Oh! I know it becuase of years of accounting classes, so I had to google a more suitable explanation (becuase, as is I only speak in terms of Excel formulas).

http://retail.about.com/od/merchandisingbuying/a/open_to_buy.htm

Planned Sales
+ Planned Markdowns
+ Planned End of Month Inventory
- Planned Beginning of Month Inventory
—————————————-
= Open-To-Buy

For example, a retailer has an inventory level of $150,000 on July 1st and planned $152,000 End of Month inventory for July 31st. The planned sales for the store are $48,000 with $750 in planned markdowns. Therefore, the retailer has $50,750 Open-To-Buy.

Now keep in mind this formula is crucially flawed because it’s not taking into account profit margins. It would be silly to buy $50K of merchandise to sustain $48K in sales (makes me wonder where that writer got their formula).

Thus, if you’re working with a 50% gross profit margin, you only need to purchase roughly $25K to sustain the planned sales and markdowns.

Anyhow, many retailers will not use that specific formula because they have to take into account CASH FLOW.

This is why delivering on time is so important, not just because a retailer doesn’t want the merchandise late, but because if it’s late, then they may have already shelled out the cash on their other orders. I say this because my open to buy forecasting also includes the cash outlay every month and deliveries are timed as such. And that’s why another pet peeve of mine is DEs who want to ship a month early because they want to get paid faster. Yes, that’s nice, but I planned on paying you NEXT month when you delivered according to my purchase orders.

Oh boy, lol, I could never answer that question but I’d bet money that you’d never find a better example of the 80/20 rule! I forwarded your comment to Miracle. She’ll traipse over here once she has time to answer it.