A blanket purchase order is a contractual arrangement between a buyer and a supplier, for the supplier to deliver goods or services to the buyer, at a pre-set price, for a period of time. Blanket purchase orders are used by buyers to consolidate a number of smaller purchase orders into one large purchase, which has the following advantages:
- Paperwork. There is much less work involved in preparing a single blanket purchase order and subsequent releases against that order than in preparing a number of separate purchase orders.
- Price. A blanket purchase order for a large number of units can trigger a volume discount from the supplier.
- Supplier centralization. The buyer can centralize its purchases with a relatively small number of suppliers, which reduces the amount of time that would otherwise be required to negotiate prices and other terms with a larger number of suppliers.
A blanket purchase order works best when dealing with recurring purchases from the same supplier over an extended period of time. It is not useful when the price, quantity needed, or product quality are variable.
When using a blanket purchase order, the buying entity should monitor the quantity ordered over the term of the agreement, to ensure that the promised purchase amount is actually ordered, and to know when the total commitment amount has been ordered, so that a new agreement can be negotiated.