What is a Blanket Purchase Order?

A blanket purchase order (BPO), also known as standing purchase order, is a long-term contract between an organization and a supplier to deliver goods or services at a fixed price regularly.

Suppose your company makes several payments for the same goods or services. Thereby, sending a blanket purchase order with the details, such as prices and delivery date, is an efficient method to save time and minimize processing delays.

The Advantages of Blanket Purchase Orders

A blanket purchase order makes the most sense when you anticipate recurring demand for goods or services from the same vendor. The following are the benefits of using a blanket purchase order: 

Lower Administrative Cost

Companies that buy in bulk from the same source have fewer overall active vendors. They can streamline their vendor management and save resources that would otherwise negotiate terms & conditions with new suppliers. 

Minimize Processing Time

When you only need one contract to cover several shipments, you save time and human resources than writing a contract for each delivery. In other words, you receive many invoices with the same BPO number. A BPO may also be less thorough than a standard purchase order, making it easier to put up. 

Increase Purchasing Power

Blanket purchase orders enable a corporation to consolidate transactions that otherwise would have been spread out over a long period and save money on volume. Furthermore, these POs allow corporations to pool purchases from multiple divisions and locations to boost negotiation strength. 

In addition, procurement departments can combine orders from numerous teams into a single blanket purchase agreement, making inventory management more straightforward and cost-effective.

Consistent Pricing

If you lock in a price during discussions, every shipment of a large order will be the same price, even if the market value rises later. However, when compared to changing dollar amounts, consistent pricing is easier for the finance department to budget. 

Potential Savings

Suppliers typically offer volume discounts when you shop in bulk. A blanket order increases your chances of getting those reductions, even if you spread the orders across a year. 

Limitations of Blanket Purchase Orders

A blanket order makes sense in many situations, but there are several pitfalls. Here are a few:

Predicting Your Demand

How do you know you'll still need those products if you buy the same items every month for a year? While some vendors allow for some later adjustment, anticipating your demand is still crucial in making the most of blanket purchase orders. 

Falling Market Value

The same advantage we noted before about fixed prices can work against you if the market value falls during the contract time. 

Ensuring Order Accuracy

Procurement departments must go through an approval process to ensure that supplied products do not exceed the maximum order. Therefore, you must have a reliable way of matching invoices for validation to enforce contract compliance. 

Similarly, financial auditing requires a buyer's inspection because matching an invoice with a blanket contract isn't always easy. Therefore, a multi-way matching process is highly recommended when working with a blanket purchase order.