Want to Streamline Repeat Orders? Consider a Blanket PO

When looking for ways to improve efficiency in the procurement process, streamlining purchasing for high-volume purchases is a great place to start. Finance, accounting, and procurement departments save time and money by systematizing ordering volume items like paper, printer ink and toner, cleaning supplies, paper products, and other consumables that tend to be repetitive purchases. With the right purchase order (PO) structure, you gain reliable access to products without bulk purchase and storage considerations.

A blanket PO is one way to streamline the ordering process while maintaining strong pricing, cash optimization, and product quality. It allows organizations to establish a long-term contract relationship with a trustworthy vendor to plan ahead on volume, pricing, and delivery.

This article covers the essential benefits of a blanket PO and teaches you how to use this valuable procurement tool within your organization. It addresses the following: 

• What a blanket purchase order is
• When blanket POs are advantageous
• What to include in a blanket PO 
• The difference between a blanket PO and other forms of POs
• How to design a smooth blanket PO process

Download the free tool: Purchase Order Template

What is a blanket purchase order (PO)?

A purchase order (PO) is a document issued by a purchaser to a seller indicating types, quantities, and agreed prices for products or services. It’s a legal instrument outlining transaction terms between a buyer and a supplier. 

A blanket PO — sometimes called a standing purchase order — is a binding contract to continuously purchase goods and services over a specified time frame, usually at predetermined prices. This type of purchase order is commonly used when there is a need to make repeat purchases from the same supplier.

A blanket order authorizes the supplier to fill and ship multiple orders for goods or services. It streamlines the ordering process since it eliminates the task of generating a new PO for individual orders. Blanket POs help suppliers plan their production and shipping needs to meet demand.

When are blanket POs advantageous?

A blanket PO benefits buyers who frequently purchase similar items from the same supplier over an extended period. Buyers enjoy reduced lead times, increased order consistency, and improved cost savings using a blanket PO. Blanket POs are great for streamlining your indirect procurement purchases and categories.

The supplier benefit of a blanket PO is production and shipping planning. Issuing a blanket PO lets the seller know they’ll need a certain amount of product in reserve to meet the buyer's needs.

Consider a blanket PO when the purchase meets the following criteria:

1. The supplier is a known vendor with a strong service reputation, production capabilities, and quality standards.
2. Your organization expects to make volume purchases of specific items over a long period.
3. The unit cost is specific and isn’t prone to price fluctuations.
4. The selected supplier can meet the total demand for the product.
5. The item may be subject to shortages or other supply chain risks.

Tool

Purchase Order Template Download

A purchase order template creates a repeatable, reliable process for processing and tracking your orders. Take advantage of our easy PO template here.

Download the template

What are the advantages of using a blanket PO?

Blanket POs are ideal when a buyer knows they need consistent replenishment of a specific item or items. It offers several price and productivity advantages.

Quicker processing: Blanket POs do much of the legwork upfront, setting the buyer and seller up for quicker processing and fulfillment during the contract period. Working with a specific vendor and a blanket purchase agreement involves less paperwork. It also avoids multiple internal requisition and approval processes over the term.

Less administrative burden: Consolidating the purchase of goods with a specific vendor reduces administrative activity. It improves vendor and purchase order management, minimizing the amount of accounting and finance team labor necessary for producing and approving multiple purchase orders. It also streamlines the preferred vendor list, minimizing onboarding, vetting, and offboarding activities.

Consistent pricing: Entering a longer-term agreement with a vendor unlocks price and service advantages such as bulk discounts and better contract terms. With a 1-year blanket PO, buyers know what they’ll pay per item and contract. This leads to more accurate procurement management, forecasting, and budgeting.

Supply chain stability: Supply chains are still recovering from COVID-19 and geopolitical events. Over 75 percent of respondents to a recent resilience survey report that they’ve experienced external disruptions in the last year. Blanket POs reduce this uncertainty by setting up suppliers to successfully meet buyer demand. 

When to avoid blanket purchase orders

Blanket POs obligate the buyer to purchase from a specific supplier within the contract term. Before executing a blanket contract, you should understand the vendor’s service, product quality, pricing, production capabilities, and reliability. Establishing an agreement within your current vendor relationships is often the best option. Items with high price volatility may not be ideal for blanket POs since entering a 1-year contract at a certain price may lead to a loss of competitive price advantage. 

Blanket PO guidelines: What's included in a blanket PO?

A few key pieces of information are necessary for building a blanket PO. Beyond specifics like contract period, item descriptions, and price, the buyer and seller may outline other terms and clauses specific to the transaction. Delivery dates are not required in advance for a blanket PO.

