Blanket purchase order definition
/What is a Blanket Purchase Order?
A blanket purchase order is a contractual arrangement between a buyer and a supplier, for the supplier to deliver goods or services to the buyer, at a pre-set price, for a period of time. They are used by buyers to consolidate a number of smaller purchase orders into one large purchase. A blanket purchase order works best when dealing with recurring purchases from the same supplier over an extended period of time. It is not useful when the price, quantity needed, or product quality are variable.
When using a blanket purchase order, the buying entity should monitor the quantity ordered over the term of the agreement. This is done to ensure that the promised purchase amount is actually ordered, and to know when the total commitment amount has been ordered, so that a new agreement can be negotiated.
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Advantages of Blanket Purchase Orders
There are several advantages associated with the use of blanket purchase orders, which are as follows:
Less paperwork. Blanket purchase orders eliminate the need to create multiple individual purchase orders for recurring purchases. This streamlines the procurement process and reduces paperwork, saving time and effort for both buyers and suppliers.
Reduced number of suppliers. The buyer can centralize its purchases with a relatively small number of suppliers, which reduces the amount of time that would otherwise be required to negotiate prices and other terms with a larger number of suppliers.
Better pricing. By committing to a larger quantity over time, businesses can often negotiate better pricing or volume discounts. Suppliers are more willing to offer favorable terms when they see a guaranteed level of demand.
Improved supplier relationships. A blanket purchase order fosters a stable, ongoing relationship between buyer and supplier. It builds trust and predictability, which can lead to better service, faster delivery, and priority access to limited inventory.
Enhanced budgeting. With planned purchases already outlined, it becomes easier for businesses to forecast expenses and manage cash flow. This predictability helps in aligning procurement with budgeting goals.
Faster order fulfillment. Since the terms and pricing are already agreed upon, individual releases against the blanket PO can be processed quickly. This speeds up order fulfillment and reduces lead times.