ChatGPT & AI in
Procurement Course
Free Preview Lesson

Watch Free Preview
Procurement Courses

Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Blanket Purchase Order — Everything You Need To Know

Table of content

Key take-aways

  • BPO streamlines procurement, less paper to work on, and faster and more efficient order placements.
  • It improves supplier relationships, consolidates tracking processes, and opens cost opportunities.
  • The purchase order covers a continuous stream of materials and components.

As a procurement professional or a business owner, you may have heard the term Blanket Purchase Order or “Blanket PO.” But what is it exactly, and how can it benefit your organization? 

For today’s article, we will discuss everything you need to know about the Blanket Purchase Order, including what it is, its importance, how to create one, and when to use it. 

After this article, you will know the difference between regular and Blanket Purchase Orders and how using this will benefit your organization.

Whatis a Purchase Order? 

Before diving into blanket purchase orders, let’s define a purchase order. A purchase order is simply a document that a buyer sends to a supplier to request goods or services, which outlines the order’s details, including the quantity, price, delivery, and payment terms. 

A purchase order plays a vital role in a transaction as it provides clarity and protection for both parties. It becomes a legally binding agreement between the purchaser and the vendor once accepted by the latter.

Why using aPurchase Order is important?

Using a purchase order is essential for several reasons. First, it ensures clear communication between the buyer and the supplier, eliminating potential misunderstandings or disputes. It also helps to ensure that the buyer receives the goods or services they requested on the agreed terms and conditions. 

Additionally, a PO can help streamline the procurement process, making it more efficient and cost-effective. Lastly, it facilitates accurate accounts payable processes, ensuring that payments are made correctly and on time.

Procurement Strategy Course

What isa Blanket Purchase?

A blanket purchase order (BPO) is a type of purchase order used when a buyer has recurring purchases over some time. Usually, it is used in transactions involving multiple payments for the same products or services. 

Issuing a BPO is an efficient way to save time, prevent processing delays, and allow the administration to focus on other essential things and streamline the procurement process, as the blanket purchase order already stated the details needed to be filled out. 

Differences betweenPurchase Order and Blanket Purchase Order

While a regular PO and a blanket PO are legally binding agreements between the vendor and the buyer, there are still some key differences between the two. The table below will provide you with the differences between a regular PO and BPO have: 

Purchase Orders
Used for one-time purchases
Created for a specific quantity or project
Typically involves a single transaction.
It provides a detailed description of the specific purchase.
It requires the creation of a new purchase order for each purchase.
It is suited for situations with fluctuating demand or one-time projects.
It offers less flexibility in terms of changes or adjustments.
Payment terms and pricing are typically negotiated for each purchase.
More paperwork and administrative efforts involved.
They are used when a buyer has a specific immediate need.
Blanket Purchase Order
Used for recurring or ongoing purchases
They are designed for ongoing requirements within a predetermined timeframe or budget.
It allows for multiple releases against a single purchase order.
It covers a broader category of goods or services with general descriptions.
Eliminates the need to create multiple purchase orders, reducing administrative burdens.
Ideal for stable demand or long-term supplier relationships.
Provides flexibility to modify quantities or amounts within the agreed-upon limit.
Pricing and payment terms are often negotiated upfront, remaining consistent for subsequent releases.
Streamlines the procurement process and reduces paperwork.
They are used when a buyer has ongoing and continuous needs.

When to Usea Blanket Purchase Order?

Based on the table above, a blanket purchase order is best suited to be used for situations or transactions where there is a continuous need for goods or services from a specific vendor. BPO is commonly used for goods with stable demand or when long-term supplier relationships are established. Some common examples of when to use a BPO include:

        • Standing orders for office suppliers or other consumables
        • Regular maintenance or service contracts
        • Open orders for raw materials

Manufacturing, maintenance, and service-based business are industries that find blanket purchase orders beneficial to use. 

How to Createa Blanket and Regular Purchase Order?

Creating a BPO and a PO follows the same process. The only thing that differentiates a BPO from a regular PO is that BPO is treated as a long-term contract between a business and the supplier, whereas a regular PO is an agreement for a one-time project. 

Here are the steps to create both types:

        • Identify the goods or services that will be purchased regularly.
        • For PO, always select a supplier who can meet your requirements for your specific needs. For BPO, you can skip doing this as you have already established a relationship with a supplier.
        • Determine the agreement’s quantity, price, delivery date, and payment terms.
        • Draft BPO that outlines the terms and conditions of the agreement. Draft the PO that outlines the details of the order.
        • Send the BPO and PO to the supplier for review and acceptance.

Advantages and Disadvantagesof Blank Purchase Order

Like any procurement process, there are pros and cons to using a blanket purchase order. The table below shows the advantages and disadvantages of using a BPO:

Advantages
It streamlined procurement process
It reduced administrative efforts and paperwork
Quick and efficient order placements
It improves supplier relationships
Potential for favorable pricing and service levels
Simplifies long-term supplier commitments
Faster order processing and reduced lead times
Enables better budget management
Consolidated order tracking and management
Facilitates efficient supplier management
Disadvantages
It requires effective management and tracking
Potential for overstocking or underutilization of the committed funds
Limited flexibility beyond the agreed-upon terms
Difficulty in making changes to the order
Requires accurate forecasting and planning
Inability to easily adapt to changing requirements
Risk of relying too heavily on a single supplier
Limited to recurring needs or fixed timeframes/budget
Dependency on accurate and up-to-date supplier information
This may require more complex contract agreements for large volumes

The following advantages and disadvantages may vary depending on the specific circumstances and the organization’s procurement processes. Hence, weighing the pros and cons before deciding to utilize a blanket purchase order is crucial. 

blanket-po

Software usedin Purchase Order

Here are some of the best purchase order software available in the market: 

1. Coupa Procurement

Coupa Procurement is a well-rounded purchasing suite that helps companies control spending and purchasing with a customer-like experience and user interface. 

2. Precoro

Precoro is a full-fledged procurement software that eliminates manual work processes to save time, resources, and money. It is all about removing delays to make purchasing seamless and secure. 

3. Tradogram

Tradogram is a cloud-based procurement management solution that allows users to create and manage purchase orders and requests, manage spending, process invoices, and streamline the entire PO process. It possesses a robust reporting metric that aims to provide managers with the insight they need to improve performance.

4. Digital Purchase Order

Digital Purchase Order is a generic purchase order software that works with user-defined modules and can be used in various industries, currencies, and countries. It offers over 200 customization options and allows users to create POs instantly through their mobile device or web browser.

5. ManageEngine ServiceDesk Plus

ManageEngine ServiceDesk Plus is a purchase order software that helps automate the entire sales-purchase framework. It eliminates manual work and gets the job done in just a few clicks on the computer.

Conclusion

Understanding blanket purchase orders (BPOs) is vital for effective procurement. BPOs simplify recurring transactions, enhancing efficiency and fostering long-term supplier relationships.

Frequentlyasked questions

What is the purchase order?

A purchase order is simply a document that a buyer sends to a supplier to request goods or services, which outlines the details of the order, including the quantity, price, delivery, and payment terms. 

What is a blanket purchase order?

A blanket purchase order (BPO) is a type of purchase order used when a buyer has recurring purchases over some time.

When to use a blanket purchase order?

A blanket purchase order is best suited to be used for situations or transactions with a continuous need for goods or services from a specific vendor.