Blanket purchase order definition is an agreement which is negotiated between purchasing departments and vendors for delivering goods or services at specific prices on recurring basis for a fixed period of time. Blanket purchase orders work for the buyers since they lock in the unit price as well as quality expectation, while for vendors there is a commitment to make purchases for a fixed amount of time.
Basically, when you ask what is blanket purchase order, the simple answer is, it is a short-term contract. They are usually in place for twelve months and can also be renewed every year if required. They’re established whenever buyers need to make consistent payments for fixed periods of time.
If a specific project is currently going on with a definite date to start and end where repetitive material needs to be ordered, it’s the perfect time to use a blanket purchase order. It works great for lease agreements with vendors as well as paying contract labor.
For example, if organizations are leasing computer monitors, when they get a blanket purchase agreement, they will be able to lock the price in. But since blanket purchase orders can only be used when you are buying particular items, the agreement is only going to include monitors. If buyers would like to lock in rates for more items, they will need to negotiate another blanket PO. There are a number of organizations which may not want to use purchasing cards or ghost accounts when they are purchasing many small-dollar items from vendors. You can learn so much more about this on Precoro. They have all the answers.
Apart from locking unit prices in, blanket PO’s can be very beneficial when you are concerned about the quality of the products you are ordering. Just like procurement contracts, blanket PO’s clearly mention the specifications the buyer needs. Any disputes with regard to quality can be resolved quite easily by having a look at the purchase order.
When buyers need to make purchases with the help of blanket PO’s, they issue releases against it. Any information regarding the release will also include the individual who needs to make the purchase, the amount of goods or services purchased, as well as the value. This information can all be found in a regular purchase order as well. Suppliers can then use this information for issuing invoices.
While blanket purchase orders can benefit organizations since they lock in terms and quality, there are a few mistakes which can compromise an agreement. The biggest mistake is about buyers not monitoring agreements. Blanket POs usually come with an order and a time limit. If the maximum amount has been exceeded or if it expires, the items will be charged at their regular rate.
There are no audit trails either. The purchase department will not be looking at the agreement. So what happens in a situation where you’re leasing a PC from suppliers and the agreement expires, you’ll be paying much more.
Maintenance and the development of blanket purchase order agreements lie with the purchase department. But, in order to prevent purchases from being made once the agreement is no more, it is recommended that accounts payable also keeps a copy of all of the blanket purchase order agreements.
The most important thing to understand when it comes to the question what is a blanket purchase order is that the responsibility ultimately lies with purchasing. When there is a good enough relationship within the workplace, accounts payable may even send warning memos informing purchasing that agreements must be renegotiated or that they must be canceled. This is the only way to ensure purchases aren’t made outside the blanket purchase order.