With certain procurement transactions, the costs of procurement are disproportionately high in relation to the value of the material or service involved. This is frequently the case of office supplies (such as pencils and notepads) and services of relatively minor importance (such as small repairs, cleaning work, and courier service), for example. In such cases, it makes sense to streamline the procurement process. Procurement costs – which in the case of standard procurement processes can be quite high – are significantly reduced if a so-called blanket purchase order is created instead of a standard PO. Such a single long-term purchase order can be used to procure a variety of materials or services whose modest value does not justify the high processing cost of issuing a series of individual POs.
The main advantage of using blanket POs is thus the associated reduction in order processing costs. Transaction costs are lower with blanket POs because:
- The blanket PO is valid for a longer period.
- There is no goods receipt or service entry.
- It is not necessary to create PO items for individual procurement transactions.
Understand more about blanket purchase orders in this PDF Guide on Blanket Purchase Order.