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Blanket Purchase Orders
Purchase Order (PO) - A type of contract between a buyer and a seller. Regardless of what it is called, there is always something that serves the legal function of "purchase order" when a buyer makes a request for goods or services to be provided. When the seller agrees to provide the goods and services, and both parties agree on the price, a binding contract exists between buyer and seller. Note that the delivery dates don't have to be agreed upon in order for a binding contract to exist. /The two major types of orders are Discrete Purchase Orders and Blanket Purchase Orders
Types of Blanket Purchase Orders
Unlike stand-alone (discrete) orders, which have many, often-used order type names (contract order, drop ship order, etc., there are virtually no recognizable order type names used for the different types of Blanket Purchase Orders (BPOs). The "type names" you see here are really just descriptors, and won't necessarily be names that will be familiar to most trading partners. When discussing the implementation with a trading partner, be sure to discuss up-front just what type of BPO you are talking about. Ask about the following:
BPO types - Buyer-Managed Inventory environment:
BPO, Item-specific, Non-forecast environment, Contains Delivery Schedules
BPO, Item-specific, Unknown schedule dates
BPO, Item-specific, non-Forecast environment, Quantity-based
BPO, Value-based, Item-Specific
BPO, Value-based, non-Item Specific
BPO types - Supplier-Managed Inventory environment:
BPO, Supplier-Managed Inventory, Forecast-based
BPO, Supplier-Managed Inventory, Consumption-based
BPO types - Additional "Type" terms:
See also Identifying Order Type and Subtype.
Length of Commitment
“A Blanket Purchase Order (BPO) is a long-term commitment
to a supplier for material against which short-term releases will be generated
to satisfy requirements." (From definition).
The typical BPO is issued to cover a defined extended period of time, and a typical commitment is for one year. However, the appropriate effective time period for a BPO may vary depending on the business need. Alternatively, the BPO can be issued to cover a defined quantity of product for delivery over an undefined extended time period. However, this alternative is exceptional.
The length of commitment for a BPO does not need to be equal to the length of commitment of the associated terms and conditions agreement (TCA). Several BPOs for a part might be issued during the life of TCA; conversely in the case of evergreen TCAs, one BPO might be issued, with the length of commitment continually extended when the associated TCA is renewed.
The following factors should be taken into account when determining how long a commitment should be made:
Stability of pricing
Stability of demand
Attributes of the TCA
The length of commitment for a BPO may be constrained by what trading partner systems can handle. Specific fields to watch out for include sub-item number (which may be how systems are numbering individual deliveries, and which therefore define the limit of number of deliveries for an item) and total line item quantity. For some trading partners, extended price (unit price times total quantity) may need to be considered if this is stored or reported and there are field size limitations.
Systems Constraints for Evergreen BPOs
If trading partners wish to maintain “evergreen,” or
renewable BPOs, systems or administrative constraints may be a consideration.
For example, BPOs may be renewed by extending the total quantity or total
dollars; the fields for maintaining such data may only be so large. One
solution for renewing the BPO may be to open up a new line item for the part on
the existing BPO. In this case, trading partners should take into account the
impact of having multiple line item numbers for the same part, especially when
it comes to matching forecast schedules, acknowledgments, invoices, ship
notices, etc. Most of these complications are avoided when a new BPO is being
issued to replace an expired BPO, with the exception of matching up the forecast
schedules (see Matching Schedules to Effective Dates
in the Forecast section. Trading
partners should work together outside the EDI process to establish the timing
for BPO renewals/reissues so that complications can be avoided. See also the
discussion for Items Per Blanket Order.
It should be noted that some trading partners have their applications designed to disallow the same part number to be on an order more than once, in which case this would preclude the option of extending/renewing a BPO by opening (adding) a new line item.
If evergreen BPOs are used with non-evergreen TCAs, this means that the TCA (contract) number on the BPO header will change as old TCAs expire and new TCAs are issued. The systems constraint here is that few trading partners can handle order header level changes, particularly changes to a key field such as contract number. In most cases, trading partners will require that old BPOs be closed and new BPOs be issued in conjunction with expiration and issuance of TCAs.
Stability of Pricing
Stability of pricing is relative. If trading partners feel that pricing is volatile enough, BPOs might be issued for a term that is consistent with the pricing stability, then new BPOs negotiated and issued. Alternatively, BPOs might be issued for a long-term commitment, but pricing re-negotiated periodically (semi-annually, quarterly, etc.), and price changes applied to the existing BPOs contractually or via blanket change orders (see Price Changes in the section on Blanket Change Orders.)
Stability of Demand
While it is generally recommended that processes involving the use of BPOs be used in situations where demand is fairly stable, this is really a trading partner issue. BPOs may be used any time they add value to the management of the parts. When evaluating demand, both short-term and long-term demand should be evaluated. It should also be noted that “stable demand” does not mean “flat demand”; a part might have constant demand spikes yet still be suitable for a process which utilizes BPOs.
Legal and Audit Concerns
It should also be noted that many legal departments are requiring that contracts be issued with new contract numbers each time re-negotiations take place, due to concerns about maintaining an audit trail of what terms, pricing, effective dates were in effect when; in effect, this precludes the use of evergreen agreements.
Terms and Conditions Agreements
All the general best-practice recommendations for Terms and Conditions Agreements apply to Blanket Purchase Orders.
