A blanket order is defined as an order the customer negotiates with its supplier. This order contains multiple delivery dates scheduled over a period of time for specific goods, sometimes at predetermined prices. It is normally used when there is a recurring need for expendable goods. Hence, items are purchased under a single purchase order rather than processing a separate P.O. each time new supplies are needed.
Advantages of Blanket Orders
For the customers, negotiating a blanket order will dispense him from holding large inventories of goods, while letting him avoid the administrative expense of processing frequent purchase orders. Also, it will often give him access to favorable discount pricing through volume commitments.
As for supplier, the advantage in signing blanket orders include better management of its own supplies, as well as better planfication of delivery and production cycles. Also, signing blanket orders can insure a more steady workflow, rather than producing / supplying large quantities of products at irregular intervals.
Usage of Blanket Orders
Blanket purchase orders should be used when
- There is repetitive purchase of specific goods and services from the same supplier, which are paid in a predictable manner.
- Orders require numerous shipment / excessive storage.
- Enable the purchaser to obtain favorable pricing through volume discount.
- Supports a long-term relationship between the purchaser and the supplier.
Blanket purchase orders generally should not be used when
- No benefits will be derived over use of a regular Purchase Order (i.e. volume discount).
- Quality of services and goods supplied by vendor are questionable.
- No relationships exist between the purchaser and the supplier
Content of a Blanket Order
Blanket orders format usually include the following information:
- The beginning and ending time period for the blanket order;
- A cancellation clause;
- Items and/or categories of items to be covered by the blanket purchase order;
- The estimated quantity, including a maximum (if any);
- Prices and pricing arrangements;
- Terms and billing arrangements;
- Personnel authorized to issue order releases;