Another Look at Open to Buy and Count and Fill

I am often asked about “Open To Buy” both as a retail tool and as a software investment. Typically, during my presentation on “How to Create a Buy Plan” I’ll have someone make the comment that the thought process and homework that I’m suggesting that will determine operative inventory levels and needed turns is very logical but not needed because they have OTB. Buy plans and OTB do not determine the same aspects of retail procurement. Buy plans are defined by space and fixturing. They determine capacities and apply seasonality to turns - by definition, OTB is only meaningful based on a solid plan.  

THE OPEN TO BUY FORMULA:

Planned sales + Planned Markdowns + Planned End of Month Inventory – Planned Beginning of Month Inventory = Open to Buy at Retail

Prudent inventory control is obviously critical to ensuring that there is adequate stock on hand to produce the amount of sales that hopefully can be generated. The above formula can be used as a guideline as to how to replenish that number of units and/or dollars but does not pretend to establish what those levels should be.

Being over-inventoried in total units or dollars or owning the wrong type of inventory will determine markdowns and limit cash flow but is only realized by comparing it to what is healthy and then buying or not according to the formula, or more to the point common sense.

Being under bought will create missed sales opportunities but can only be properly avoided if the Planned part of the above formula is based on solid principles and an analysis and understanding of the shop’s sale history, space and fixturing.

My point is that most shops would certainly be better run using an OTB formula and plan as a guideline as to the coming month’s inventory needs but only once the proper Opening Inventory Level (OIL) is determined, realized and adjusted according to peaks and valleys during the course of the season. The magic push-button formula is the simplest of math that is probably best calculated by hand and then adjusted according to tournament schedules, special orders, off-price opportunities, fast-selling items, mark up variations and count-and-fill categories. Also most pro shops think through they’re buying as a seasonal activity based on number of turns as opposed to a monthly decision based on what usually manifests itself as partial needs.

Another concept that is tossed around in the industry but rarely understood and properly utilized is that of count-and-fill. The phrase immediately brings to mind the maintenance of the proverbial solid shirt program but redefining and instituting its new meaning across all pertinent categories can lower inventories and insure against loss of sales more effectively than open-to-buy reports.

There are many important categories where par levels can be set conservatively and count and filled often so as to reduce needless inventory but have full size runs of adequate selection when needed. Gloves, balls, shoes, socks, peds, rainwear, basic shorts and of course solid shirts are just a few of these categories with solid shirts worthy of an updated look.

A typical solid shirt program five years ago was three shelves in a wall unit with 8-9 skus or colors of a Fairway and Greene lisle or perhaps a Polo pique folded in stacks of six shirts each with one medium, two large, two x-large and one xx-large. The par level included back up if the business demanded. Par levels are best determined using the two-week rule. Keep on hand all sizes per sku in the number of pieces per size that may be sold in a two week period. Most shirt companies that have sold you on the idea of using their in-stock capabilities will fill in between 7-10 working days, which makes two week’s worth of inventory a good working plan. Someone of course needs to take ownership of the program, understand its significance and call the partner vendor with a fill-in once a week.

Five years later a few things have changed. Solid shirts are still of major importance and now include performance or polyester shirts as a category which are best displayed hung on a four way or perhaps shoulder-out by color on a bar in a wall. There are also actually fewer vendors willing to make the financial commitment to in-stock inventories of basic product.

Many facilities are using the solid shirt category as the key ingredient in an effort to build their own brand with private labeling and add significant margin to these sales. Full Turn Direct has developed an in-stock program of mercerized Supima cotton that includes basic feed stripes as well as solid shirts and has done away with any complicated rules about fill-ins. You can call in whatever you need, have it embroidered and shipped ASAP and be proud that your highest margin shirt in the shop is not being offered down the street since it is your label and it is made of the finest cotton on the planet.

Selling a rain-suit and immediately calling in an order for its replacement should be SOP. I go to clubs that own size-runs of 6 to 8 different gloves. I’ve never heard an argument for more than two that made any sense to me. Owning 40 pair of shorts at the end of June but being out of 36 and 38 is the same as being out of business – the open-to-buy report however may not provide for this fill-in.

Count-and-fill categories properly merchandised and maintaining all other areas of the shop as they need to be re-merchandised and reloaded is a function of open-to-buy that is not explained by the formula or its reports. All aspects of retail are relative to the shop, its space and personnel but I would not invest in OTB software unless my shop was grossing at least 1.5 million/year. I would however make every effort to understand the concept as the valuable guideline and tool that it is.

The principles involved in determining the Opening Inventory Level (OIL) mentioned above and the importance of creating par levels for the proper categories of goods so as to establish the correct planned inventories are developed in the “Merchandise Buy plan Guide”. The importance of basing these planned numbers on the principle of space and an understanding of a healthy turn is the reason I wrote this guide.