Many companies tell me they don’t use Blanket Purchase Orders (BPOs) because they fear it creates a major commitment with the supplier. This doesn’t have to be the case.
A Blanket Purchase Order is usually set up to cover the purchase of one or more items from a supplier over a long period of time, usually one year. It specifies terms, conditions and price. BPOs often come into play when the supplier relationship is based on Kanban, Vendor Managed Inventory or other auto-replenishment systems where normal POs would be inadequate.
Why Are Buyers Reluctant?
The apparent stumbling block is that BPOs typically specify a total quantity for the entire purchasing period. Many buyers fear that the quantity is a firm commitment to purchase, and if business doesn’t go as planned, they will have to buy all of the remaining parts on the BPO. This is simply not true; as with most terms and conditions, it is negotiable.
Building a Relationship
BPOs are what I call relationship POs. One of the large benefits is that they forecast a quantity for the year so that the supplier can plan production or buying activities. This can significantly cut costs for the issuer of the BPO. In my experience, any commitment can be limited to the materials lead time for the supplier, usually 30 days or less.
Removing the Fear of Commitment
BPOs have many advantages including better pricing, lower transaction costs, fewer transactions to keep track of, and closer relationships between customer and supplier. Removing the pressure of an annual commitment makes it easier to reap these rewards.
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