Putting Together a Buying Plan
Andrew Andoniadis
July 13, 2010
There are two major aspects of a buying plan. The first is determining how much product needs to be bought to keep the overall inventory at proper levels. This is a merchandise buying plan, most commonly called open-to-buy (OTB). The calculation of OTB is critical because it helps to control the biggest museum store expense. OTB should be calculated at least quarterly regardless of the fiscal or physical size of the store. The inventory goals managed by OTB are both specific, in terms of inventory dollars needed to generate expected revenue, and subjective, by focusing on the level of inventory that makes the store look lush, full, rich, warm and inviting.
OTB is important for at least two reasons. First, it’s a critical step in the business-like approach to the financial stewardship of the funds and products entrusted to store management by the museum. It’s also important to have an up-to-date OTB so the store can continue to function seamlessly should the manager/buyer be hit by the proverbial bus.
Calculating OTB by department/product category assists in the execution of the second major aspect of the buying plan, which is to determine where available inventory dollars should be spent. By preparing OTB by department, or even smaller units, and amalgamating the calculations into an overall OTB, the result provides both broad and detailed inventory buying guidance.
The first step in the typical sequencing of the preparation of a buying plan is to determine current stock levels by department. This usually comes from a physical inventory count or through inventory levels reported by your point-of-sales system.
The next step is to project sales—let’s say 12 to 18 months into the future. The major factors affecting these projections include historical sales, exhibit schedules, visitation projections, broad economic factors, micro factors (such as construction affecting access to the store), seasonality and other components unique to your museum. This projection step should also include estimates of desired end-of-period inventory levels.
After stock on-hand has been determined and projections have been calculated, the next step is to periodically (at least quarterly) compare actual sales and inventory levels to the projections. This is when the value of OTB becomes apparent.
If the comparisons show that either sales are more than expected or the inventory is lower than desired, the OTB will provide financial parameters within which to buy more product to get back on plan. This is a good place to make it clear that OTB provides broad financial guidance but does not specify which individual products should be bought.
OTB is most valuable, however, when sales are less than expected or inventories are higher than desired. Under these circumstances, OTB will guide you to slow down buying to make sure inventories are kept at the proper level. This is critical because the most common factor among museum stores that are not financially successful is bloated inventory. By calculating OTB by department it will become clear which departments need adjusting. One last note, once OTB has been established it can always be changed to reflect updated visitation, exhibit schedule and other circumstances.
To many experienced museum store managers or managers of small stores, it may seem unnecessary to calculate OTB because sales and inventory levels and variations from plans are obvious. I suggest, however, the process should be codified with the purpose of running the store like a business, protecting the institution from unforeseen circumstances—especially because it is human nature to look at conditions in the most positive light, which may be inaccurate. At the very least, thinking through your buying plans as outlined above is a responsible step forward.
Andrew Andoniadis is the principal in Andoniadis Retail Services, a consulting firm that has specialized in revenue-generating strategies for museum stores for 18 years. He can be reached at (503) 629-9279, andrew@MuseumStoreConsult.com or www.MuseumStoreConsult.com.
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