Image of miniature people moving stacks of coins, used on blanket purchase order blog

What Is a Blanket Purchase Order?

For many purchasing and finance leaders, a blanket purchase order offers an easy opportunity to streamline the procurement process and improve operational efficiency. Quite simply blanket purchase orders give procurement managers the chance to capitalize on predetermined prices and reduce workloads.

But, what exactly is a blanket purchase order? And how can purchasing leaders begin implementing them across their purchasing process?

Here’s what you need to know.

What exactly is a blanket purchase order?

A blanket purchase order (also known as a standing purchase order) is a purchase order that outlines an ongoing agreement arranged between an organization and a vendor to deliver goods or services at a predetermined price and on a recurring basis for a specified time period.

These types of purchase orders are normally used when there is a recurring need for expendable goods, and many agreements last up to one year. This allows an organization to take advantage of a predetermined price across a long period of time, and offers long-term stability to the vendor, who can guarantee a set purchase each month.

For example, if an organization determines that it submits eight purchase orders per month to a particular vendor, it can consolidate these purchases into a single blanket purchase order and issue one purchase order for the entire year.

In addition to establishing a set price and quantity to be purchased, these types of purchase orders are also useful when the specific quality or features of an item are important.

What are the benefits of a blanket purchase order?

1. Reduces costs and increases purchasing power

A blanket purchase order allows an organization to bulk together purchases that would otherwise happen over an extended period and receive quantity discounts. Furthermore, these POs allow an organization to consolidate purchases from across different departments and locations to further strengthen bargaining power.

2. Improves efficiency and shortens purchasing lead time

A blanket purchase order simplifies the ordering process of repeated purchases. As in the above example, rather than creating 100 different purchase orders a company can simply create one and receive against it multiple times. A blanket purchase also eliminates the need to search for new suppliers or renegotiate terms and prices which lowers administrative costs and allows staff to spend time on other key procurement functions.

3. Facilitates leaner operations by reducing stocking requirements

A blanket purchase order clearly lays out the terms and conditions of a purchase, including quantities required and delivery time. This eliminates the need for an organization to keep additional stock on hand because it is confident that the supplier will fulfill the order as previously negotiated.

When to use a blanket purchase order

Consider using a blanket PO when:

  • Making repetitive and pre-specified purchases from the same supplier within a certain time period (typically 1 year).
  • Ordering standardized products or services which require numerous shipments.
  • It’s effective to use economies of scale.

When not to use a blanket purchase order

Try not to use blanket POs when:

  • The price is not known at time of purchasing.
  • The price is subject to change without notice.
  • Quality of product or service is questionable.

These POs should include the following information:

  • Price and pricing arrangements.
  • The period which the agreement covers.
  • Terms and billing conditions
  • Description and details of items covered by the PO
  • A cancellation clause

Be sure to monitor your recurring spend

Once established it is important to continuously monitor a blanket purchase order to ensure that purchasing does not go beyond the arranged limits. Once these limits are exceeded, the item is subject to usual price and conditions. The best way to mitigate this risk is through the use of an effective spend management tool.

What do you think?

Leave a Comment

Leave a Reply

Your email address will not be published.

*

14 responses to “What Is a Blanket Purchase Order?

  1. It seems all the questions refer to the vendor failing to deliver on time or not living up to the purchase order.
    But………
    What can a Vendor do when a customer continues to push out deliveries for a year?

    1. Hi Ashish,

      In my opinion, blanket POs are a lot better if it’s on a monthly basis since you’ve talked with your vendor that each month, you will pay X amount and created terms and conditions on that blanket purchase order. If pricing changes on a daily basis, I would recommend creating a purchase order every time. But, it depends what you have discussed with your vendor; maybe they can provide you with a better pricing if you purchase x amount of items for the year and you just pay for those items on a monthly basis.

      Hope this helps!

      Jess

  2. There needs to be consideration for the supplier, not just the buyer. This is particularly true when supplying high volume, custom components. Most suppliers will be amenable to maintaining a buffer or safety stock, but efficiency is lost and costs increase when the customer makes frequent blanket order release schedule changes. MRP favors the customer, and not the supplier, and such changes should be relatively infrequent and limited in scope.

    1. Very true Ken, a purchase order should be used to facilitate communication between all parties. The buyer should account for limitations or tradeoffs when making changes to orders. The stronger the relationship is between buyer and supplier the more likely win-win scenarios can happen for both sides.

    1. A BPO for annual renewals could work if you’ve signed a multi year deal. You can also issue a new PO each year if you’re planning on renegotiating or if the rates change annually.

    1. Thanks for reading Adam! If there are other topics you’d like us to go into, just let us know and we’ll get writing.

  3. This is an informative post, but it mainly focuses benefits from the purchasers perspective. Do Blanket Purchase Orders benefit a supplier in any way?

    1. Hi Juliette,

      Great question. Blanket Purchase Orders do offer benefits from a Supplier perspective as well, they include the following:
      -Allows better forecasting which simplifies manufacturing and planning
      -Increases revenue by making bulk purchases easier for buyer
      -Increases cash flow by providing quicker turn around on orders.

      I hope this covers it. If you have any other questions, feel free to email me jordan@procurify.com

[class^="wpforms-"]
[class^="wpforms-"]