Chino Valley, Ariz., developer, offers its Open to Buy Wizard software in a standalone version or as part of an integrated RMS. Another package, Storis Vision R8 SaaS, is priced on a monthly fee basis. In addition, some free tools are available on the Web to help you do your own OTB calculations.

Many retailers will need more help than just a software package can give, however. Consultants such as Carter’s firm provide OTB advisory services to provide an extra degree of oversight. “This gives the smaller retailer someone to answer to, the benefit of an outsider looking over their shoulder,” she says.

Lauren Gibbons Paul is a freelance writer based in Waban, Mass.