Merchandise Planning
The planning chain
Merchandise planning decides what to buy, how much and when, within a sales and inventory budget. The chain is: forecast sales; set desired ending inventory; calculate planned purchases; build the assortment; allocate to stores; monitor sell-through and markdowns. Key measures include sell-through, weeks of supply, stock turn and gross margin return on inventory (GMROI).
Open-to-buy
Open-to-buy (OTB) is the amount a buyer may still commit at a given price. A common retail formula is: OTB = planned sales + planned ending inventory − beginning inventory − stock already on order. Use retail value consistently; mixing cost and retail values is a common error.
Worked example
A store plans monthly sales of ₹4,00,000 and wants ending inventory of ₹6,00,000. It starts with ₹5,00,000 and has ₹80,000 on order. OTB = 4,00,000 + 6,00,000 − 5,00,000 − 80,000 = ₹4,20,000. If the buyer has already placed orders worth ₹3,50,000, only ₹70,000 remains open. The reasoning: planned purchases must fund sales and the target stock, after allowing for stock already owned or committed.
Traps
Do not treat sales as purchases. Do not forget markdowns; they reduce the retail value recovered from stock. Do not plan only average sales; consider seasonality such as Assam’s monsoon, local festivals and school sessions. High inventory is not automatically good-it ties up cash and raises markdown risk.