Open-to-buy is a planned budget for inventory purchases in a given period, reduced by what you have already ordered and what is already on the way. It answers a question stores usually answer by feel: can we afford to order more this month. Its real function is preventing the compounding over-commitment that shows up as a cash problem one quarter later.
In more detail
The failure it prevents is specific and common. Several individually reasonable purchase decisions are made across a few weeks, each fine in isolation, and the total commits cash the business needs for something else. Nobody made a bad call; nobody was tracking the sum.
It does not need software. A planned figure for the period, minus what is committed, is the whole mechanic, and it can live in one shared place the buyer checks before ordering.
The discipline it enforces is prioritisation. When the budget is visible and finite, ordering one thing means consciously not ordering another, which is exactly the conversation that otherwise happens too late.
Where people get it wrong
- Only subtracting received stock. Committed orders not yet delivered still spend the budget.
- Setting it from last year without adjusting for changes in demand or margin.
- Treating it as a hard rule. It is a planning tool, and a genuinely good opportunity can justify breaking it deliberately.
- Keeping it where the buyer cannot see it, which makes it a report rather than a control.
Common questions
How do I calculate open-to-buy?
Take your planned stock purchases for the period and subtract everything already ordered or on the way, whether or not it has arrived. What remains is what you can still commit.
Is open-to-buy only for large retailers?
The formal version is, but the underlying discipline is more useful the smaller you are, because a small store has less cushion when several reasonable orders add up to more than it can fund.
What if a good opportunity exceeds the budget?
Break it deliberately rather than quietly. The value of the number is that exceeding it becomes a visible decision rather than something discovered afterwards.