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Friday, November 20, 2015
So what exactly is an Open-To-Buy?
The clearest and simplest definition is that it is a financial budget for retail merchandise. Let's look at this more closely.
An Open-To-Buy relates directly to retail merchandise, is structured specifically to address the needs of retailers, and is a tool designed to assist retailers manage and replenish their most significant asset, their inventory investment.
An Open-To-Buy is a budget, and involves the full range of budgetary functions. It begins with the planning process, is future oriented, provides guidance on how much to buy, and provides benchmarks for evaluating progress, and adjusting future plans.
An Open-To-Buy is a financial tool, in that the units of measure are typically dollars, usually retail dollars but sometimes cost dollars, and that it can be tied back to the financial control process.
An Open-To-Buy can work on any level that a retailer needs it to. It can be used to track merchandise at the company, department, classification or sub-classification level. In rare cases for a small retailer, it can even be used to track an individual item.
Fashion and Seasonal Merchandise versus Basic In-Stock Items
It is important to note from the start, that as a replenishment tool, an Open-To-Buy is not appropriate for all categories of merchandise. It is most appropriate for fashion merchandise where the specific items may change, but the departments, classifications and sub-classifications remain relatively stable, and seasonal merchandise where inventories are brought in at the beginning of the selling season, and need to be managed down to pre-determined ending level at the end of the selling season.
In the case of fashion or seasonal merchandise, an Open-To-Buy answers the question of how much to buy, but not necessarily the question of which specific items to buy. For that, a detailed assortment plan is necessary, which lays out exactly what items will be coming in when, and provides a plan for how all of the individual items come together to form a compelling merchandise assortment
In contrast, an Open-To Buy is not appropriate as a replenishment tool for day-in and day-out basics. These staple items are more effectively replenished using an automatic replenishment program running off of pre-determined minimum and maximum inventory parameters. In the case of these in-stock basics, an Open-To-Buy may still serve a valuable budget and control function at a department or category level.
Like any budget, an Open-To-Buy starts with a plan, then compares actual results to that plan and quantifies any variances. Carefully considered planning is the critical first step in constructing an Open-To-Buy.
The planning process begins with building a sales plan. For small retailers, most sales plans are broken out by the month, although in some cases, especially highly seasonal businesses or categories, it may be more appropriate to plan sales by the week. The question to ask is a very basic one: "What is the most likely level of sales from stock (excluding special orders) by month (or week)?"
Once a sales plan has been developed, the next piece of the planning process is to build an inventory plan. The question to ask is this: "How much inventory do I need at the end of each month to support the next month's sales (in some cases the ending inventory may need to support more than just one month of future sales), as well as maintain effective merchandise displays?"
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The sales plan numbers referred to are projections based on dollars and usually arrived at by analyzing last year’s sales and either adding or subtracting projected increases or decreases by percentage depending on all the obvious factors.
The inventory plan that this article mentions in the above paragraph is what I refer to as a buy plan, is measured in units not dollars and is as Ted Hurlbut points out the rest of the story. The merchandise buy plan guide explains how to base this unit plan on space, fixturing, categories and turns with the goal being “well-merchandised but not over-inventoried.”
The dollars and units approach is neither optional nor a debate between the two methods but in my mind, the only approach and the proper tools with which the small retailer can write appropriate orders per vendor and given their capacity. When a well developed Buy Plan is used in conjunction with an Open to Buy report and confirms that given existing inventory levels allow your planned buys in terms of dollars invested - a certain peace of mind develops that at least the planning part of the retail process is in sync.
Sunday, October 11, 2015
Recently I have been talking with Tim Ogle, an expert on open to buy planning and the founder and president of Open to Buy Wizard (OTBW) software. The You-Tube link provided below is Tim speaking at a 2014 Independent Retail Conference in Las Vegas.
There are a number of key points that provided a common ground for our conversation:
1. Realizing that having optimum inventory levels per classification is the key to maximizing retail efficiency as well as profits.
2. Agreeing that over-buying is one of the biggest issues affecting the merchandising of any retail operation and the erosion of profits.
The methodology I have used over the years (The Merchandise Buy Plan Guide) determines optimum inventory levels based on space and turn on a yearly basis but does not update on a monthly basis the evolution of that plan. The ability to stay on top of these levels as they change is one of the benefits that OTBW provides.
Mr. Ogle, we start our dialog with an agreement that an understanding of optimum inventory levels is probably the most important piece of retail management for any effective buy plan. Before we get into a discussion of the basic concepts of retail and how they are enhanced by your service and apply to golf shop management please tell us what caused you to get into this business and why for the last 15 years you have been offering this "open to buy" software service.
20 years ago, my wife was an award winning buyer-merchandiser at three resort golf shops in Arizona. I have a business finance background. We began developing an open to buy spreadsheet for her personal use. In the next two years it became apparent that there was no (good) spreadsheet solution to this task. It was like trying to solve a three dimensional problem with a two dimensional tool. If the spreadsheet was too simple, it lacked accuracy. If it was too complex, it was too time consuming. We finally recognized that to be done efficiently, otb planning requires a database (software) solution. It took us three years of development and testing before we offered our first version. Our current cloud based program has come a long way from those early days and the result is the best of both worlds: simple, time efficient and comprehensive.
I think it would be great for our purposes and readership to have you define the more important basics as there are different types of "open to buy", different methods of calculation and therefore many terms and concepts properly and improperly used when discussing your area of expertise.
Interesting question. You reference the term "Buy Plan" in your first question. That could be defined as a once a year budgeting of sale and inventory levels and purchases required to reach those levels. It is only valid on the day that it is calculated. As we all know, retailing is not a static business. Every order placed and every sale made changes the factors that are used to calculate amounts to buy. To have a true "Open-to-Buy" plan, these variables must be updated regularly and the open-to-buy re-calculated. Sounds hard, works easy.
