Question

The best remedy for this problem is to use blanket purchase orders with suppliers that have frequent transactions with Nypro. A blanket purchase order is typically used for items or services that are used repeatedly, and is effective for a fixed period of time. Employing a blanket purchase order makes managing relationships with suppliers with a high quantity of purchase orders easier because it consolidates multiple purchase orders on one blanket purchase order. Clearly, the purpose of blanket purchase orders is to increase the efficiency and productivity of the purchasing process; but, how does an organization implement this policy smoothly?Low Volume VendorsNypro has too many low-volume vendors—those vendors that have infrequent, unplanned purchases, making up a low purchasing value. It is beneficial to investigate these vendors because they represent a potential avenue for cost savings through vendor consolidation.The Pareto analysis or 80-20 analysis has been used to identify which suppliers represent the majority of spending. As shown in Table 3, there are 1023 suppliers for Nypro China, however only 144 of these suppliers make up 80 percent of the entire MRO buy. This means that 879 suppliers make up the remaining 20 percent of the MRO spend! This strongly suggests that there are many low volume vendors throughout Nypro-China. In order to identify the kinds of suppliers that may include these low-volume vendors, the term, “hot commodities”—which are defined as those level-three classifications having more

Please answer:

How should the company implement the blanket purchasing agreement to consolidate large quantities of purchase orders? What are the potential benefits?

Answer 1

A blanket purchase order (BPO) is a long-term agreement between an organization and a supplier to deliver goods or services with a set price on a recurring basis over a specified time period. If your business makes multiple payments for the same goods or services, issuing a blanket purchase order with the details, such as price and delivery schedule, already specified is an efficient way to reduce time spent and processing delays.

Suppliers, in turn, can submit multiple invoices citing the same BPO number. The blanket purchase order limitations may be based on a specified time, for example a year, or a specific amount of money. In addition to time frame, quantity, and price, blanket purchase orders may include item quality specifications.

Advantages of Blanket purchase order

Procurement departments use blanket orders, which may also be called standing purchase orders, to reduce costs and build leaner, more efficient work processes. Here are several ways blanket purchase orders can boost the bottom line and improve workflow.

Procurement professionals can use blanket purchase orders to secure lower bulk pricing based on total order quantity, even when multiple deliveries are needed over time. When making one order at time over the course of a period of time, smaller quantities are negotiated. A blanket purchase order eliminates the need to secure sourcing and negotiate contracts for each order, which allows the procurement department staff to focus on important activities over repetitive tasks.

Savvy procurement managers can consolidate company-wide direct and indirect spend for more advantageous bulk pricing. And since the contract defines the specifics and scope of the order, the price won’t fluctuate over time, no matter what affects the market.

A blanket purchase order streamlines the ordering process for expected repetitive purchases. For example, if a manufacturing company needs twenty shipments of the raw materials necessary for production in the course of a year, a standing purchase order means one negotiation, one contract, and one approval process, instead of twenty. Multiple shipments as needed offers the additional benefit of minimizing the risk and costs associated with goods storage.

When to use blanket purchase order

Blanket orders are only wise to use under certain circumstances:

1.  When quantities of the same goods or services are needed throughout a time period, typically one year.

2. When unit cost can be well-defined and details can be specified.

3. When a single vendor is capable of delivering throughout the length of the contract.

4. When ordering in quantity facilitates more favorable contract terms, such as bulk discounts.

5. When staggered deliveries minimize stocking risk and costs.

Blanket purchase orders should never be written for orders where the price is not guaranteed, the quality of the product is unreliable, or the vendor cannot be trusted.

What to include in blanket purchase order

Blanket purchase orders should define the following contract terms:

1. Duration of agreement

2. Pricing and contract terms

3. Billing information – how the vendor will submit invoices for payment

4. Item specifications including expectations of quality, size, and quantity

5. Delivery quantity, times, and locations