Sunday, October 11, 2015

Open to Buy Wizard

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 - 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.