A Blanket Purchase Order (BPO) is a long-term agreement that includes a description of the items needed, unit price, and contractual provisions. Although a single blanket purchase order number is only set up one time, it can allow multiple releases against it at different times throughout a set time period. A “release” occurs each time a blanket purchase order quantity is fulfilled and invoiced against.
Definition: A Blanket Purchase Order (BPO) is a method for placing orders that require multiple payments over an extended period of time.
When to use a Blanket Purchase Order (BPO)
The best time to use a BPO is when:
- There will be reoccurring purchases
- When bulk purchases will be made to save money
- Multiple payments and delivery dates will be made
- Quantities will change
- There are defined start and end dates
- Order amounts can change over time
- Want to reduce administrative costs
- A single vendor can satisfy the contract
When Not to Use a Blanket Purchase Order (BPO)
A BPO should not be used under the following circumstances:
- Pricing can’t be determined at purchase
- There will be price fluctuations
- Quantity at time of purchase is unknown
- Goods and services can’t reliably be forecast
Blanket Order System (BOS)
A BPO is conducted in a Blanket Order System (BOS). A BOS is a system where a store comes into an agreement with a supplier to supply small quantity items repetitively. This type of system solves the problem of the thousands of items a store can’t carry in inventory due to space, time, and cash flow. The BOS increases efficiency by eliminating repetitive data entry and multiple one-time purchase orders.
7 Benefits of a Blanket Order System (BOS) [1]
- It requires many fewer purchase orders and reduces clerical work in purchasing, accounting, and receiving
- It releases procurement professionals from routine work, giving them more time to concentrate on value-added activities
- It permits volume pricing by consolidating and grouping requirements
- It can improve the flow of feedback information because of the grouping of materials and suppliers
- Because some suppliers stock materials for prompt delivery, this system may reduce the buyer’s lead times and inventory levels
- It allows the supplier to plan and buy more effectively, reducing the buyer’s price
- It develops longer-term and improved buyer-supplier relationships
Blanket Purchase Order (BPO) Example: [2]
Let’s say that your company wishes to set up an agreement with a landscaping service for monthly lawn care. Your company cannot pay for the entire year of service up front; instead, it wishes to create a blanket purchase order so that it can pay the lawn company each month. In the purchasing system, a buyer will create a blanket purchase order for 12 months on a single line of the purchase order; it will include the monthly dollar amount as well. The buyer will also create blanket order rules that will set an expiration date (12 months from now) as well as how many months are allowed to be released at one time. Each month, as the lawn care service provider performs the work and invoices for it, the buyer will generate a release of one month in order to pay the invoice. Once 12 releases have been done against this blanket purchase order, the purchase order is complete.
AcqLinks and References:
- [1] Burt, Petcavage, and Pinkerton, (2010) “Supply Management” McGraw-Hill
- [2] eHow.com – Blanket Purchase Order
- Navy BPA Best Practices
- DAU “Comparison of Major Contract Types” – May 2013
Updated: 7/24/20121
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