80/20 Rules and Open To Buy Planning

It seems that in life, most things are 80/20. 80 percent work and 20 percent reward. And that’s OK since we generally enjoy the work that brings us to the reward.

One place where 80/20 does not work is retail. Too many retailers do 80 percent of their business with 20 percent of their inventory. The obvious problem with this is that 80 percent of their inventory is not very productive. To be totally effective, a retailer should be doing 100% of their business with 100% of their inventory. This means everything is turning and contributing to overhead and profits.

If your percentage breakdown is not 100/100, then you are losing sales and creating markdowns. The way to move toward 100/100 is with open to buy planning. Open to buy works by department or category of merchandise and leads you to order only that amount necessary to support your anticipated sales at the turn rates you wish to achieve. A good open to buy system will additionally monitor each of your departments, show trends and help raise annual turn rates in each department. What you ultimately want is to produce the maximum amount of sales with the smallest possible inventory turning that inventory as frequently as possible.

Only open to buy will guide you from 80/20 (or whatever your percentages might be) to the ideal of 100/100. By evaluating each department monthly in terms of sales, beginning inventory, and turnover you can adjust your open to buy plan to react to trends and put your money where your sales are. As you move your store toward 100/100, you will see a dramatic increase in customer satisfaction, employee satisfaction, and your bank account.

And every retailer can get this satisfaction if they allow open to buy to guide their buying.

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