Open-to-buy planning: subtract existing commitments before buying

The category plan shows room for ₹640,000 of receipts. The buyer treats that as permission for new orders, although ₹200,000 of expected receipts are already committed. The resulting excess is a commitment error, even if the sales forecast proves accurate.

An open-to-buy budget estimates additional merchandise the retailer can commit to within a defined period. Separate the planned receipts requirement from the part already covered by approved orders. Keep beginning stock, sales, markdowns, ending stock and commitments on one consistent valuation basis.

Build the stock bridge first

Use an illustrative monthly plan on a retail-value basis. Here stock values are expressed at the planning retail valuation, sales represent the retail value removed, and markdowns reduce that value. Other movements are assumed to be zero for this example.

The balancing receipts requirement is:

₹500,000 + ₹40,000 + ₹700,000 − ₹600,000 = ₹640,000 planned receipts.

Check it in the stock direction: ₹600,000 + ₹640,000 − ₹500,000 − ₹40,000 = ₹700,000 ending stock. If the bridge does not reproduce the target, examine signs and valuation before using the number for buying.

Shopify's open-to-buy guide discusses retail, cost and unit planning bases. The distinction matters more than the label on a spreadsheet. Do not combine retail-value sales with cost-value stock and call the result a purchasing limit.

Subtract the commitment ledger

Suppose ₹200,000 of receipts expected within the month are already on approved POs, valued on the same retail basis. Additional open-to-buy is ₹640,000 − ₹200,000 = ₹440,000.

Use outstanding, eligible receipts rather than the original full PO value. If a line has already been received and included in an actual-stock roll-forward, leaving the same amount in outstanding commitments would count it twice. Conversely, removing an open line merely because an invoice has not arrived would understate the buying commitment.

Purchase-order and receiving workflows illustrate why commercial orders and inventory receipt records need a link. Your planning import must define which status and date establish the outstanding receipt, including partial deliveries and cancellations.

1. Balance the monthSales 500,000 + markdowns 40,000 + ending 700,000 − beginning 600,000.
2. Establish receipts₹640,000 is the total receipt requirement on a retail-value basis.
3. Subtract commitments₹200,000 already ordered leaves ₹440,000 additional OTB.
4. Approve new buyingValidate cost, timing and category constraints before issuing a PO.

Exception: A partial receipt, cancellation or period shift changes the commitment ledger; preserve the original version and recalculate once.

Move a delayed order without creating free money

Assume ₹50,000 of PO B's expected receipts moves to next month. Current-month commitments fall from ₹200,000 to ₹150,000. With the rest of the plan unchanged, current-month OTB rises to ₹640,000 − ₹150,000 = ₹490,000.

That does not mean the retailer has gained ₹50,000 of cash or cancelled an obligation. Next month's commitment ledger increases by the same amount. The planner must decide whether replacement supply is needed now and whether next month's stock target can accommodate both commitments.

If a new ₹60,000 commitment is then approved for this month, remaining OTB becomes ₹490,000 − ₹60,000 = ₹430,000. Record the original PO, revised date, reason and approving person so the budget can be reproduced before and after the change.

Maintain one explicit calculation mode. An original monthly plan can roll forward actual receipts and sales against the initial beginning stock. A remaining-period model can start from current stock and consider only future movements. Mixing the current stock with the full month's sales plan double-counts elapsed activity.

Keep cash and item replenishment separate

If the additional ₹440,000 retail-value amount has an illustrative cost-to-retail ratio of 55%, estimated merchandise cost is ₹440,000 × 0.55 = ₹242,000. That is only a planning conversion. Actual item costs, taxes, freight, advances and payment dates determine cash needs. Finance should not approve a bank payment schedule from retail OTB alone.

OTB also does not specify which items to buy. A category can have budget room while particular SKUs are overstocked. Use item-level demand and replenishment constraints to allocate the approved budget, rather than ordering every low-stock item until the total is exhausted.

A controlled planning workbook can be sufficient for a small category if it has a fixed snapshot, restricted inputs and a reviewed commitment import. Integrate approved PO data when delayed updates repeatedly distort decisions. Automation should expose missing units, unknown dates and duplicate lines instead of assigning them a convenient zero.

Test the bridge before using the limit

The merchandise planner owns the budget; procurement owns order commitments; finance owns the valuation and cash interpretation. Test one partial receipt, one cancellation, one date shift and one new PO. Each must change the correct period once, with a traceable reason.

Accept the model when a second reviewer can reproduce both ₹440,000 and ₹490,000 from retained versions, and no received quantity remains duplicated as open supply. For receipt details, use the partial purchase-order guide.

Commit against the remaining budget

The buying decision starts after existing commitments are accounted for. A correct stock bridge and an accurate PO ledger make that remaining room explainable.

1. Agree the period and retail, cost or unit valuation basis.
2. Reconcile the stock bridge to its ending target.
3. Subtract eligible outstanding commitments and test period shifts.
4. Approve additional purchases alongside item need and the separate cash plan.