Definition
Open to buy (OTB) refers to the residual balance of current purchase allotments, calculated as total planned purchases for a period less receipts and merchandise on order. [1]
On order refers to a situation in which the retailer has ordered merchandise and it has not been received – it is considered to be on order and thus a commitment against a planned purchase figure.
Open-to-Buy is the amount you need to buy products with, in order to achieve the set sales budget for a certain period. It is calculated at cost value and assigned to different product categories based on each category’s contribution to total sales mix. When done correctly, it will help the business avoid overstocking or understocking situations. It is done to identify the best inventory level needed for the business. [2]
References
- American Marketing Association, AMA Dictionary.
- Retaildogma, Open to Buy (OTB): The Complete Guide from a Professional Merchant.