To make a blanket order, which is typically formalized as a Blanket Purchase Order (BPO), you establish a long-term agreement with a supplier for repeated purchases of a specific product or service over a set period.
A blanket order simplifies the procurement process for frequently needed items or services by setting agreed-upon terms upfront for multiple deliveries over time. Instead of issuing a separate purchase order for every transaction, you create one overarching agreement.
What is a Blanket Order?
A blanket order, often referred to as a Blanket Purchase Order (BPO), is a contractual agreement between a buyer and a supplier. It allows the buyer to place orders for goods or services as needed over a specified duration, leveraging pre-negotiated terms and prices.
Steps to Create a Blanket Purchase Order
Creating a blanket purchase order involves several key steps to ensure both parties benefit from the arrangement.
- Identify the Need: Determine which goods or services are purchased frequently and could benefit from a long-term agreement. This is ideal for items with predictable demand and stable pricing.
- Select a Supplier: Choose a trusted supplier who can consistently meet your quality, quantity, and delivery requirements over an extended period.
- Negotiate Terms and Conditions: This is a crucial step. When creating a blanket purchase order, both sides must agree on a set price and time period. Discuss and finalize:
- The specific items or services covered.
- The set price per unit (often discounted due to the commitment).
- The time period the blanket order will be valid (e.g., 6 months, 1 year).
- Estimated total quantity or value for the period.
- Delivery schedules or lead times for individual releases.
- Payment terms.
- Quality standards and return policies.
- Cancellation clauses.
- Maximum order limit or value.
This way, the buyer can take advantage of the same unit price during the contract, while the seller is guaranteed sales throughout the extended period.
- Formalize the Agreement: Document the agreed-upon terms in a formal Blanket Purchase Order document. This document serves as the master agreement for all subsequent orders placed under it.
- Issue Releases (Call-Offs): As you need the goods or services, you issue "releases" or "call-offs" against the BPO. These are smaller orders that reference the main blanket order number and specify the exact quantity and delivery date required at that moment. No new negotiation or PO creation is needed for each release.
- Monitor and Manage: Track the releases against the total quantity or value specified in the BPO. Monitor the expiration date and review performance periodically.
Benefits of Using a Blanket Order
Using blanket orders offers advantages for both buyers and sellers:
- For Buyers:
- Cost Savings: Often secure better pricing through volume commitments.
- Efficiency: Reduces administrative burden of creating multiple individual POs.
- Improved Planning: Ensures supply availability and predictable costs.
- Faster Delivery: Streamlined ordering process allows quicker fulfillment.
- For Sellers:
- Guaranteed Sales: Provides predictable revenue and demand forecasting.
- Reduced Sales Effort: Less need to re-sell for each transaction.
- Improved Customer Relationships: Fosters long-term partnerships.
Blanket orders are a strategic procurement tool that locks in favorable terms and streamlines purchasing for routine needs by requiring upfront agreement on price and duration.
