What does Open-to-Buy (OTB) refer to in inventory management?

Open-to-Buy (OTB) is a crucial concept in inventory management that refers specifically to the monetary amount allocated for purchasing or replacing inventory within a particular category. This figure helps retailers determine how much inventory can be added to stock without exceeding their budget constraints. In practice, OTB enables businesses to manage their inventory levels effectively, ensuring they can respond to demand while avoiding overstocking or stock shortages.

By calculating OTB, retailers gain insights into their purchasing capacity based on current inventory levels, sales forecasts, and financial goals. This leads to a more disciplined approach to inventory management, allowing businesses to maintain healthy cash flow and optimize their stock levels to meet customer demand. Understanding OTB is vital for making informed inventory purchasing decisions, ultimately supporting sales and profitability.