What is the Blanket Purchase Order?
The blanket purchase order is a contract between two parties, where one will provide services or goods at a particular price for a certain period. It is commonly referred to as BPO, mainly used for service contracts or open orders. A BPO contains specifications such as durations, terms of services rendered, preset quantities, pricing, and cancellation terms.
Significance of Blanket Purchase Order in E-commerce Shipping and Delivery
Blanket purchase orders are lucrative for companies as they reduce costs in long-term service or product procurement while decreasing processing time.
- Cost reduction: Companies that acquire products in bulk from another party often enjoy exclusive discounts. Bulk purchases, in itself, have been deeply tied to cost savings for a very long time. Furthermore, when a company has minimum active vendors, they can save the money required to streamline them.
- Faster processing: When two parties have partnered for a considerable time, collaboration becomes more accessible and faster. A buyer is not required to create new contracts whenever they bring in a shipment. It saves time on processing.
Prerequisites of Blanket Purchase Order and How It Works
One can invoke a blanket purchase order to buy large quantities of products with varying payments. Some of the prerequisites of a blanket purchase order are as follows.
- The services or goods should have the requirement of recurring procurement.
- The timely payments should vary per the quantity. However, the amount should remain per the mutual agreement throughout the contract tenure.
- There should be a specific end and start date.
Once a BPO has been agreed upon, a shipping cycle is started.
Use Case with Blanket Purchase Order
A seller located in Phuket has an average order rate of 1,000 units of men’s footwear per month. Therefore, the merchant agreed to a blanket purchase order to receive 1,000 units from a manufacturer in Manila City. Upon negotiation, the seller could buy the shoes for 10% lower than the previous rate for the next 12 months.