Should We Use a Blanket PO?

For inventory-based businesses, the processes and practices surrounding physical inventory can make a huge difference in your operations. For example, when there are efficient and optimized processes in place, an inventory-based business will be able to best provide service to its customers. Stock will smoothly flow in and out, the right amount of stock will always be on hand, and stockouts will be reduced. But for this to be the case, businesses need to establish the best ordering processes to fit their needs. One of these options is blanket purchase orders, or a blanket PO.

Blanket POs are just one of the ordering styles warehouse decision-makers can choose from, and choosing the right ordering style for your business is a critical part of your processes. In many cases, businesses may use more than one ordering style to get the job done and will use different ordering styles for different vendors. For example, you might use standard purchase orders   when you need a specific product at a specific time. But in many instances, a blanket PO might be the best option, and when applied correctly, might even be the more beneficial option.

Here’s everything you need to know about blanket POs, along with their potential benefits, and tips for determining when you should use them.

What are Purchase Orders?

When it comes to procuring stock, a purchase order is a document which lists the quantity and type of goods that a business will buy from a supplier. You already use some form of purchase order in your inventory-based business, and these documents are a form of contract which detail how much stock you’ll receive, and how much money is owed. 

When it comes to purchase orders, there are several distinct types that are commonly used. For example, a standard purchase order can be thought of as a “one-off” purchase order. These purchase orders are often used for one-time purchases, engagements with new vendors or for replenishing stock on short notice. 

Standard purchase orders are common, but they can be inefficient when it comes to regular stock needs. If standard purchase orders are used for recurring stock that is ordered on a regular basis, this means a warehouse leader needs to physically fill out the purchase order on a regular basis, which can be excessively time consuming, and have other potential downsides.

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Instead, warehouse leaders can turn to a blanket PO for certain stock needs.

What is a Blanket PO?

While there are several different types of POs, we’re going to hone in on blanket POs.  A blanket PO is a type of recurring purchase order, which can also be called a “standing” purchase order. It’s a contract established which details quantities, prices, and dates of delivery, usually for a set period. A blanket PO can be thought of as a “set it and forget it” type of PO: if contract is still within the valid time frame, the order will occur as outlined. 

A blanket PO can help streamline the ordering process. It sets out key details of a recurring order, including:

• The items that will come in each shipment.
• The price of those items.
• How often the shipment will be delivered.

Using a blanket PO helps ensure that you will get the same shipment of the same goods on a regular basis. It relies on a stable demand for those specific items or materials but helps ensure that you have those items coming in at predictable intervals, which can, in many cases, help you manage your inventory more effectively. 

What Are the Benefits of a Blanket PO?

There are several potential benefits to using a blanket PO in instances where they’re appropriate (which we’ll discuss in the next section). Some of these benefits can include:

• Reduced time & resources on administrative tasks: If a warehouse manager or decision-maker is using a standard purchase order when a blanket PO could be used, they’re going to be spending far more time on this process. Blanket POs simplifies the purchasing process by consolidating recurring or multiple orders into one agreement. This reduces the administrative overhead of creating individual, recurring POs. Data tells us that in general, managers spend up to 54% of their time on admin work. By switching to a more efficient PO system, managers can get some of their valuable time back. 
• Streamlined stock processes: Blanket POs can be more efficient than their one-off counterparts, meaning that less time is spent during the order cycle, and operational efficiency can be increased. This might lead to overall better service levels, reduced stockouts, reduced planning cycle times and improved operations. These sorts of improvements can have ripple effects on your entire organization. For example, reducing stock outs & overstocks is shown to lower inventory costs by 10%. 
• Potentially more favorable pricing: While this can vary from supplier to supplier, it is often the case that inventory-based businesses are able to secure discounts or more favorable pricing terms with a blanket PO. That’s because these POs involve larger quantities of stock and can lead to cost savings (particularly over time).
• Stronger relationships with suppliers: When a blanket PO is in play, it means that your inventory-based business is in a longer-term relationship with a vendor than if just a standard PO is being used. That means that there’s potential to develop deeper and more useful relationships with suppliers, which can lead to better communications, more favorable terms, and other benefits, such as reduced lead times or more timely responses. 

Is a Blanket PO Right for You?

Blanket POs can have a number of benefits for your business, but they can also have potential downsides if they’re used improperly. Here are some factors to consider when it comes to using a blanket PO.

Pricing

A blanket purchase order lays out clear pricing guidelines that will help you understand exactly what your order will cost each time. You will typically not have to worry about seasonal shifts in pricing, which means that you may be able to better predict your overall costs.

As you’re determining whether a blanket purchase order is the right solution for you, however, make sure you carefully consider whether you will receive pricing benefits from signing that contract or agreeing to set pricing terms early. In some cases, you may find that items end up costing more, especially if there are normal seasonal price dips that are not taken into consideration as part of your pricing model. In addition, some goods may fluctuate in price over time.

Consistency

The primary benefit of blanket purchase orders is their overall consistency. When you place a blanket purchase order, you can count on those items showing up at predictable, consistent intervals. While supply chain issues may decrease the likelihood that every shipment will show up exactly on time, you can rely on those items coming within a predictable window, which means that you’re more likely to have the inventory you need, when you need it.

That consistency can also prove incredibly beneficial when items are in short supply. If you have a consistent order, you can easily let customers know when those items are expected to arrive and what items they can expect to be in each shipment. 

When it comes to considering whether to use a blanket PO, first take steps to understand if this stock will be needed on a consistent, recurring basis. You can use historical data and inventory forecasting models to anticipate future needs, and take  factors such as seasonality and consumer trends into account.

Diversity

Supply chain diversity is a critical element for many successful businesses. Diversity can help you keep up with supply chain challenges and address issues more effectively, preventing you from ending up with inventory shortages during difficult periods. Blanket POs, however, assume that your single supplier will provide the total inventory you need for that period–or at least, the total inventory needed to fulfill that order. If you need to maintain a high degree of diversity, adaptability, and responsiveness in your supply chain, a blanket purchase order may not be the best solution for your needs. However, a blanket PO can be useful for certain products or stock groups, and you can use different blanket POs with different vendors, ensuring diversity is still present in your inventory-based business. 

Flexibility

In today’s dynamic and ever-changing business landscape, flexibility can be paramount for inventory-based businesses. Consumer demand can change, stock can suddenly become more or less vital, and external factors can influence how stock moves. If you’re debating using a blanket PO, ensure that you understand your own flexibility needs, and that you take those into consideration, especially if your agreement is long-term. 

Let Stock IQ Help Manage Your Supply Chain

When you need critical insights into your inventory-based business to decide if blanket POs are right for you, StockIQ has your back. StockIQ offers intelligent supply chain planning that can improve turns and service levels, while reducing stock outs and excess inventory. Our supply chain planning suite helps you forecast accurately and run efficiently and make the best decisions when it comes to our purchase orders. Contact us today to learn more about how our supply chain management solutions can benefit your business.