Blanket Purchase Order

A blanket purchase order, BPO, or standing purchase order is an agreement between an organization and a vendor that requires the vendor to supply goods or services at fixed prices for a specified period. As a result, a group of invoices can be clubbed under a standard PO number, thus saving time and improving the delivery schedule.

When a blanket purchase order agreement is curated, both sides must mutually agree on the specific time and price. Once both parties agree, it is beneficial for the buyer as they can get the product at the same price for an extended period, and the supplier has guaranteed sales orders through the specified period.

A blanket purchase order or BPO is an agreement between a supplier and an organization. The agreement is long-term and requires the supplier to provide goods at a specific price for the period agreed upon. These orders are best for the products or services that need to be purchased at regular intervals. In situations like these, issuing a BPO with the specifications, such as delivery schedule and pricing details, can significantly reduce processing delays.

Suppliers can send multiple invoices with the same BPO number to ensure the invoices correlate and are grouped under the same standing order umbrella. These forms of placing a standing order with the vendor are most effective with products or services that require purchasing at regular intervals. As a result, monotonous paperwork can be avoided, and a more seamless process can be set.

Once both parties in the agreement fill out a blanket purchase order form, it means that they have agreed to mutually beneficial terms like pricing, delivery schedule, and quality standards. As a result, the organization or the buyer can be sure about receiving products at a set price for an extended period. The fluctuations in the market or other such disruptions would not affect the flow of products or services and their prices as well.

On the other hand, the supplier benefits from the regular flow of products or services. They can be sure of generating a certain amount of revenue every month, irrespective of market factors. Therefore, their cash flow and turnaround time for inventory is efficient.

The blanket purchase policy is best applied in the following situations:

• When an organization requires the same goods or services for an extended period. The period is usually one year.
• The policy can be incorporated if a single vendor can fulfill the requirements throughout the contract period.
• BPO can be most efficient when the per unit cost of the product or service can be clearly specified.
• It is also wise to opt for BPO when delivery in parts reduces the risk in terms of stocking them or in terms of costs as well.
• When an organization books products or services in a large quantity, they are eligible for bulk discounts.

• Now that feasible situations are acknowledged, it is also essential to understand the opposite. Below are circumstances in which a blanket purchase order agreement should be avoided.
• It must be avoided in a scenario where there may be fluctuations in the price or, even worse, there are signs that the price will lower.
• Companies must not opt for a BPO if the need for the product or service may not be the same in the near future.
• The chosen vendor cannot deliver the goods on time. The other possibility is that the vendor is not equipped to deliver such a large quantity of goods at all.

In situations like these, it is better to raise single POs instead of a BPO.

A blanket purchase order form is something like a requisition order when the buyer sends it to their vendor. When the vendor accepts the order, it becomes a legally binding document. Since it plays a vital role in the process, necessary details must be carefully furnished.

Therefore, it must include details such as:

• Start and end of the contract period
• Purchase order number
• Pricing for shipment (fixed pricing)
• Quantity and quality of the product
• Location and time of delivery particulars
• Favorable payment and invoicing method
• Cancellation policy

A blanket purchase order form template with all the required details is furnished below. It shall be helpful to create a successful order with a client in the long term.

Source

Any concept is better understood with a tinge of practicality and real-life application. The examples below are an attempt towards just that.

Example #1

Green Nurseries sells indoor and outdoor plants. They have outlets in over 15 cities across the United States. They have a steady requirement for pots to plant their outdoor plants. Since customers prefer sturdy and solid pots for outdoor plants, they are okay with a standard design.

Green Nurseries, therefore, proposes a BPO with AE Enterprises, one of their suppliers, for 3,750 pots each month. They shall distribute 250 pots along with the plants to every outlet of theirs. AE Enterprises agrees and promises to supply the required quantity month-on-month at $5 per pot for one year.

Example #2

Greene Concepts Inc. is a beverage and bottling company operating in North Carolina. In May 2024, they received a proposal for a blanket purchase order agreement from Walmart for their flagship product, BE Water. The six-pack configuration of the product should be shipped every week for the entirety of 2024 and beyond.

The bottled water market is at a CAGR of 5.9% annually, and it is valued at $44.6 billion. Therefore, this partnership with Walmart will give Greene Concepts a shot at a more significant market share in this ever-in-demand industry.

The advantages and disadvantages of a blanket purchase order policy are discussed below.

Advantages

• Using a BPO makes the procurement process significantly more efficient. When a blanket PO is issued, the need to place an order every week or month is eliminated.
• The consistency in price gives the organization (buyer) a cushion against rising prices in the future. They can continue to procure at the same price even if the process within the agreement period rises.
• Since the product, price, and quality are pre-determined with the supplier, the processing time between orders is next to none.
• Requirements of various departments can be clubbed under a single BPO. As a result, the inventory management process is simplified to a large extent.
• It improves vendor management by reducing efforts and administrative costs concerning procurement. The implementation of BPO automates the process to a large extent, thus not requiring constant communication or follow-up.

Disadvantages

• The major disadvantage is that if a BPO is agreed upon and the price of the product or service falls, the buyer must continue buying at the older (higher) price, as decided in the agreement for the specified period.
• Sometimes, it so happens that the supplier is not reliable or capable of delivering the goods or services on time or cannot deliver such large quantities at all.
• In some cases, the quality of the product is not maintained throughout the agreed period. As a result, the buyer is stuck with the vendor as others might not quote the same price, and the agreed quantity of products shall keep flowing in from the old supplier.
• In a dynamic market, it is always tricky to predict the demand for a product or service. Therefore, it is better to purchase through a regular PO when the demand is uncertain for extended timeframes.

The differences between the three closely linked concepts are mentioned in the comparison below.

Blanket Purchase Order

• A BPO is an agreement between a buyer and seller for an extended period to supply goods or services at a set price. The frequency of the purchase is also specified in the agreement.
• A blanket purchase policy is adopted for products or services that require recurring or predictable purchase orders.
• It helps buyers control costs by ensuring that the prices are set despite the fluctuations in the market. Therefore, administrative costs linked to procurement are vastly reduced.
• It offers flexibility in terms of adjustments concerning delivery schedules and ordering.

Contract

• A contract is an agreement made formally between two or more entities. It specifies the terms and conditions to supply the goods or services.
• It is a legally binding document that makes the actions of either party enforceable under the relevant law.
• Contracts are used for long-term commitments that have a long list of specifications.
• These documents cover the scope of work, payment terms, delivery schedules, dispute resolution, and confidentiality.

Purchase Order

• Buyers issue a purchase order or PO to inform their sellers about the type, quantity, and price of the products or services.
• It is best suited for specific or singular purchases rather than orders that must be placed at regular intervals.
• It is the document that confirms the order and initiates the process of purchase. It also ensures that the vendor or supplier fulfills their end of the bargain.
• It is typically a short-term contract as it deals with a one-time give and take of funds and products or services.