Labels: [Sourced] checked against a source listed at the end. [General] standard industry knowledge. [Our view] opinion, labelled as such. [Illustrative] made-up numbers to teach an idea.
1. The story: Filene's "model stock plan"
In the 1920s, Boston merchant Edward A. Filene, whose family built Filene's department-store chain, pushed a new way to control what a store stocks. In the preface to his 1930 book The Model Stock Plan, he says he first presented the plan to American readers in book form in 1925, under the title More Profits from Merchandising. [Sourced: preface excerpt, University of Michigan Library repository record] A retail-history paper describes the plan as one of the most important innovations in American retailing, a new way to solve earlier inventory problems that built on 'scientific management' and addressed customer diversity and geographic dispersion. [Sourced: Savitt, International Review of Retail Distribution and Consumer Research, 1999, abstract] The paper dates the proposal to 1930; Filene's own preface points to 1925 for the first book version, so say "1925 to 1930" and do not claim an exact first date. Another academic paper studies how the retail inventory method "tamed the buyer" in early twentieth-century department stores. [Sourced: Walsh and Jeacle, Accounting, Organizations and Society, 2003; title and reference list only] The idea in plain words: a buyer should not be free to buy whatever excites them; the store sets a plan for how much stock of each kind it should hold, and buys to that plan. [Our view; I have not read the books, only the abstracts and prefaces]
2. The one idea
Before buying anything, set a budget in dollars for stock: how much to sell, how much to have left, and what you have already committed. What remains is open-to-buy (OTB). [General]
3. The kitchen-table version
Your grocery budget. You plan to spend X, you already bought some, so you know what is left before the next trip.
4. The formula
At retail value for one month: OTB = planned sales + planned markdowns + planned end-of-month inventory - beginning-of-month inventory - merchandise already on order. [Sourced: Shopify, vendor calculators]
Worked example [Illustrative, script-checked]. Planned sales $60,000; planned markdowns $5,000; planned ending inventory $45,000; beginning inventory $50,000; on order $18,000. 60,000 + 5,000 + 45,000 - 50,000 - 18,000 = $42,000 open-to-buy. Read it: you need $110,000 of stock to sell and still end at plan; you have $68,000 including what's coming; so you may buy $42,000 more.
5. The merchandise plan, top to bottom [General]
Company → division → department → class → SKU. Plan sales, margin, turns, markdowns and receipts at each level. Dollars first; units and SKUs come later (Modules 4, 5, 9).
6. Why OTB goes wrong
Forecast too high, late deliveries pile up, markdown timing, double counting of orders, plans not updated. Hold some OTB back for reorders of hot items. [General; our suggestion: keep a reserve]
7. Where AI fits
Updating plans weekly from live sales; recommending where to cut or add buys; simulating markdowns. [General]
8. Exercise
Change planned sales to $70,000 in the example. What is OTB? $52,000.
9. Quiz
- What does OTB tell a buyer? How many more dollars of stock may be bought.
- What reduces OTB? Inventory on hand and on order.
- Why plan in dollars first? Control budget before detail.
Sources
- Shopify OTB: https://www.shopify.com/blog/open-to-buy-plans
- Calculator formulas: https://retailnorthstar.ai/resources/formulas/open-to-buy
- Filene, The Model Stock Plan (preface): https://exa.ai/library/publication/tg5s3f8y1p9 ; full 1930 text scan: https://digi.econbiz.de/viewer/fullscreen/1820833348/1/
- Savitt 1999: https://exa.ai/library/publication/d0yfhl9d8g1
- Walsh and Jeacle 2003: https://exa.ai/library/publication/vsngv2clg58