Open to Buy is one of those concepts that sounds simple — how much money do I have left to spend on inventory this month? — but becomes surprisingly subtle the moment you try to project it across multiple future periods. We recently took a deep look at how the Open to Buy reports work in VMX. The formula turned out to be correct. The logic turned out to be elegant. And the user confusion turned out to be completely understandable.
This is that story.
What Open to Buy Actually Means
Retailers live and die by inventory. Too little, and you miss sales. Too much, and your cash is locked up in stock that’s gathering dust. Open to Buy is the tool that keeps you in the Goldilocks zone.
The formula, in cost dollars, is:
In plain English: how much do I need to receive this period, minus what’s already coming?
Each term has a clear job:
- Planned COGS — what you expect to sell at cost. Based on historical averages by month or week.
- Desired Ending Inventory — how much you want to have left at the end. The target buffer.
- Starting Inventory — what you have right now (period 1) or what you should have (future periods).
- On Order — committed POs arriving this period. Already spoken for.
The Target Buffer: Forward Months of Supply
The most interesting design choice is how “Desired Ending Inventory” is calculated. The report doesn’t use a static dollar figure — it uses Forward Months of Supply: whatever you’re going to sell over the next N months, that’s how much you want on hand at the end of this month.
Your department’s “Ideal Annual Turns” setting translates directly: 4 turns/year → 12 ÷ 4 = 3 months of forward supply. You can adjust this per department under Admin → Departments.
The Chain: How Periods Link Together
The multi-period report covers 24 months out. Each row’s Starting Cost is set to the previous row’s Ending Cost — the target, not a projection of actual inventory. This is the key design choice that makes everything work, and also causes most of the confusion.
“Future periods assume you purchased the prior period’s Open to Buy. If you did, you’ll have exactly the target inventory. If you didn’t, re-run the report with current inventory.”
This is the standard OTB assumption, used by every professional planning tool. The report tells you what to buy. If you follow it, it stays correct. If you don’t, refresh it.
The Carry-Forward: Where It Gets Clever
What happens when OTB is negative? You’re overstocked — you shouldn’t buy anything. But the chain, which assumes you’re always at target, would naïvely suggest you’re back to normal next month. That would be wrong.
VMX solves this with a carry-forward: when OTB goes negative, the excess overstock is carried into the next period and subtracted from that month’s buying budget. This is not an approximation — it’s algebraically exact.
Proving It: A Concrete Example
Let’s say current inventory is $110k, target is $80k (four months supply at $20k/month COGS), and there’s nothing on order.
= COGS₂ + Target₂ − Starting₁ + COGS₁ − Order₁ − Order₂
Real OTB for Month 2 = COGS₂ + Target₂ − (Starting₁ − COGS₁ + Order₁) − Order₂
= COGS₂ + Target₂ − Starting₁ + COGS₁ − Order₁ − Order₂
Identical. The carry-forward is not an approximation — it’s exact.
On Order: The Right Interaction
A PO arriving in Month 2 correctly reduces Month 2’s OTB — “don’t buy $30k because it’s already coming.” If that PO pushes Month 2 into negative OTB territory, the carry-forward propagates forward to Month 3. This is correct retail planning behavior.
Three Things That Look Wrong (But Aren’t)
The logic is sound. But the way it displays can be confusing. Here are the three things that trip people up most:
(10.00) on Month 1’s OTB column is the amount being carried into Month 2 — but it shows up on Month 1’s row. A buyer scanning the column reads it as “Month 1 OTB is negative ten dollars.” It isn’t — it’s a deduction applied to next month.
Making It More Obviously Correct
The formula doesn’t need to change. The display does. Here are four targeted improvements we’re working on:
Move the carry indicator to the row where it lands
The gray carry amount should appear in Month 2’s Starting Cost cell — as a sub-line reading “incl. $10k carry from overstock” — not on Month 1’s OTB cell. This makes the flow of money visible as it actually moves.
Color the OTB cell when overstocked (clamped)
When OTB is clamped from negative, show the actual negative amount in a light red cell. A buyer needs to know why there’s nothing to spend — “overstocked by $10k” is very different from “perfectly stocked.”
Add a dagger to the Starting Cost column header
Label it “Starting Cost †” with a footnote: † Months 2+ show target inventory assuming you purchase each period’s Open to Buy. Sets expectations for the whole table.
Show Effective Starting Cost when carry is active
When a carry is active, show $80k target with a small annotation “(effective $90k).” Lets a careful buyer trace the math by hand and verify it adds up.
What the table would look like with fixes 1 & 2
| Month | COGS | Ending Cost | Starting Cost † | On Order | Open to Buy |
|---|---|---|---|---|---|
| Feb 2026 | 20,000 | 80,000 | *110,000 | — | overstocked $10k |
| Mar 2026 | 20,000 | 80,000 | 80,000 incl. $10k carry |
— | 10,000 |
| Apr 2026 | 20,000 | 80,000 | 80,000 | — | 20,000 |
| May 2026 | 22,000 | 84,000 | 80,000 | 15,000 | 7,000 |
† Future months show target inventory, assuming you purchase each prior period’s Open to Buy.
Conclusion
The Open to Buy report implements the correct retail planning methodology. The carry-forward mechanism is not a patch — it’s algebraically equivalent to tracking actual projected inventory. The on-order interaction is correct. The seasonal averaging is correct. The chain linking is correct.
What’s not always clear is why the numbers look the way they do. The gray parenthetical on the wrong row, the ambiguous blank cell, the unlabeled starting-cost assumption — these are display issues, not logic bugs. And display issues are what turn a correct report into a confusing one.
A report that’s right but looks wrong is only half as useful as one that’s right and looks right.
The fixes are small. The clarity improvement will be significant. We’ll have these improvements out in the next update.
Questions about Open to Buy or how to set up your department turn targets? Reply to this email or reach us at help@vmxllc.com.
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