Blanket Purchase Order
For an item or group of items ordered repetitively from a supplier, purchasing may issue a blanket purchase order—an open order, usually effective for one year, covering repeated purchases of an item or family of items. Exhibit 2.7 on p. 68 provides an example of such a form. Blanket orders eliminate the need to issue a purchase order whenever there is a need for material. After a buyer establishes a blanket order with a supplier, the ordering of an item simply requires a routine order release. The buyer and seller have already negotiated or agreed upon the terms of the purchase contract. With a blanket purchase order, the release of material becomes a routine matter between the buyer and seller.
Almost all firms establish blanket purchase orders with their suppliers. In fact, blanket orders have historically been the preferred method for making the purchasing process more efficient and user friendly. Buyers usually prefer a purchase order for initial purchases or a one-time purchase, which purchasing professionals may also call a “spot buy.” Blanket purchase orders are common for production items ordered on a regular basis or for the routine supplies required to operate. A maintenance supplies distributor, for example, may have a purchase order covering hundreds of items. It is not unusual for the buyer or seller to modify a purchase order to reflect new prices, new quantity discount schedules, or the adding or deleting of items.
The blanket purchase order is similar to the purchase order in general content and is distributed to the same departments that receive a copy of a purchase order. The major difference between a purchase order and a blanket purchase order is the delivery date and the receiving department. This information on the blanket order remains open because it often differs from order to order.
When negotiating a blanket purchase order, the buyer and supplier evaluate the anticipated demand over time for an item or family of items. The two parties agree on the terms of an agreement, including quantity discounts, required quality levels, delivery lead times, and any other important terms or conditions. The blanket purchase order remains in effect during the time specified on the agreement. This time period is often, but not always, six months to a year. Longer-term agreements covering several years are becoming increasingly common with U.S. firms. Most buyers reserve the right to cancel the blanket order at any time, particularly in the event of poor supplier performance. This requires an escape clause that allows the buyer to terminate the contract in the event of persistently poor quality, delivery problems, and so on.