Blanket POs should always include the following information:

Contract period: The length of a blanket PO may vary depending on buyer needs, but generally, blanket PO terms should have a maximum 1-year contract end date.

Item description: Clearly outline the specific items considered within the contract. This includes the name and type of the item and any related requirements, such as size, color, and special features. Although specific quantities are not required for a blanket PO, the supplier will often indicate a maximum order quantity to prevent a breach of contract in case of shortages.

Pricing: A specific benefit of a blanket PO is the ability to lock in pricing for the contract period. This is a greater advantage in supplies with high price volatility, such as copy paper. By using a blanket PO, the buyer and seller agree to transact for these goods at a specific price. 

Invoicing and payment details: As with any PO type, outline the invoicing process, details, payment methods, and terms within the contract. This should also include information on early payment discounts or late payment penalties. 

Delivery details: Outline the location and particulars of item delivery, including a potential delivery schedule and any directions the freight company or supplier will need to deliver goods. Specify the process and remedy for handling defects or damages as part of the delivery terms. 

Cancellation clause: All contracts must have the terms for cancellation by the buyer or seller. Additionally, include remedies for breach of contract (for instance, if the supplier cannot meet the quantity or item-specific quality requirements of the contract).

Tool

Purchase Order Template Download

A purchase order template creates a repeatable, reliable process for processing and tracking your orders. Take advantage of our easy PO template here.

Download the template

What is the difference between a blanket PO and other PO types?

A blanket PO is a great way to ensure smooth delivery of expected and high-volume supplies, but they aren’t ideal for every situation. Here are some other forms of purchase order agreements to consider when building procurement relationships for the organization: 

Regular PO: The most common type of PO details the terms and conditions of a single transaction. It outlines a specific description and quantity of the product, a fixed price per unit, fulfillment timelines, and any specific clauses or terms negotiated between buyer and seller.

Planned PO: A planned PO outlines the terms and conditions of a transaction between a buyer and seller. It details the product description, quantity, and unit price but does not specify the delivery time or place. This type of PO is useful when the buyer is uncertain of these specifics. It allows the buyer to indicate their preference and intent to purchase the items without tying them to a detailed timeline. 

Planned POs are useful for long-term project forecasting where the buyer knows a certain supply or item will be needed but doesn’t want to order those items in advance. Locking in price and terms improves the price estimation and efficiency of the project.

Contract PO: Buyers submit a contract PO when they do not have a specific item to purchase but know they will purchase from a specific vendor within the contract term. They are placeholder contracts that work as a template for future purchasing activities. The future purchases will satisfy the terms and conditions set out in the contract PO.

Designing a smooth blanket PO process

Streamlining the purchase order process makes procurement easier and more efficient for everyone. Use the following steps to outline the blanket PO process for stakeholders and ensure smooth administration and full data capture of orders under a blanket contract:

1. Select a vendor: Compare suppliers to determine those best suited to meet the organization's and project's needs. It is important to consider factors such as price, product quality, delivery timeline, and customer service. 
2. Negotiate terms: Once you identify the best supplier, discuss the terms and conditions of the contract. Outline any specific requests, requirements, discounts, or penalties associated with the purchase. 
3. Create the PO: Build a blanket PO with all the needed information to execute and fulfill the contract. 
4. Gain internal approval: Blanket POs must undergo the same approval process as other PO types. Route the PO through the necessary stakeholder reviews and get sign-off from management, legal, and finance teams for the total contract value. During this review process, the finance department will also be able to establish any necessary encumbrances in the general ledger (GL).
5. Execute and fulfill: Transmit the PO to the supplier for final review and execution. Be sure to go over any changes or details that affect the prior approved parameters of the deal. 
6. Place orders: Submit orders during the contract period as described in the blanket PO. Perform the same review and reconciliation practices as with standard PO deliveries. 
7. Match invoices: Review every invoice for accuracy against the individual PO requests and the goods delivered. Note compliance questions or issues occurring during the contract to ensure both parties meet the contractual obligations set out in the blanket PO.
8. Record spend: Capture total spend under the blanket PO for future negotiations, budgeting, and vendor scoring activities. Analyze PO performance against established procurement KPIs and vendor expectations.

Manage every PO more effectively with Order.co

Order.co helps organizations streamline the purchasing process with all your organization’s preferred vendors. Our vendor-agnostic platform helps buyers eliminate the need for blanket POs and automate many aspects of purchasing, such as scheduling orders with a specific vendor or looking for new high-quality, price-competitive items to drive business. Premade shopping lists and curated catalogs make it fast and easy to process repeat orders. Order.co automates order creation, submission, invoice matching, payment, and more.

To see how Order.co improves procurement for everything your business needs, schedule a demo.