What this is
Merchandise financial planning (MFP): the process that integrates financial goals with merchandising objectives, produces the OTB (Open-to-Buy) that gates purchase commitments, and provides the measurement framework for tracking merchandising execution against plan.
Purpose
MFP translates strategic business objectives — growth targets, margin goals, inventory efficiency targets — into a purchasing plan that buyers can execute. Without MFP, buyers operate on intuition and historical habit; OTB is either unconstrained (leading to inventory excess) or non-existent (leading to stockouts). MFP is also the accountability mechanism: the plan is the commitment, and variance to plan is the signal that something is wrong in execution or in the original assumption.
Structure
OTB definition — Open-to-Buy is the quantity and cost value of goods a location can receive over a defined period without exceeding planned inventory levels. OTB = Planned Net Sales + Planned End-of-Period Inventory + Planned Markdowns − Beginning Inventory − Open Orders not yet received. OTB is maintained at the buyer × department × week level. It is a financial constraint on purchasing, not a replenishment suggestion.
Plan components — A complete merchandise financial plan includes, at minimum:
| Component | What it captures |
|---|---|
| Sales at retail | Total sales, comp-store sales, new-store sales, sales per store-week |
| Cost of goods sold | Receipts at cost, adjusted for all allowances and freight |
| Gross margin | Sales − COGS, at % and $ |
| Inventory at cost | Beginning and end-of-period book inventory |
| Net receipts | Planned incoming merchandise at cost |
| Markdowns | Planned permanent and promotional markdowns |
| Shrinkage | Planned shrink factor applied to inventory |
| Rebates | Vendor rebates expected at the buyer level, not just company level |
| Marketing allowances | Co-op and promotional funding from vendors |
Planning hierarchy — Plans are developed top-down from corporate financial targets, then reconciled bottom-up from buyer-level build-ups. The reconciliation produces the working plan. Plans exist at corporate, division, department, class, and vendor levels. Weekly plans are allocated from seasonal plans.
Performance measures:
| Measure | Definition |
|---|---|
| Average retail | Average selling price per unit |
| Initial markup % | (Retail − Cost) ÷ Retail |
| Gross margin % | Gross profit ÷ Net sales |
| Inventory turnover | Net sales ÷ Average inventory at retail |
| Weeks of supply | On-hand units ÷ Average weekly sales rate |
| Comp-store sales % | Sales growth vs. prior year, same-store base |
| Penetration % | Department/class sales as % of total, for margin and gross profit |
Revision cycle — Plans are not static. MFP requires a regular revision cadence: weekly OTB reconciliation, monthly plan update, and a full seasonal reforecast at defined milestones. A plan that is not revised as actual data accumulates is not a plan — it is a historical artifact. The revision trigger is variance to plan, not the calendar.
Consumers
The Buyer uses OTB as the gate before committing to a purchase order. The Replenishment module reads planned weeks-of-supply targets to calibrate suggested order quantities. The Finance module reads plan components for period-end gross margin reporting. The Operations Agent monitors OTB utilization by department and alerts when buyers are consistently under-utilizing OTB (leaving sales on the table) or over-utilizing it (risking inventory excess). Pricing analysts read weeks-of-supply and turn rates to identify markdown candidates.
Invariants
- OTB is a hard constraint on PO creation for planned purchases. Buyers may not exceed OTB without buyer-level authorization. The authorization creates an audit trail.
- Rebates must be figured into gross margin planning at the buyer level, not just at the company financial roll-up. A buyer who ignores vendor rebates in their plan is understating their true margin.
- Plan components must be consistent with the retail accounting method in use (cost method or retail method). Mixing accounting methods within a plan produces meaningless margin metrics.
Platform (2030)
Agent mandate: Business Agent owns plan management — OTB maintenance, plan revision cadence, and variance escalation. Operations Agent monitors OTB utilization by department continuously and alerts on under-utilization (lost sales signal) or over-utilization (excess inventory risk). Finance Agent reads plan components for period-end gross margin reporting. No agent creates POs — agents gate and inform; humans and the PO model execute.
OTB as L402 wallet balance. Traditional OTB is a planned field in a merchandise system, reconciled manually. In the Canary Go model, OTB IS the L402 wallet balance at the department × buyer level. The wallet balance at any point reflects: initial open-to-buy, minus committed purchase orders (encumbered), minus received receipts (consumed). A PO creation call is blocked if the wallet balance is insufficient — the gating mechanism is cryptographic, not a spreadsheet check. Buyers don't informally approve OTB overrides; they submit signed authorization requests that increment the wallet balance through an on-chain transaction, creating a permanent audit trail.
Continuous plan revision. Traditional MFP revises on a calendar cadence — monthly reforecast, seasonal update. Canary Go Business Agent triggers a plan revision whenever actual-to-plan variance on sales, receipts, or inventory exceeds the configured threshold, not because it's Tuesday. The revision recomputes OTB, proposes wallet balance adjustments, and queues for merchant approval. Calendar-triggered revisions still exist for seasonal milestones; they are not the primary revision mechanism.
MCP surface. otb_balance(dept, period) returns current L402 wallet balance — open-to-buy at cost. plan_variance(dept, period) returns actuals vs. plan for sales, receipts, and gross margin. weeks_supply(sku_or_dept) returns current weeks-on-hand at actual rate-of-sale. These are the inputs Business Agent uses when preparing buyer briefings, negotiation prep, and rationalization recommendations. Single-call, low-token, agent-readable.
RaaS. OTB wallet transactions — plan commitment, PO decrement, receipt, markdown adjustment — are sequenced financial events. Concurrent PO creation against the same OTB bucket is a race condition; the wallet layer must serialise decrements to prevent overdraft. otb_balance(dept, period) from Valkey hot cache (sub-100ms; called before every PO creation — the hottest read in the buying workflow). Variance computation joins plan vs. actuals — at scale (many departments × many periods × many sites) this join must be pre-aggregated, not computed real-time on the MCP call. OTB and plan history exportable for period-end financial reporting and external planning sessions.
Related
- retail-purchase-order-model — OTB gates every PO commitment
- retail-demand-forecasting — forecast provides the sales assumption that drives plan components
- retail-inventory-valuation-mac — MAC is the cost basis for plan components
- retail-operations-kpis — turnover, weeks of supply, and GM% feed the KPI dashboard