Blanket Purchase Order (BPOs) and their Benefits in Procurement

What is Blanket Purchase Order?

Blanket Purchase Order (BPO), also known as a Blanket Order or Blanket Purchase. It is a type of purchase order that is used by businesses to simplify their procurement process. It is a long-term agreement for regularizing purchases between a buyer and a supplier for the supply of goods or services over a specified period of time, say six months or one year, etc. Blanket PO examples are: Open Order, Standing Order, Service Contract or Maintenance Contract.

Blanket Purchase Order Meaning

A Blanket Purchase Order, blanket purchase agreement or call-off order is a purchase order which a customer places with its supplier to allow multiple delivery dates over a period of time, often negotiated to take advantage of predetermined pricing.

Difference Between Purchase Order & Blanket Purchase Order

What Is the Process of the Blanket Purchase Order?

The Blanket Purchase Order is a purchasing arrangement used by businesses to substructure and make their procurement process easier for the repeated goods or services from a particular process. It helps to establish a long-term relationship with the supplier as well as provides flexibility at the same time. Check out the following steps which are involved in the process of a blanket purchase order: 

1. Identifying the need - The first step is to identify the service or the goods which are required again and again such as the raw materials or the maintenance services.
2. Selecting the supplier- The second step is very crucial as it is to choose a reliable and trustworthy supplier to fulfil reoccurring demands. This supplier is known as the recipient of the blanket purchase order.
3. Negotiations- It must be duly noted that every type of arrangement involves negotiation. The buyer and the supplier then negotiate the terms and conditions of the blanket purchase order which includes the type of payment quality and other relevant details.
4. The creation of Blanket purchase order - Once the negotiation process is done, the buyer then issues the blanket purchase order declaring all the decided terms and the total value the agreement holds but without having specifications of some specific quantities.
5. Order release - As the buyer’s demands keep increasing with time, the particular purchase orders keep issuing against the blanket purchase order Which includes the details of the quantity asked and the schedule of the delivery.
6. Delivery and invoicing - The supplier then delivers the goods or services according to the decided schedule and the buyer then authenticates the delivery. Then the most crucial step which is the generation of invoices is done by the supplier based upon the quantities of the goods delivered.
7. Reconciliation of period - The buyer then reconsiders within the period the total value of release against the total value of the blanket purchase order to ensure compliance and track the gross spending which has been done in the period.
8. Renewal/termination of agreement - It depends upon the supplier and the buyer whether they want to terminate or renew the agreement of the blanket purchase order after the expiration.
    

When to Use a Blanket Purchase Order?

Blanket Purchase Orders are wise to use under the following circumstances.

• Blanket purchase orders are useful to use when you require the same goods or services over an extended period, say one year. This will help in saving you from creating separate orders each time and streamline your procurement process.
• When the unit cost and other specifications can clearly be defined, blanket purchase orders work well. This will ensure that both buyer and seller are on the same page regarding the terms of the agreement.
• When it is crucial to have a trustworthy vendor who can consistently deliver and fulfil the contract's requirements throughout the contract duration. This will ensure smooth procurement operations.
• When you have to purchase in larger quantities and you have the opportunity to negotiate better contract conditions such as bulk discounts. This will result in cost savings for your business.

It's important to note that blanket purchase orders should never be used in certain situations. These are as follows:

• When the pricing is uncertain
• When the quality of the product or service is questionable
• When the reliability of the vendor is in doubt.

What to Include on Blanket Purchase Order?

• Buyer and Supplier Details – Businesses must state the name, address and contact details of both the buyer (your Business) and the supplier.
• Duration of the contract – Businesses should specify the length of the contract, indicating the start and end dates.
• Description of Goods or Services – While drafting BPO provides a detailed description of the goods or services being purchased including specific item names, quantities, unit price details or any other specifications or requirements.
• Contract Conditions and Payment Terms – Blanket PO should clearly define the agreed-upon terms and conditions including pricing details such as unit prices, discounts, and any applicable taxes or fees.
• Billing Information – It should clearly define how the vendor should submit invoices for payment including details such as the preferred format, submission method online or offline, etc.
• Delivery Schedule – BPO must include the expected delivery schedule for the goods or services such as frequency of delivery, delivery dates, or any other specifications or requirements for each delivery.
• Item Specifications – It should provide detailed specifications for the item being purchased which may include quality standards or any specific requirements.
• Quantity, Delivery Times, and Locations – It must specify the number of items to be delivered, the scheduled delivery times, and the intended delivery locations.
• Cancellation Clause – BPO must include a clause that specifies the conditions and process for cancelling the blanket purchase order wherever necessary.

