Posted in Operations and Supply Chain Terms, Total Reads: 664
Definition: Blanket Purchase Order
It’s an order made to a supplier for items which are repetitively ordered and need frequent deliveries over a period, normally one year. It saves customer’s order processing cost as he can place one order instead of many and gets supplies by generating release order (for a predetermined quantity). Generally, such orders are placed for supplies that are larger in quantity in aggregate over a period.
Blanket Purchase Order (BPO) helps customers to get supplies at a predetermined price. As the overall quantity comes out to be large, customer also gets discount for such orders. Other important benefit includes savings of inventory cost as despite the bulk order, order comes in smaller quantities over the given period.
The only difficulty with buyer is to forecast order quantity appropriately as demand may vary for such long period. Similarly, supplier may find it difficult to keep enough stocks but it can be solved through better communication (through meetings or IT system) between buyer and supplier as the supplier will get to know requirements of customer at regular basis.
Suppose your company has a requirement of 12 boxes of item X over a year. Each box costs Rs 21. In blanket order, you make an order of 12 boxes at a time at a discounted price of Rs 240 and specify a released order quantity of 1 box. Next time, you generate a release order; you get a box of item X at a discounted price of Rs 20.