Years ago, open-to-buy meetings were a familiar part of working with high-end men’s clothing stores. In December, owners would sit down to plan their purchases for spring apparel.
How much merchandise did they need? What was already on order? How much winter inventory would still be hanging around?
The stores often brought in a merchandise consultant who understood what the latest spring trends were going to be. Our role was to help with the financial side.
Someone understood what customers might buy. Someone understood the numbers. The owner had to write the check.
Now AI is helping ecommerce sellers decide what to order. The conversation is familiar.
What Was “Open to Buy”?
An open-to-buy plan helped determine how much additional inventory a store could purchase based on expected sales, inventory already available, merchandise on order, and the inventory it wanted left at the end of the period.
The calculation could be done at cost or retail, but the numbers had to be on the same basis. You could not subtract a supplier’s invoice at cost from inventory valued at selling prices.
The purpose was to put some discipline behind buying decisions. Liking a jacket did not mean the store needed another dozen of them.
Ecommerce sellers face the same problem. A product looks promising, the supplier offers a quantity discount, and suddenly the order gets bigger.
What Is AI Looking At?
An AI tool may help estimate demand and recommend when and how much to reorder. That could be useful, particularly for a business with a lot of products.
But before following the recommendation, ask a few questions.
Did the product sell well because customers wanted it, or because you discounted it? Were sales low because demand was weak, or because you ran out of stock? Are you expecting last year’s advertising budget to produce the same results this year?
Those details matter.
The merchandise consultants brought knowledge that did not necessarily appear in last year’s sales report. The owners brought it, too. They knew their customers.
That judgment still belongs in the buying decision.
What Does the Order Actually Cost?
Suppose the recommendation is to buy $150,000 of merchandise.
Is that the supplier’s price, or the cost of getting it ready to sell?
Freight, duties, preparation, and delivery to the fulfillment location may all require additional cash. Then there is storage while you wait for customers to buy it.
When does the supplier expect payment? A deposit today and the balance before shipment can tie up your money well before the first sale.
The order might make sense. We still need to see how it fits with payroll, taxes, debt payments, and the other expenses coming due.
Make Sure You Know What Is Already Coming
Before placing another order, account for the merchandise you already own and the orders you have already committed to.
Some inventory may be at Amazon. Some may be with a supplier. Some may still be on the water.
You may also have paid deposits toward products that have not been completed.
If the buying plan misses those items, you could order more than you need. If it counts the same shipment twice, you could buy too little.
And if the inventory report includes damaged goods or products you can no longer sell, the quantity available may not be as useful as it looks.
The software needs reliable information. That starts with understanding and checking the records.
Can You Carry It Until It Sells?
You may have enough money to pay for the order today. What happens over the next three months?
If the supplier needs payment in January and most of the sales happen in April and May, the business has to cover that gap. You may even need to place another order before collecting all the proceeds from the first one.
That is where a cash forecast helps.
Look at when the payments leave, when customer money should arrive, and what happens if sales take longer than expected. Perhaps a smaller order or staggered deliveries would leave the business in a better position.
A quantity discount is not much of a bargain if it leaves you struggling to pay the other bills.
The Conversation Is Familiar
An AI-generated purchasing plan can be a useful starting point for a discussion with your accountant.
Review the assumptions, check the inventory and outstanding orders, and work through the payment schedule. Then consider what happens if the sales forecast is too optimistic.
That is much like the open-to-buy meetings from years ago.
The technology is different. The owner still has to write the check.