Online Store - How to Manage Your Inventory | Viktoria Nedelcheva | Skillshare
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Online Store - How to Manage Your Inventory

teacher avatar Viktoria Nedelcheva, Small Business Owner and Content Creator

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

    • 1.

      Introduction

      1:50

    • 2.

      Open-To-Buy System - Explained Simply

      3:29

    • 3.

      Open-To-Buy System - Benefits

      2:27

    • 4.

      Main Terms And Formula Relating To Open-To-Buy System

      2:43

    • 5.

      How To Calculate Open-To-Buy Inventory At Cost

      2:45

    • 6.

      Example 1

      4:24

    • 7.

      Example 2

      2:46

    • 8.

      Open-To-Buy Calculator Using Google Sheets - Quick View

      4:00

    • 9.

      Open-To-Buy Calculator Using Google Sheets - How To Create It

      3:10

    • 10.

      Class Project

      2:20

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About This Class

If you are a small retail business and have questions about how to manage your inventory effectively, you are in the right place. This class will teach you step-by-step how to take control of your inventory.

You shouldn’t have some advantage of business knowledge or technical skills. This class is suitable for beginners, as well as for people who have some experience in this field but want to expand their competency.

In this class, I will be talking about the “Open-to-buy” system and its importance when in a retail business. Then I will begin with easy-to-follow explanations of the the foundations of “Open-to-buy” system. I will reveal to you the main simple formulas that you can use to track and manage your inventory properly.

Once I cover the theory part, I will go deeper and give you some examples of how to apply this inventory management system in real life.

The next step will be to integrate the “Open-to-buy” system into Google sheets and create a calculator, which will help you to plan your inventory purchases.

Of course, this class will be complete with a small project that will help you to put into action everything you’ve learned in the class.

When you complete the class, you will know how to calculate the most appropriate quantity inventory for your small retail business and how to integrate this knowledge into Google sheets. This way, you will be able to create a simple and very effective inventory management system for your small retail business that works accurately and is free. It will inform you how much inventory you need to purchase to satisfy clients’ needs and generate the profit you’re planning. By having this information, you will make the right business decisions and your small retail business will go to the next level.

