Definition:
A blanket purchase order is a long-term agreement between a buyer and a seller that establishes the terms and conditions for future purchases over a specified period of time. It’s often used for recurring purchases of goods or services.
Key characteristics of blanket purchase orders:
- Long-term agreement: Blanket purchase orders are typically valid for a specified period of time, such as a year or more.
- Pre-approved terms: The terms and conditions of the agreement, including pricing, delivery terms, and payment terms, are established in advance.
- Release orders: Individual purchase orders, known as release orders, are issued against the blanket purchase order to authorize specific purchases.
- Flexibility: Blanket purchase orders can offer flexibility by allowing for changes in quantities or delivery dates.
Why are blanket purchase orders used?
- Efficiency: Blanket purchase orders can streamline the purchasing process by establishing pre-approved terms and conditions.
- Cost savings: They can help to achieve cost savings by negotiating favorable terms with suppliers.
- Relationship building: Blanket purchase orders can help to build stronger relationships with suppliers.
- Risk management: Blanket purchase orders can help to manage risks associated with supply chain disruptions.
However, it’s important to note that blanket purchase orders should be carefully monitored and managed to ensure that they are being used effectively and that the terms of the agreement are being adhered to.
In essence, a blanket purchase order is a long-term agreement between a buyer and a seller that establishes the terms and conditions for future purchases, providing a streamlined and efficient way to procure goods and services.
