What is a Blanket Purchase Order?

Blanket Purchase Order

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Blanket Purchase Order

A blanket purchase order (BPO) is a type of long-term purchasing agreement between a buyer and a supplier, which allows the buyer to make multiple orders for goods or services over an extended period without the need to create individual purchase orders for each transaction. Blanket purchase orders are typically used for recurring or frequent purchases of standardized items or services that a buyer expects to need consistently over a specified time frame.

A blanket purchase order usually contains the following information:

  • A list of products or services to be purchased
  • Pricing terms, such as fixed prices, discounts, or pricing formulas
  • The total quantity of items or services to be purchased over the duration of the agreement
  • The duration of the agreement, which may be specified in months or years
  • The terms and conditions related to payment, delivery, and quality assurance

The main advantages of using blanket purchase orders include:

  • Streamlined procurement process: By establishing a long-term agreement with a supplier, the buyer can reduce the time and effort required for creating and processing individual purchase orders for each transaction.
  • Cost savings: Blanket purchase orders can lead to better pricing terms and volume discounts, as suppliers may offer lower prices in exchange for the buyer’s commitment to purchasing a specific quantity of items over the long term.
  • Improved supplier relationships: Long-term purchasing agreements can foster stronger relationships between buyers and suppliers, as they demonstrate commitment and provide predictability for both parties.
  • Simplified inventory management: Blanket purchase orders can help buyers manage their inventory levels more efficiently, as they can schedule deliveries according to their needs and adjust their orders over time as required.

However, it is important to carefully manage and monitor blanket purchase orders to ensure that the agreed-upon terms are met, and the buyer’s needs are fulfilled throughout the duration of the agreement. Regular communication and collaboration between the buyer and the supplier are crucial for the successful implementation of a blanket purchase order.

Example of a Blanket Purchase Order

Let’s consider a hypothetical example of a manufacturing company, “AutoTech,” that uses blanket purchase orders for procuring raw materials from its supplier, “SteelWorks.

AutoTech produces automotive components and requires a consistent supply of high-quality steel for its manufacturing processes. The company forecasts its steel requirements for the next two years and decides to establish a long-term purchasing agreement with SteelWorks, its preferred steel supplier.

AutoTech and SteelWorks negotiate the terms of a blanket purchase order, which includes the following details:

  • Product: High-quality steel sheets
  • Total quantity: 10,000 tons to be purchased over the next two years
  • Pricing: A fixed price per ton, with a 5% volume discount for the long-term commitment
  • Duration: The agreement is valid for two years, with an option to extend for another year if both parties agree
  • Delivery schedule: AutoTech will provide SteelWorks with a rolling three-month delivery schedule, specifying the required quantities and delivery dates

With this blanket purchase order in place, AutoTech can streamline its procurement process by eliminating the need to create individual purchase orders for each steel delivery. The company can also benefit from cost savings due to the volume discount provided by SteelWorks. Furthermore, the long-term agreement helps strengthen the relationship between AutoTech and SteelWorks, fostering collaboration and trust between the two parties.

Throughout the duration of the blanket purchase order, AutoTech needs to closely monitor the agreement, ensuring that the quality of the steel, delivery schedules, and other agreed-upon terms are met. Regular communication between AutoTech and SteelWorks is essential for addressing any issues or adjustments that may be required during the course of the agreement.

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