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Viktoria Nedelcheva

Small Business Owner and Content Creator

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Transcripts

1. Introduction: If you are a small retail business and have questions on how to manage your inventory effectively. You are in the right place. This class will teach you step-by-step how to take control of your inventory and make your business convertible. You shouldn't have some advantage, business knowledge or technical skills. The content of the class is suitable for beginners, as well as for people who have some experience in this field, but want to expand their competency. In this class. I will be talking about the open two by system and its importance when in a retail business. Then I will begin with easy to follow explanations of the foundations of open two by system. I will reveal to you the main simple formulas that you can use to track and manage your inventory properly. Once I cover the theory part, I will go deeper and give you some examples of how to apply this inventory management system in real life. The next step will be to integrate the open two by system into Google Sheets and create a calculator, which will help you to plan your inventory purchases. Of course, this class will offer you a project that will help you to put into action everything you've learned in the class. When you complete the class, you will know how to calculate the most appropriate quantity inventory for your small retail business and how to integrate this knowledge into Google Sheets. This way, you will be able to create, assemble and very effective inventory management system for your small retail business that works accurately and it's free. It will inform you how much inventory you need to purchase to satisfy client's needs and generate the profit you're planning. By having this information, you will make the right business decisions and your small retail business will go to the next level. 2. Open-To-Buy System - Explained Simply: One of the main reasons why retailers go out of businesses because they don't manage their inventory properly. The biggest contributing factor to retail mismanagement is the lack of an open two by system. If you want your online retail business to do well and keep existing, you should be aware of what open to bias and how to apply it in real business. I personally define it as a management tool that allows retailers to manage their inventory investments, plan purchases, and prepare budgets effectively. We can say that open to buy as essentially the inventory quantity that your business needs to purchase after comparing how much inventory is needed and how much is available. It's the amount of inventory that one retail stores should buy to meet customer demand while maintaining a positive cashflow. I want to mention three main features of open to buy planning. First, open to buy is a budget tool. It is future-oriented and helps retailers make decisions on how much inventory to buy. Second, open to buy as a financial instrument, it is calculated in terms of cash. Third, open to buy can work on any level. Depending on the size of the retail business. You can track an individual items inventory at the company department classification or sub-classification level. To help you understand the main idea behind this inventory management system and how it can make your retail business profitable. I will explain to you the concept of open to buy simply and briefly. To generate satisfying profit, you as a retailer needs to have the right type and the right quantity of inventory available. Let's suppose your online store sells jewelry pieces. If your clients prefer to buy silver earrings, but you have only gold earrings and stock, you will miss sales, reduce cashflow, and generate less profit. Another possible scenario is to have silver earrings in stock, but the quantity is not enough to meet the client's needs. In this case, you won't generate the profit that you could generate if you have the right quantity of silver earrings, you will also miss sales and slow down the cashflow. Of course, this will have a negative impact on your business profit. Too many silver earrings and stock is also a bad option. You will satisfy your client's needs, but you won't meet your business needs because you will have too many silver earrings that you can't realize. What's more. The revenue from all silver earnings sold may not cover the total cost of all silver earrings that you purchased. All this will have a negative impact on your cash flow and profit. As you can see, the wrong inventory management could cost a lot of your retail online business. But if you understand the open two by system and apply it to your retail business, it will generate the profit you expect. The open to buy plan can be prepared and maintained in a spreadsheet or by purchasing one of the several retail software packages available that contain open to BI programs. For this course, I will use the spreadsheets because they are a perfect solution for small retail businesses. Spreadsheets don't require any investments in term of cash and advantage technical skills as well. After explaining the key role of open to buy for our retail business, we can move forward towards next video. 3. Open-To-Buy System - Benefits: Open to buy planning helps any retail business to be profitable and convertible. In this video, I will mention some main things that I personally see as the biggest advantages of applying this inventory management system. By plugging the open to buy tool into your retail business, you can reach optimal inventory levels. You will have a picture of your inventory in stock. And based on this information, you will be able to make the right decisions regarding inventory purchases. Open to buy. Inventory management system prevents you from having too much or too little inventory. It shows you how much you need to purchase to reach your goals and realize your business plans. Using this tool, you can track your inventory at anytime and have it under control. By having the optimal inventory quantity. You avoid wasting money on unnecessary inventory. It also prevents you from unsatisfied customers as a result of not having enough inventory. Open to buy ensures that your retail business has the right amount of inventory to satisfy demand. And ensure your business financial goals. Having too much inventory or the wrong products will reduce your business margins. On the other hand, having too little inventory can result in lost sales. Open to buy will ensure that your retail business has the right inventory in stock at the right time, resulting in high revenues and margins. You can do, you're open to buy planning on a weekly or monthly basis. You have the freedom and flexibility to change your plant inventory on any given week or month. Imagine that you sell winter accessories. On the sixth of March, you are watching the weather forecast and it says that April will be an unexpected cold month. It will snow on the temperature will be under 0. Here you can apply the open to buy planning. And based on the previous cold months, you can calculate how many hats, gloves, and scarves you need to purchase to realize your planned sales. As you can see, even though you didn't expect that you will sell winter accessories in April. Open to buy planning allows you to manage your inventory properly and effectively. After revealing the benefits of open two by planning, I believe that I have convinced you of the importance of this inventory management system. 