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Procurement 101

Blanket Purchase Order Example: Benefits and Insights for Procurement Professionals

Reading time:

4 minutes

Written by

Logan Price

Meeting, Business
Powerful Yet Simple Procurement Software

One of the most significant elements of efficient procurement is long-term agreements and contracts with suppliers, which highlight the importance of blanket purchase orders (BPOs). These agreements simplify processes, cut costs, and provide predictability in operations.

Throughout this article, we will explore everything you need to know about blanket purchase orders, from benefits to risks and challenges. 

What is a Blanket Purchase Order 

Also known as a standing order, a blanket purchase order is a long-term agreement between a buyer and a supplier that covers the procurement of specific goods or services over a defined period at agreed-upon prices.

Difference between PO and Blanket PO 

The main difference between a regular purchase order (PO) and a blanket purchase order (BPO) is related to time. A Purchase Order is a one-time agreement detailing the exact quantity, price, and delivery date for a specific purchase.

On the other hand, a Blanket Purchase Order is a long-term contract for recurring purchases. It involves establishing pre-negotiated terms like pricing and quantity limits without specifying exact delivery dates or quantities upfront.

Benefits of Blanket Purchase Orders 

Blanket Purchase Orders are quite beneficial for businesses for a number of reasons. Let’s overview the main ones. 

Reduces Costs 

One of the main benefits of blanket purchase orders is that these reduce costs, especially in the long run. 

  • Bulk purchasing often leads to discounts, reducing per-unit costs.
  • Fewer purchase orders mean lower administrative and processing costs.
  • Suppliers may offer better pricing terms for long-term commitments.

For instance, you can partner up with a key supplier on the delivery of key items required for production, and while market prices rise, take advantage of your contract and save. To ensure effective management and good supplier performance, keep an eye on how suppliers meet pre-defined KPIs via the right order management system.

Increases Operational Efficiency 

By reducing administrative work, BPOs also increase operational efficiency. They save time and effort on tasks like contract negotiation and supplier sourcing, benefiting both buyers and suppliers.

Key advantages include:

  • Reducing the need to create multiple purchase orders, freeing up resources.
  • Streamlining the approval process with pre-negotiated terms and conditions.
  • Enhancing inventory management by ensuring timely delivery without constant reordering.

Improved Supplier Relationships 

Establishing long-term agreements through BPOs can strengthen partnerships with suppliers:

  • Suppliers value the predictability and stability of long-term contracts.
  • BPOs foster trust and collaboration between buyers and suppliers.
  • Suppliers are more likely to offer priority service to committed customers.

However, BPOs alone cannot guarantee strong relationships. Clear and regular communication is essential to fostering trust and collaboration.

Contributes to Effective Budget Management 

BPOs support effective budget management in multiple ways:

  • Pre-negotiated prices help avoid unexpected costs and budget overruns.
  • Enable more accurate forecasting and financial planning.
  • Simplify tracking and managing ongoing purchases within a set budget.

With greater cost predictability and easier tracking, BPOs enhance budget management, supporting more effective financial planning.

Reduces Lead Time and Contributes to Higher ROI 

BPOs also help reduce procurement cycle times, leading to higher ROI and cost savings. Here’s how:

  • Streamlined ordering processes result in quicker order fulfillment.
  • Faster procurement and delivery reduce overall project timelines.
  • Reduced lead times increase operational throughput, boosting ROI.

The time-saving benefits of BPOs contribute to higher productivity and faster project completion, ultimately improving ROI.

Higher ROI 

Challenges and Risks Associated with Blanket Purchase Orders

While BPOs offer significant benefits, they also come with certain risks. Procurement professionals must be aware of these challenges before committing to long-term contracts.

Dependency on a Supplier

One of the main risks of blanket purchase orders is relying heavily on one supplier for repetitive purchases. This can lead to supply chain disruptions if the supplier faces issues such as delays or financial instability. 

In order to avoid this risk, it is best to choose suppliers for BPOs that have already displayed consistent good performance and met pre-defined KPIs over a long period of time. Avoid long-term contracts with new suppliers. 

Limited Flexibility 

Once a BPO is established, adjusting terms like pricing or quantities can be challenging, especially if market conditions change or demand fluctuates unexpectedly.

Price Lock-in Risks 

Securing one price for the long run sounds beneficial unless the market price drops. If it does, you will be stuck with the higher price until the contract term ends. 

Quality Control Issues 

Another potential risk is a decline in quality over time. With repeated purchases, suppliers may feel more secure and become complacent, leading to inconsistent quality.

Leverage the Power of Blanket Purchase Orders with Tradogram 

If you’re looking for a comprehensive procurement solution to manage BPOs efficiently, Tradogram is here to help. Tradogram offers a robust set of tools to enhance procurement management, including:

  • Inventory management
  • Supplier management
  • PO automation
  • Approval workflow automation
  • Supplier performance tracking
  • BPO and PO supporting features
  • 3-way invoice matching
  • Many other useful tools and features

To learn more about how Tradogram can help you improve BPO management, contact us today. Our team is ready to assist you.

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