A blanket PO, or purchase order, is a binding contract to purchase goods or services at a stated price and for a set amount of time. A blanket PO adds certainty to a business. There are many advantages to using this form of commerce. Government agencies or a private business can use a blanket PO.
The PO makes it easier for the buyer’s employees to calculate proper inventory levels and know when it is time to reorder supplies. The PO enables a buyer to better control costs by instituting cost-saving measures such as a just in time inventory system.
Soliciting bids allows potential vendors to feel that the competitors have an equal chance on the business. Added competition means favorable prices to the buyer. With a stable price for a fixed period of time, the PO serves as a hedge against inflation. Increased competition also allows the buyer more leverage in negotiating better contract terms.
Businesses like certainty. With a blanket PO, there is certainty for both the supplier and vendor regarding the cost of the goods or services. Both sides have certainty concerning quantity, price, delivery requirements and payment terms. The supplier is certain of the revenue coming in to his business. If the order is large enough and the purchaser a known company, the vendor may be able to use the POs to establish a line of credit.
The Purchasing Process
Putting together a blanket PO codifies the purchasing process. This reduces time spent on repetitive order bids and allows buyers to concentrate on other tasks. A blanket PO also increases the vendor’s networking contacts for future transactions. This leaves a clear audit trail. During the bid process, vendors may offer substitute items that might be better than the original.