I have always prescribed that inventory levels be based on space and turns tied to peaks in the season with any increases projected at increasing turns not inventory.
We provide a similar option where the user selects inventory targets or ranges for each month and classification. However, a preferred and powerful benefit of OTBW is a performance driven approach. OTBW users select their own retail performance standards such as "COGS%", "Turn Ratio", and "% of Sales" from the shop to the subcategory level. The program calculates the optimum inventory targets, and it is surprising how much difference this makes. With good performance standards and the assurance of having optimum inventory in every classification every month there is no reason to overbuy, no reason to dilute margins with excess clearance sales. Many of our golf shop managers have gradually become comfortable with turn rations as high as (4) which insures a 3 month supply at all times. The margins and return on investment that result from this are a major improvement over previous performance. Look at the Annual Comparison charts of one of our long term golf shop customers. Sales are up every year for the past 5 years and the inventory is down every year. Note: If the last three months of 2015 have inventory and sales equal to last year, the annual average inventory will be $91,129 at cost. The total sales will be $497,052.Increasing sales with less inventory can be counter intuitive for some managers who believe the more inventory you have the more you will sell. We have found that optimum inventory will turn faster, be fresher and sell more. It works!
It has always seemed to that the cliche "good-in, good-out: trash-in, trash-out" is very real when discussing software and its effective use. Tell us what is involved with input and set-up of your system and how you have customized this somewhat for golf.
We have two versions, Golf or Retail. The only difference is the inclusion of "rounds" and "sales per round" reports in the golf version. The Set-up is very time efficient. About 2-3 hours followed by a one hour telephone walk-through. Going forward, one hour per month updating EOM and on-order data. We provide unlimited no-cost email or telephone support so users call us if they have questions or need help. We send a monthly newsletter to keep everyone updated, offer operational tips, etc. OTBW can be programmed for automated data import for a modest additional fee.
OTBW users are self-motivated "do-it-yourself" types who prioritize the management of the plan above the busy work of following the plan. Some PGA GMs own their own shops and have a direct stake in how much is "invested" in inventory and the return they receive from that investment. All PGA managers can add another "profit center" by simply using updated inventory management methods.
Craig, in one of your recent articles you said:
"Successful apparel buying for any retail space, including the typical golf pro shop is about 80% science and 20% art. Everyone is an artist but very few buyers in golf fully understand the science."
That is insightful. OTBW has automated the "science" of inventory management, leaving shop managers to do what they do best with merchandise selection, displays, customer service, etc.
The service you provide is incredibly affordable. That being said, explain, if you will, how you see the proper use of it as offsetting the cost.
Offsetting the cost is too modest an expectation. Optimum inventory every month in every classification makes a surprising difference. For us it was $25,000 improved gross margins the first year, improving to $40,000 by the seventh year. We did this with $15,000 less average inventory! See the :15 video which explains in more detail how this was done. These kind of results dwarf the small monthly fees and the time spent!
In a nutshell, how does the software work?
OTBW is an online program which can be subscribed to for a low setup fee and monthly fee, has unlimited telephone and email support, is a simple fill-in-the-blanks format customized to your shop and classifications. Users log on and manage their own programs.
I really appreciate what you do, the passion with which you do it and the education you have provided here. We have put up a banner with this entry that links to your website but how would you prefer that interested readers explore this further with you?
Clicking on the banner and visiting our website is the first step - www.opentobuywizard.com. The site answers most questions. When readers are satisfied, they can click on the "Order" menu and complete the registration for a 30 day free trial. We charge a one-time $100 setup fee, which is temporarily reduced to $25. They may also call me directly: 928-636-2105 or mobile: 928-821-3301.
Craig, thank you for your interest in this specialized subject and the opportunity to discuss it with you.
Saturday, September 26, 2015
Successful apparel buying for any retail space, including the typical golf pro shop, is about 80% science and 20% art. Everyone is an “artist” but very few “buyers” in golf fully understand the science.
Ask yourself a few pertinent questions:
Does your buy plan accomplish your sales goals?
Do you have the proper mix of apparel to make margin?
Is your retail space properly fixtured for maximum volume?
Would you be better off having a retail professional do this for you as well as train your sales staff to sell the goods?
Do you often find yourself over-inventoried and priced at a ‘no-margin’ level?
|Los Altos Golf and Country Club|
Whether you are attempting to manage your pro shop yourself or with the help of a professional retail consultant or buyer, the best way to institute a plan to address the scientific area of the formula is the ‘buy to space’ approach. Understanding the clientele and their wants and needs and tailoring this unique mix to the existing fixtures, traffic patterns and peak selling periods is part of the challenge. Having orders arrive that are expressly designed to fit a specific space, that are planned out according to the right turn ratio and that allow for a variety throughout the year of vendor, color and seasonally appropriate goods is also fundamental.
Staff appearance is critical for many reasons, not the least of which is that they are the first impression the Club gets to make. A staff that does not come to work well-groomed and properly attired will never be perceived as truly professional.
|Prairie Falls Golf Club|
Perhaps the most important part of the job of a Head Professional and the staff they train is to provide a ‘cutting edge service’, attitude and atmosphere. This can only be accomplished when the bar is set high, expectations understood and the proper education provided. A knowledgeable staff of walking mannequins that enjoys conveying that knowledge to members and guests is imperative to having a profitable shop that members/regulars are proud to patronize. A pro-shop that provides this type of service is open until the last member leaves for the day, it is also usually one with turnover due to promotion.