Procedures in Limit Planning

The open-to-buy function can be divided into three phases:

  • Planning phase

  • Purchasing phase

  • Business phase

Planning phase

The season budget and the budget already released are calculated on the basis of monthly planning figures, sales, closing stock, markdowns and physical inventory differences.

Note Note

If stock needs to be built up prior to the start of the actual selling period, then the planning period should also include the relevant periods prior to the start of the season. For these periods, you only plan the key figure "Closing stock."

End of the note.

Purchasing phase

Long before the start of the actual planning period, you can enter purchase orders that have a delivery date during the planning period. The planned released budget is available for this. All purchase orders reduce the open-to-buy so that it always corresponds to the portion of the released budget which has not yet been spent.

Business phase

The updated actual figures for sales, stock and so on can now be compared with the planned figures. OTB in this phase is calculated using the planned and actual figures available. This helps to prevent strong planned/actual variances occurring. The goal is always to achieve the planned closing stock for the current period, so that discrepancies between planned and actual values do not affect the following periods.

If the actual sales for a period are more than the planned sales, then you will need to purchase more stock to reach the planned opening stock for the following period. If, on the other hand, the planned sales volume is not reached, you need to block further buying and stockpiling, and, if necessary, reduce the existing stock by creating a sales promotion or an inventory clearance.

Note the following:

  • If the total quantity of goods actually received deviates from the total quantity contained in the purchase orders creating during the purchasing phase, then the OTB will be adjusted by the difference between these amounts.

  • If the good receipt time differs from the planned delivery time, the goods receipt quantity is posted to the corresponding period. As a result, only the outstanding purchase orders are taken into account for the delivery date, while goods receipts are included in the OTB calculation for the posting date.

If goods receipt occurs earlier than planned, part of the OTB becomes available in the planned period and the goods receipt period is debited.

If goods receipt occurs later than planned, OTB becomes available in the planned delivery period, which has already passed. This is not transferred into the subsequent period because the amount has already been cleared by the lower opening stock at the start of the subsequent period (caused by the missed delivery).

  • Whether and by what amount the actual sales volume deviates from the planned sales volume during the current period, can only be determined at the end of the period. For this reason, the sales volume at the end of the period is extrapolated for the OTB calculation of the current period. Also, the differences between the planned and actual values caused by the change in opening stock take effect, at the latest, in the subsequent period.

  • Markdowns and physical inventory differences:

If actual markdowns and inventory differences exceed the planned values, the differences are taken into account in the OTB calculation in the current period.

If actual markdowns and inventory differences are less than planned, then the resulting differences in the planned and actual values only become effective in the subsequent period, in the form of higher opening stock.

  • All actual goods movements that were not planned and were therefore not included in the budget calculation (for example, inventory clearances) affect OTB in the current period. For example, if merchandise is transferred to another store, then the OTB in the issuing store is increased so that the stock that is now lacking can be replaced.

With the above considerations, the unused OTB of completed periods is transferred to periods as far in the future as possible to prevent the planned and actual amounts from drifting apart over several periods.