4. Main Terms And Formula Relating To Open-To-Buy System: To calculate the open to buy inventory, you should use estimated or plain numbers. You can either use historical numbers based on past transactions or numbers that you expect to see in the future. But before I show you how to calculate the open to buy inventory, I would like to clarify some terms briefly. The first term is planned beginning of month inventory. It shows how much inventory in terms of cash you expect to have at the beginning of the month. When we are talking about plan beginning of month inventory, we should also mentioned planned end of month inventory. This term is used to describe balance inventory and cash term at the end of the month. End of month inventory for the current month becomes the beginning of month inventory for the next month. The next term is planned sales. This term relates to the amount you forecast turn through sales during the month. Planned markdowns are also an essential term that deserves our attention. We accept that any reduction in selling prices, some type of markdown, logically, planned markdowns are all expected reductions in the selling price. These price reductions can be in the form of discounts or coupons. We can distinguish three types of markdowns, temporary, permanent, and competitive. I describe temporary markdowns as price reductions that create a sense of urgency and customers. The best examples of temporary markdowns are limited time sales and buy one, get one promotions. The most common permanent markdowns or end of season clearances, or discounts for damaged goods. Competitive markdowns are price reductions through price matching. Customers must have evidence that a competitor sells the same item and they get a discount. Last but not least, we need to include the term plant open to buy inventory. It's the inventory and cash terms you need to purchase at the end of the month. After this brief term introduction, it's time to see how you can calculate the open to buy inventory. All you need to do is sum up the planned sales, planned markdowns, and planned end of month inventory. From the total amount. You need to subtract the plan beginning of the month inventory. You see how simple this formulas. At the same time, it helps you to manage your inventory properly and effectively. In the next videos, we'll go through a few simple examples to see how exactly this formula works. 5. How To Calculate Open-To-Buy Inventory At Cost: In the previous two videos, I showed you how to calculate open to buy inventory at retail price. But it would make more sense if you could convert your open to buy inventory at retail price into open to buy inventory at a cost. And this video is exactly about how to do that. Knowing the cost of the open to buy inventory, you'll be able to plan your expenses and know how much you need to spend to realize the sales you are planning and generate the revenue are expecting. You will also be able to look for the best supplier who offers the items you are looking for at the price you got in your open to buy plant. Let's take a look at the following example. They open to buy inventory at retail price for March as $9 thousand. This amount includes the price at which I will purchase the silver bracelets and some percentage over these costs, which I will use to cover some of the overheads and generate some profit. This percentage is known as the initial markup. We can define it as the difference between the price at which a retailer purchases their inventory, the retail sale at which a retailer sells it to their customers. The initial markup that I uses 70%. The formula that I will use to calculate my open to buy at a cost for March is the one that most retailers use. The retail price equals the initial costs divided by the initial markups subtracted from one. Using simple math, I could transform this formula and use it to calculate the cost of the inventory that I should buy according to the open to buy plant. The open to buy at a cost equals the open to buy retail price multiplied by the initial markups subtracted from one. I have all numbers I need to calculate my open to buy inventory at a cost for March 1st. I convert the markup percent into a decimal and subtract it from one. Then I multiply $9 thousand open to buy inventory by 0.25 and get a result of $2250. This result shows that I should spend $2250 to purchase the quantity of 193 silver bracelets. And if the vendor I am working with couldn't deliver me this quantity of silver bracelet at this price, I should find a new supplier who could meet my requirements. As you can see, knowing the cost of the open to buy inventory is more than essential to make the right decision and achieve the goals that you've set for your business. If I choose not to calculate the open to buy inventory at a cost, I could purchase the silver bracelets and a too high price. The markup will go down and I will generate less profit than expected. 6. Example 1: There are different approaches you can take to apply an open to buy plan for your retail business. I will show you how this inventory management system could be applied to a small retail business. For this purpose, we will take a look of how I am plugging my numbers into the formula I explained in the previous video. The aim of this video is to show you how the open to biplane works when the available inventory at the beginning of the month is less than the expected sales. In this case, you need to take into account that the calculated open to biplane should be realized during the current period. This means you need to purchase the calculated open to buy inventory of calculated during the current period. Only this way you can realize the sales you've already planned. Let's see how this looks like. I have a jewelry online store and I have calculated that I have $3 thousand silver bracelets and stock at the beginning of March. Based on the last March, I have predicted $7 thousand in sales for the month. I have also forecasted $120 markdowns. I expect that I will have $9 thousand in end of month inventory in preparation for April. Again, based on the information I have from the last year. The first step that I take is to calculate the open to buy purchase. I need to see how much inventory I need to buy to make all plant cells and have the right quantity inventory in stock at the end of the month. As you can remember, I sum up the plan sales markdowns and available inventory at the end of March. And then I subtract the available inventory at the beginning of March, I get a result of $13,120. This is the open to buy inventory. Explained another way. This is the total retail price of the inventory I need to purchase to meet my selling expectations in March. The second step is to calculate the units I need to purchase. In other words, I need to calculate how many silver bracelets I need to by knowing the price per unit, I divide the total open to buy amount by the retail price per unit. And I get how many bracelets I need to purchase to realize all planned sales and have the plant inventory and stock by the end of March. The retail price of one silver bracelet is $68. I divide $13,120 by $68, and I get a result of 193. This number shows I need to purchase 193 bracelets. Purchasing this quantity of inventory in March, I will be able to make $7 thousand cells, $120 markdowns, and have available inventory with $9 total retail prices. The third step is to decide when and how I will purchase the open to buy inventory. Based on the information above, I've decided to make two separate purchases, one at the beginning of March and one at the end of March. The purchase I will make at the beginning of the month will be related to the plan, $7 thousand sales and $120 markdowns. The second purchase will be related to the plan, $9 thousand end of month inventory. Let's take a deeper look. I have available inventory with a total retail price of $3 thousand to be able to realize $7 thousand sales and $120 markdowns, I need inventory with a total retail price of $4,120. I divide $4,120 by $68, and I get a result of 61 bracelets. This is the number of silver bracelets I need to buy to realize the sales, I'm planning in March. Once I realized the planned sales, I will have enough money to purchase the inventory with a total retail price of $9 thousand that I am planning to have available at the end of March. And of course at the beginning of April, I could purchase the whole open to buy inventory at once at the beginning of March. But this would be a good decision Only in case I have $13,120 available in my bank account. In my case, it would be more reasonable to make two separate inventory purchases. It is up to you how you would act depending on your situation and needs. 7. Example 2: In this video, I'll show you how they open to biplane works when the available inventory at the beginning of the month is more than the expected sales. Here you need to take into account that the calculated open to biplane can be realized in the end of the current period. This means you can purchase the whole calculated open to buy inventory in the end of the current period. This variant is possible because the beginning of month inventory covers the sales you're planning for the current period. Let's see how this looks like. Let's continue with the example of the previous video. Now I am going to calculate the open to buy inventory and April, the end of month inventory and March becomes beginning of month inventory. I predict $7,600 in sales and $100 markdowns. And April. I also expect I will have $4 thousand end of month inventory and preparation from a based on the information I have from the last year. The first calculation that I will make is the open to buy purchase at a retail price. Then I can see how much inventory I need to buy to have the right quantity, inventory and stock at the end of the month. I sum up the plant sales markdowns and available inventory at the end of the March. And then I subtract the available inventory at the beginning of March, I get a result of $2700. It's the total retail price of the inventory I need to purchase to meet my business expectations in April. Now I should calculate how many silver bracelets I need to by knowing the price per unit, I should divide the open to buy him out by the retail price per unit. I get how many bracelets I need to purchase in April to meet my business plans for April. The retail price of one silver bracelet is $68. I divide $2700 by $68 and I get a result of 40. The result shows I need to purchase 40 bracelets. Purchasing this quantity of inventory in April, I will have available inventory with $2700 total retail price at the end of April. Now I should decide when and how I will purchase the open to buy inventory. When I look at the numbers, I see that the inventory in stock is more than the sales I am planning. This means that I am free to purchase the open to buy inventory anytime during April. Since the available inventory can meet all expected sales during April, I can purchase the whole open to buy inventory at the end of the month. Exactly. This is the decision I will make. I believe it is the most reasonable in this case. 8. Open-To-Buy Calculator Using Google Sheets - Quick View: Once you are aware of open to buy planning and its importance, you are ready to integrate this inventory management system into Google Sheets. I will walk you through the easy process of creating an open to buy inventory management system using Google Sheets. But before we create an open to buy calculator using Google Sheets, I would like to mention its benefits for your small retail business. I began with the fact that the open to buy calculator created with Google Sheets is simple and free. You don't need to have some advantage business or software knowledge, and you don't need to pay any fees. Although it's simple, this tool is effective, powerful, and allows you to have a clear picture of the inventory you need to purchase. Only this way. You could have control of your inventory and provide an adequate level of stock on hand for the volume of sales being generated. You should be aware that this open to buy calculator doesn't tell you which product to sell and doesn't provide you information about competitors or any other information that can impact your purchases. This calculator is to show you how much inventory from a specific product you need to purchase to realize the sales you've planned and generate the profit you want. To be more clear, I'll give you an example. I expect to generate $7,600 sales of silver bracelets. And April, the Google sheet that you see presents information related only to the silver bracelets I am selling. It doesn't show any information about the rest pieces of jewelry. Logically, the