This supporting documentation for Blanket Purchase Orders assumes that a business agreement exists which defines all standard , basic trading terms and conditions as agreed between the buyer and seller, and that the BPO constitutes a business transaction under this agreement.
Items Per Blanket Order
Generally, it is recommended that BPOs be issued for
single items (one part number per BPO) for all the reasons listed below, but trading partners may agree to process multiple item
BPOs. This may be in order to accommodate administrative
considerations or systems requirements. On the other hand, it is often more efficient to
process multiple-item orders, and trading partners may agree to manage multiple item
(multiple part number) BPOs when it makes sense. For multiple-item BPOs,
see the recommendations for
Grouping Items on Discrete POs.
Reasons for recommending single-item BPOs include:
Since historically many companies have treated BPOs as single-item orders, many trading partners may have systems that have been designed to handle only single-item BPOs.
Moving Parts On/Off Processes
It may be preferable for trading partners to manage single-item BPOs, since this allows for parts to be put on or taken off of new planning processes easily; processing new BPOs and BPO cancellations is easier than processing and tracking Blanket Change Orders when there are multiple items on the BPO.
Acknowledgments, Change Orders, and Release Management
In the non-forecast environment, change orders are used as releases, changes to releases and as changes to the BPO itself. Keeping changes, acknowledgments and releases in synch is much easier for single item BPOs. Even in a forecast environment, where changes to BPOs are ideally kept at a minimum, and where the use of release numbers is optional, changes will occur, and single-item BPOs are easier to manage.
Part Revision Changes
If part revision changes are likely to occur during the life of the BPO, these may be handled by closing or deleting an item on a BPO, and opening (adding) a new line item to the same, or by closing/canceling an open BPO and issuing a new BPO, and both of these alternatives are more easily facilitated when BPOs are single-item. Alternatively, BPOs with shorter length of commitment might be used in cases where it is known that the part revision will be changing.
If trading partners wish to maintain "evergreen," or renewable BPOs, systems constraints may be a consideration. BPOs are may be renewed by extending the total quantity or total dollars; the fields for maintaining such data may only be so large, and the solution for renewing the BPO may be to open up a new line item for the part on the existing BPO. This is easier to manage this if BPOs are single-item. In this case, trading partners should take into account the impact of having multiple line item numbers for the same part, especially when it comes to matching forecast schedules, acknowledgments, invoices, ship notices, etc. It should be noted that some trading partners have their applications designed to disallow the same part number to be on an order more than once, in which case this would preclude the option of extending/renewing a BPO by opening (adding) a new line item. See also the discussion above under "Length of Commitment." The following was recommended in "EIDX Implementation Recommendations for Change Order Transaction (860), Change Order Acknowledgment (865) Transaction", published by EIDX in August, 1995:
"It is recommended that the purchase order have a given part number only on one line item in the order. If the part number must be repeated in a purchase order, the entire set of schedules for the given part are split between the line items. This may complicate the seller's processing of the orders and reviewing the schedules in their entirety. Likewise, when the seller splits line items in the sales order and they do not maintain the integrity of the original line item number, the buyer's system may have problems matching the acknowledgments to their data.
"If there is a business reason for repeating the same part on multiple line items within a given purchase order, then considerations should be given to splitting them into separate purchase orders."
Another reason for using single-item BPOs when evergreen agreements are being used is
that not all parts on the original agreement may be renewed against the same agreement, or
some parts may be on the same agreement but with varying lengths of commitment.
Grouping Parts on Multiple-item BPOs
If trading partners agree to process multiple item BPOs, the currently agreed upon EIDX conventions apply (same Ship-To location, same contract number). For BPOs, EIDX further recommends that only parts with common process characteristics be grouped together on BPOs, including:
Line Item Quantities and Delivery Schedules
Blanket Order Total Quantity
Some trading partners' systems are designed to expect at least one line item on an order, even if it's a blanket order. It may not be possible to automate the transmission of a BPO that is value-based and not item-specific until the first line item has been added to the order. There is no effective way to transmit a "dummy" line item in this case. After the first line item is taken care of manually, it may be possible to transmit BPO changes to add more items to this type of BPO.
Most trading partners have open order systems that are quantity-driven, i.e. the system expects to see a quantity and unit price, and total amount is then calculated. For BPOs that have line items, but where the line-items are value-based, a total line item quantity should be sent on a BPO even though the agreement is value-based (for a sum of money rather than for a total quantity) or forecast-based. Calculate an estimated quantity by dividing total line item value by the unit price of the item; you may need to round up to a multiple of the standard (a/k/a pre-pack) quantity. The TCA linked to the BPO should indicate that the quantity is an estimated quantity.
A BPO with pre-determined delivery schedules might be used in cases where an
item has stable, regular demand, however this is rare, and this type of BPO is
really a discrete order with a long time horizon. Most BPOs will be
issued initially with no delivery schedules. In
Supplier-Managed Inventory (SMI)
processes, the supplier determines when to ship parts, so delivery schedules are
meaningless. However, most trading partners' systems are designed to
expect at least one delivery schedule on an open purchase order, so it is
recommended that at least one schedule should be sent; it may be a "dummy"
schedule. Trading partners who do not need schedules on new BPOs can
ignore the schedule segments. See
Conveying Delivery Schedules in the
Data Requirements section for Order Models.
Last updated 01 February 2003