Open-to-Buy

Open-to-Buy is a budgeting and planning process that is commonly used in the fashion industry to drive purchasing decisions. Here, we discuss why this approach is so popular and discuss whether modern technology can provide alternative approaches to keep up with the ‘fast fashion’ culture.

It’s a simple, non-monolithic approach that exists in many flavours, and is often an alternative to the min/max inventory allocation method. The min/max method can work to a certain extent for industries that sell the same products over a long period of time. However, fashion is far too complex for such a simple method, as products rotate.

The idea of Open-to-Buy is to shift this min/max idea from a product level to a more granular level, such as a category level. There is very little mathematical literature concerning Open-to-Buy. We can also say that Open-to-Buy is a rather empirical and subjective way of doing things, as it often depends on a practitioner’s gut feeling about the market and there is no real forecasting involved.

We go into more detail on how Open-to-Buy tools put constraints on all of the budgets for the different fashion categories’ spending. On the one hand it effectively limits the grandeur of mistakes that are possible to make. On the other hand, this creates a phenomenon of self-fulfilling prophecies and a rigidity in these budgeting decisions, which are not always fully aligned with the business’ actual needs.

On the surface, Open-to-Buy may seem very simple to implement, but that’s rarely the case. Due to the fact that it’s a very manual process, a complex hierarchy who can successfully take the budget decisions needs to be in place, with various layers of management required. Then, there is the all-important element of seasonality within fashion that further complicates matters.

To conclude, we talk about what fashion companies can do to make their Open-to-Buy approaches more successful and what possible lessons can be drawn from the recent Covid-19 crisis, which hit many industries very hard.

Timestamps

00:08 Introduction

00:23 How does Open-to-Buy actually work?

02:44 Apart from Fashion, are there any other industries that use the Open-to-Buy methodology?

04:22 Why did Open-to-Buy become so popular?

06:58 By adding those little “bumps” to the budget, are you forecasting what future demand is expected to be?

08:17 How do you decide which the different categories are?

09:49 How simple is it to implement categories?

14:38 What would be a better way to introduce granularity?

18:33 What will Fashion companies have to change in order to allow an Open-to-Buy solution to work?

20:24 Do you think that the recent world events will push the Fashion industry to re-evaluate its practices?