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What is a Blanket Purchase Order? When to use a Blanket PO? What are the main benefits of a blanket PO? What do you need to take into account when creating a blanket PO?
What is a blanket Purchase order?
A blanket purchase order (BPO) is a long-term agreement between your company and your supplier to deliver goods or services with a set price on a recurring basis over a specified time period.
If your business makes multiple payments for the same goods or services, issuing a blanket purchase order with the details, such as price and delivery schedule, already specified, is an efficient way to reduce time spent and processing delays. Suppliers, on the other side, can submit multiple invoices referring to the same BPO number.
Typical elements that need to be considered when specifying a BPO are:
- time frame
- duration of agreement
- item quality
- delivery locations
- billing address
When do we usually use a Blanke Purchase Order?
In general, we will use a Blanket Purchase Order whenever we wish to streamline repetitive purchasing projects. Of course, there are some basic pre-requirements and terms that need to be met before issuing A BPO.
First, of all we need to know does our supplier have the capacity to deliver required items based on specified terms.
Secondly, we need to project and forecast our demand based on past business trends, taking into account future developments and plans.
The third is – the pairing up our own storage capacity with the production facility and shipping deliveries. It is important to find an optimal quantity per shipping delivery.
What are the benefits, and why should we use a Blanket Purchase order?
The main reason is to optimize the manufacturing cost. The second reason is to ensure stable deliveries of raw materials necessary for the constant flow of our manufacturing process.
And, in the end, we can calculate and forecast our financials more accurately.
With proper planning and the right suppliers, we have an option to lower the next manufacturing costs:
- by bulk purchasing, we can lower purchasing cost
- lower time to process procurements
- lower your warehousing costs
- lower shipping and landing cost
- generally lower operational costs
To manage all this, you need the right software (MRP/ERP) tools. Currently, here in ERPAG, we are a couple of steps away of delivering a fully integrated BPO that will accommodate all numbered features and ensure a seamless workflow implementation from the Small Business Perspective. We are on the path to deliver all ENTERPRISE features optimized for Small and Midsized Business (SMB), and Blanke Purchase order is one of them.
Let’s move forward to the next topic:
Blanket Purchase Order -The challenges
As you can presume, the most challenging part is of course: FORECASTING
SMBs can rely on experience and trends. But it is not that easy. From our experience business that is trying to implement BPO as a business workflow has outgrown a startup or small phase and it’s in the fast-growing phase.
To enable stable growth, business managers are reaching for tools that can ensure that. In that fast pace change, you cannot rely just on your guts.
You need to process past data, get all necessary statistical data, and get an insight into current orders and trends. BPO comes just as a logical next step and upgrade when you have already tightened your inventory, purchasing, and shopfloor – from the inventory movement perspective.
Next challenge is to ensure the quality and reliability of the chosen supplier.
The last one is monitoring:
You should monitor totals for each delivery against the agreed quantity and to match incoming invoices with the right BPO. The best way is to use automated software tools(like ERPAG) that can gather that form different departments and tie them to the BPO.