What is the purpose of the OTB plan in inventory management?

The purpose of the OTB (Open to Buy) plan in inventory management is fundamentally linked to determining purchase commitments for merchandise categories. This plan allows a retailer to manage their inventory levels effectively by establishing a budget for how much can be spent on new inventory during a specific period, taking into consideration current stock levels, sales forecasts, and desired inventory levels.

By outlining how much can be allocated for purchases without overcommitting, the OTB plan helps in making informed decisions about which products to order, the quantity to purchase, and when to place orders. This level of strategic planning is crucial for maintaining an effective inventory that meets consumer demand without leading to excess stock or missed sales opportunities. This focused approach also allows for better cash flow management and alignment of inventory with sales projections, making the OTB plan a key tool in retail operations.