column for April includes information only about the silver bracelets from my inventory. The calculator includes 12 months. For each month that calculates the open to buy inventory at retail price. Open to buy inventory at a cost, and shows the quantity that should be purchased. If I want to have the optimal quantity of all pieces of jewelry that I offer, I need to create such a sheet for each jewelry types. Pay attention that this calculator is suitable for small retailers with up to 30 products. Retailers with a wide variety of products should be open to buy software. But in this tutorial, I focus on small retail businesses. Therefore, I show how to make an open to biplane using Google sheet. The first four rows from the calculator include planned sales markdowns, beginning inventory, and ending inventory. In these routes, you enter your planned or expected amounts. Once you enter the plan ending inventory for some of the months, the table adds automatically. This amount has a beginning inventory for the following month. The next row shows the percentage you apply over the cost of your items to get the retail price. Under the markup, you should enter the retail price of your product. These two rows are necessary to calculate the open to buy at a cost and the actual quantity that you need to purchase. This simple and effective open to buy system is based on the calculations that we were talking about in the previous videos. When I double-click on some of the open to buy at a retail price sell. I see that the amount in the cell equals the plant sales plus planned markdowns plus plan ending inventory minus beginning inventory. When I double-click on some of the open to buy at a cost cell, I see that the amount equals the open to buy at retail price multiplied by the initial markup subtracted from one. Now, I will double-click on some of the open to buy in unit cell. The amount in this cell equals the open to buy at a retail price for the selected month divided by the retail price per unit. Using this symbol and effective open to buy calculator, you will be able to manage your inventory properly and this will help your small retail business goes further and become more profitable. 9. Open-To-Buy Calculator Using Google Sheets - How To Create It: You shouldn't be a Google Sheets expert to create this open to buy calculator, you just need to follow a few simple tips that I will give you. At the end of the video, you will be able to create a calculator for inventory management that will help your small retail business be more organized and successful. First, you should merge some cells from the first row. Select the cells you want and go to Format. Then move the mouse to merge cells and select Merge horizontally. Once done, just write the name of the table open to buy calculator. Second, you should create 13 columns. The first one is called indicators, and the rest are for all 12 months. In the indicators column. You need to add all indicators from the formulas I was talking about in the previous videos. The first four indicators relate to what you are planning. The next two indicators relate to the percentage you've decided to apply over the cost of the items you sell and the retail price at which your customers buy your items. The next three indicators are the results who are looking for. They will be calculated based on the formulas I was talking about before. The colorful rows you see are not so important. But if you want to add them, you just need to merge the cells and then choose a background color. More important is how to import the formulas you need into this table. Click on the Open to buy a retailer price sell in some of the columns. And type equals, which means that you create a function. Here. You should integrate the formula for open to buy inventory at retail price. This means you should sum up the planned sales for the selected month, planned markdowns for the same period and the plant ending inventory. Then from the result, you should subtract the beginning inventory. To apply this function for all 12 months. Select the cell plague on right under the corner and drag until you reach the last month. Once done, click on the Open to buy at a cost cell in the same column and type the sine equals. The formula includes the amount in the open to buy at a retail price, sell for the selected period divided by the initial market subtracted from one. To apply the function for all 12 months, click on the right under corner and drag the mouse. The last step is to integrate the function that calculates the open to buy in units. You need to divide the amount in open to buy at a retail price self with a selected month by the retail price per unit for the same month. Then apply the function to all 12 months. Click the right under corner of the cell and drag until you reach the last month. You are ready to enter your business information and manage your inventory. 10. Class Project: Your class project is designed to help you apply the skills you've learned in this class. Once you complete the project, you will have the skills to bring your small retail business to the next level. Jim own small online t-shirts business. He opens his online store from April to September. This year, he has 87 t-shirts left from the last year at a total retail price of $3,393. Based on his data from April last year, he expects to make $9,750 sales in April this year. He planned to have $5,850 inventory available at the end of April. The initial markup that Jim has always used as seventy-five percent helped him to calculate with the help of Google Sheets, how many t-shirts he should purchase and the cost of the quantity he should buy to meet his expectations in April. To complete the project, make the following steps. First, write down the open to buy at a retail price formula. Second, write down the open to buy asked formula. Third, write down the open to buy in units Formula. Fourth, open Google Sheets and create a file called open to buy calculator. Fifth, create a column with all indicators that are included in the formulas you've already written down. Six, create a column called numbers. Seven. Enter all the information you have about Jin's business. Integrate the open to buy at a retail price formula in the cell where the column numbers and the route open to buy at a retail price cross each other. Integrate the open to buy at a cost formula in the cell where the column numbers and the route open to buy at a cost cross each other. Ten, integrate the open to buy in units formula in the cell where the column numbers and the route open to buy in units cross each other. Make a screenshot of the sheet to see if you've calculated the right quantity of inventory that Jim should purchase in order to meet his expectations in April.