Purchasing & Small Business

Blanket Purchase Order (BPO)

 

A Blanket Purchase Order (BPO) is a long term agreement that includes a description of the items needed, unite 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.

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 for 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.

A blanket order system offers seven important benefits: [1]

  1. It requires many fewer purchase orders and reduces clerical work in purchasing, accounting, and receiving
  2. It releases procurement professionals from routine work, giving them more time to concentrate on value-added activities
  3. It permits volume pricing by consolidating and grouping requirements
  4. It can improve the flow of feedback information because of the grouping of materials and suppliers
  5. Because some suppliers stock materials for prompt delivery, this system may reduce the buyer’s lead times and inventory levels
  6. It allows the supplier to plan and buy more effectively, reducing the buyer’s price
  7. It develops longer-term and improved buyer-supplier relationships

eHow Scenario: [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 upfront; 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:

Leave a Reply