For manufacturing companies, it can be tedious to keep creating separate purchase orders (POs) for a recurring vendor or supplier. If the goods or services of the supplier are fairly consistent or are recurring purchases for an organization, a blanket purchase order (BPO) should serve their operations better.
A blanket purchase order essentially consolidates multiple monthly purchases into one purchase order issued once for an entire year, instead of hundreds of smaller POs issued separately. A BPO also establishes a fixed price and quantity to be purchased, and also comes useful when requesting specific qualities or features in an individual item.
A BPO allows the buyer and seller to save a significant amount of time and money. Below are a few more ways on why BPOs benefit a company’s procurement process.
Increased Purchasing Power and Cost Reduction
A BPO – sometimes referred to as a standing purchase order or blanket purchasing agreement – lets companies order materials/services in bulk rather than spread out purchases for a lengthy period. Bulk orders often receive quantity discounts, and further reinforce a company’s bargaining power by consolidating purchases from its different departments and branches.
More Efficient Lead Times
When manufacturing operations require a steady supply of pretty much the same materials, using a BPO makes the most sense to simplify the procurement process. Additionally, a blanket purchase order allows a company’s staff to focus on other key procurement tasks without worrying about looking for new suppliers or re-negotiating terms.
It’s also worth noting here that purchase order automation software like Source Day can also help with making even blanket purchase orders more efficient.
When to Hold Off on BPOs
Of course, standing purchase orders will not be ideal for any situation. If vendors are unable to provide fixed prices or cannot guarantee a product or service’s quality/reliability, companies should hold off on issuing bulk orders. Finally, continuous monitoring of a BPO ensures that purchasing does not exceed its pre-arranged limits.
Automating the process provides additional convenience, like integrating purchase order management software into the company’s existing enterprise resource planning (ERP) solution.