Benefits and Disadvantages of Using a Blanket Purchase Order

Blanket Purchase Order Benefits

1. Easy Framework –Blanket purchase orders require minimal information which makes the process simple for which you only need essential details like the supplier name, account numbers, start date, and end date.
2. Cost Reduction – With a blanket purchase order, businesses can consolidate their purchases which will lead to volume savings.
3. Reduced Lead Time – Blanket purchase orders streamline the procurement process by eliminating the need for multiple individual orders will save time and administrative expenses which enable it to focus on other important areas.

Disadvantages of Blanket Order

1. Year-End Reconciliation Challenges – For the businesses such as public companies, reconciling open liabilities related to blanket purchase orders can be complex. Moreover, there may be cases where the work has been completed but the vendor has not yet submitted the bill.
2. Matching Purchase Orders – It can be a drawback when the blanket purchase order expires or if there are issues with matching the purchase order to the correct transaction. Especially this may happen when the vendor goes bankrupt.
3. It's important to consider these benefits and drawbacks when deciding to use a blanket purchase order and to implement proper procedures and controls to mitigate any potential challenges.

Challenges of Implementing Blanket Purchase Orders in Procurement

• Creating a blanket purchase order can be challenging when it comes to forecasting the business's needs. These are as follows:
• Inaccurate forecasting can lead to overstocking or understocking which will result in wasted resources or operational disruptions.
• Managing relationships with vendors becomes crucial when implementing blanket purchase orders.
• Tracking the usage of goods or services covered by blanket purchase orders can be challenging.
• It becomes difficult to manage costs and maintain adequate supplies.
• The agreements between buyers and suppliers may be extended year after year as businesses and vendors develop working relationships which can be challenging.
• Analyzing data properly will help to determine the exact quantities required during the specified time period.

How Can Mastersindia Help in Providing Blanket Purchase Orders Through AP Automation Solution?

Masters India's AP Automation solution offers valuable assistance in providing blanket purchase orders to streamline procurement processes. This Account Payable Automation solution will allow users to create blanket purchase orders that establish long-term agreements with suppliers for recurring goods or services. With this solution, businesses can easily generate and manage blanket purchase orders ensuring smooth and efficient procurement operations.

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Best Practices for Implementing and Managing Blanket Purchase Orders

Implementing and managing blanket purchase order (BPOs) effectively requires following some best practices. These are categorized into two parts.

Before using Ariba

• First of all, visit the "How to Buy" page to get a guide on planning your purchase
• Make sure you have selected the correct supplier before submitting a Blanket Purchase Order (BPO) for approval
• If the supplier has a catalogue, try using it first before creating a BPO
• Avoid using Internet Explorer to create a BPO. It's recommended to use Mozilla Firefox or Google Chrome instead

When Entering Data in Ariba

• Double-check the details like
  1. Accuracy of contract periods
  2. Budgets
  3. Account codes
  4. Amounts, part numbers, etc.
• Keep in mind that changes made by a buyer to a BPO submitted by a department will restart the approval process if the BPO exceeds the Direct Buy Limit
• When attaching scanned documents to a BPO, be mindful of the image resolution and document size you use
• Remove sensitive information such as Social Security Numbers, and bank account information from attachments before uploading
• For internal communication between departments and buyers regarding a Contract Request (CR), add a comment to the CR.
• If you want the supplier to see a comment, check the "visible to supplier" checkbox.
• If any changes are made to the BPO, add a comment to the order stating the changes made and the reason for them.
• Avoid splitting purchase orders to bypass the competitive process.