On Order

On order is the value of merchandise a business has committed to buy and not yet received: purchase orders placed and not yet delivered, plus any other commitment that will become a receipt and cannot be withdrawn without cost. It is carried on the same basis, grain and period as the plan it feeds — at retail or at cost, by category and channel, in the period the goods are due to land — and it is the last term subtracted in the open-to-buy identity. What on order says decides how much of a period's receipt budget is still open.

How it enters open-to-buy

Open-to-buy = planned EOP inventory + planned sales + planned reductions − BOP inventory − on order. The first four terms are the receipt plan, what the period needs to receive; on order is what is already committed against it, so every dollar of on order that is wrong moves the open balance by the same dollar the other way.

The figures below are illustrative, chosen because they divide cleanly; they are not benchmarks or targets and are not drawn from any brand. A department's receipt need for one month is $536,000 at retail. Purchase orders due in the month total $340,000, including a $30,000 order that passed its cancel date unshipped but is still open in the system. Counted, it leaves open-to-buy at 536,000 − 340,000 = $196,000. Once the buyer cancels it, on order is $310,000 and open-to-buy is $226,000: the dead order was holding back $30,000 the buyer could still commit. The error runs the other way when a commitment has no PO line yet, such as fabric booked at a mill minimum, and the balance looks larger than it is.

What counts, and what does not

Upstream commitments count alongside purchase orders when they will become receipts in the period and cannot be withdrawn without cost, and they are relieved when the finished-goods PO is cut against them so the money is not counted twice. A dealer prebook or retailer commitment does not count: it is demand the buy is sized against. Nor does memo stock placed with a retailer, which is still the brand's on-hand inventory. Open-to-buy by vertical sets out what on order includes in each category.

Open-to-receive and open-to-order

Open-to-receive reads the balance by the period the goods land. Open-to-order moves that balance back by the supplier lead time to the date an order must be placed to land in the period. With a short lead time the two nearly coincide; with an ocean or production lead time they separate, and a period can still be open to receive after it has closed to order. Either way, on order is bucketed by due date, not by the date the order was placed.

Cancel dates

A purchase order carries a ship window and a cancel date, after which the buyer may cancel goods that have not shipped. Once the date passes unshipped, the order becomes a decision — cancel, extend or accept late — and the plan records it the day it is made: an extended order moves its value into the period it will now land in, and a cancelled one returns its value to the balance. A balance read weekly on a PO file refreshed monthly is a monthly balance.

Common mistakes

• →Dead orders left open. Cancelled or expired POs suppress the balance and starve the next buy.
• →Commitments without a PO line left off. The balance overstates what is open, and a buy approved against it overcommits.
• →Demand counted as supply. A prebook entered as on order makes the production behind it look placed.
• →Bucketing by order date. The open-to-buy period is the landing period, and a re-dated delivery moves its on order with it.