A blanket order, blanket purchase agreement or call-off order is a
purchase order
A purchase order is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from externa ...
which a
customer places with its
supplier to allow multiple delivery dates over a period of time, often negotiated to take advantage of predetermined
pricing. It is normally used when there is a recurring need for expendable goods. Blanket orders are often used when a customer buys large quantities and has obtained special discounts. Based on the blanket order, sales orders ('blanket releases' or 'release orders') and invoice items can be created as needed until the contract is fulfilled, the end of the order period is reached or a pre-determined maximum order value is reached.
Benefits
Issuing a blanket order allows a customer not to hold more stock than necessary at any time, and avoids the administrative expense of processing frequent purchase orders, while favoring
discount pricing through volume commitments or price-breaks. On the supplier's side, a blanket order may provide the benefit of guaranteeing ongoing business and also help suppliers better predict future cash flows and orders.
A blanket order is set at a fixed priced contract for a period of time. The buyer looks for the best pricing among competing supplier bids. After the best one is chosen, the prices of goods are fixed, and also quantities of each product are given to the supplier to prepare stock for on requested delivery.
Forecasted quantity is provided by the buyer as full usage quantity recorded historically a few years or as needed for quantitative analysis. The supplier may give a condition of quantity to supply for this
ontract For example, 80% of the forecast quantity must be bought at the end of the contract, which may be one or two years.
The blanket order will charge the delayed delivery if the supplier could not supply the products in the contract on time. Anyway, since the supplier has already kept the stock for ready delivery for the first year or agreed period, if the buyer could not fulfill the contract's conditions, such as "must buy 80% of
forecast quantity within a year," the contract may be extended, or the delay charge could be no more, or no other charges requested by the buyer.
Realistically, at the end of the blanket order
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
, the buyer would not buy at forecasted quantity as agreed in the contract say, 80% of the demand sent to the supplier. The buyer will also allow the supplier to sell the products in the contract to reduce the quantity. The supplier also has to talk and inform the buyer about the quantities of goods kept in order that the buyer could know the status of the stock. Before the buyer issuing the purchase order to the supplier, the buyer must ask the supplier first about stock availability to avoid the problem from no stock availability.
Blanket orders or call-off orders may also be used for ordering services, for example for
maintenance and repair services. In these cases, the benefits associated with stock-holding do not arise but the call-off order may allow emergency repairs or on-call maintenance to be arranged easily at guaranteed rates.
Difficulties
The most difficult part of having a contract is determining the forecast quantity arranged by the user of the product. As the forecast quantity can be difficult to get, the supplier must be aware of the quantity to keep in stock. An easy way to do this is to discuss with the buyer what quantity to keep in stock. For example, they might keep only 20% in stock in the first 6 months, so that the supplier and the buyer are able to review the quantity and adjust it appropriately. This reduces the
stock burden
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
of the supplier during the contract period and might help the buyer at the end of the contract if the stock does not move as quickly as anticipated. The contract might be extended year after year, but it can be adjusted each time as more relevant forecasting history will predicate the need to decrease or increase stock requirements. Alternatively, some companies may utilize forecasted information via a
material requirements planning
Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, but it is possible to conduct MRP by hand as well.
An MRP system ...
system to determine appropriate stock quantities throughout the
product's life cycle.
Federal Acquisition Regulation
The United States'
Federal Acquisition Regulation
The Federal Acquisition Regulation (FAR) is the principal set of rules regarding Government procurement in the United States,. and is codified at Chapter 1 of Title 48 of the Code of Federal Regulations, . It covers many of the contracts issued b ...
uses the term "blanket purchase agreements" or BPAs.
According to the U.S.
General Services Administration
The General Services Administration (GSA) is an independent agency of the United States government established in 1949 to help manage and support the basic functioning of federal agencies. GSA supplies products and communications for U.S. gover ...
, BPAs:
* Provide opportunities to negotiate improved discounts
* Satisfy recurring requirements
* Reduce administrative costs by eliminating repetitive acquisition efforts
* Permit ordering activities to leverage buying power through volume purchasing
* Enable ordering activities streamlined ordering procedures
* Permit ordering activities to incorporate Contractor Team Arrangements (CTAs)
* Reduce procurement lead time
* Permit ordering activities the ability to incorporate terms and conditions not in conflict with the underlying contract.
[U.S. General Services Administratio]
Blanket Purchase Agreements (BPAs)
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See also
* General order
* Invoice
An invoice, bill or tab is a commercial document issued by a seller to a buyer relating to a sale transaction and indicating the products, quantities, and agreed-upon prices for products or services the seller had provided the buyer.
Payment ...
* Purchase order
A purchase order is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from externa ...
* Remittance advice
Remittance advice is a letter sent by a customer to a supplier to inform the supplier that their invoice has been paid. If the customer is paying by cheque, the remittance advice often accompanies the cheque. The advice may consist of a literal ...
* Sales order
{{unref, date=December 2018
The sales order, sometimes abbreviated as SO, is an order issued by a business or sole trader to a customer. A sales order may be for products and/or services. Given the wide variety of businesses, this means that the o ...
References
{{Authority control
Accounting source documents
Procurement
Business documents