When it comes to buying goods and services, businesses have to make choices about which type of purchase order (PO) to use: blanket PO or standard PO.
The choice can be crucial, as it can affect the budget, the quality of the goods or services, and the overall efficiency of the purchasing process.
What is a Blanket PO?
A blanket PO is a purchase order that is issued to a vendor for a fixed amount of goods or services over a period of time. This type of PO is often used when a business has a long-term agreement with a vendor, and they know they will need to purchase the same goods or services on a regular basis in the future. The advantage of a blanket PO is that it lets the business to lock in a certain price, eliminating the need to renegotiate prices on a regular basis.
What is a Standard PO?
A standard PO is a purchase order that is issued to a vendor for a specific amount of goods and services for a specific period of time. This type of PO is often used when a business needs to purchase goods or services on a one-time basis, or when the business has a short-term agreement with a vendor. A standard PO allows the business to control the costs and the quality of the goods or services being purchased.
Pros and Cons of a Blanket PO
The main advantage of a blanket PO is that it allows the business to lock in a certain price. This can help the business save money in the long run, as it doesn’t have to renegotiate prices each time it needs to make a purchase. Additionally, a blanket PO can reduce the amount of paperwork required, as the business only needs to issue one PO instead of multiple POs.
On the other hand, there are some disadvantages too. One major drawback is that the business may end up paying more than it needs to as the price is locked in regardless of market conditions. Additionally, a blanket PO may not provide the business with the flexibility it needs, as it may not be able to make changes to the terms of the PO without renegotiating the price.
Also Read: Blanket Purchase Order Guide: What is it, When to Use and its Pros and Cons
Pros and Cons of a Standard PO
A big advantage of standard PO is that it gives the business more control over the cost and quality of goods or services being purchased. This is because the business is able to negotiate the price and the terms of the PO each time it needs to make a purchase. Additionally, a standard PO is more flexible, as the business can make changes to the terms of the PO without needing to renegotiate the price.
There are some disadvantages too. The business may end up spending more money, as the price may not be locked in and the business may have to pay more for the same goods or services each time it needs to make a purchase. A standard PO may require more paperwork, as the business may need to issue multiple POs for the same goods or services.
Differences between a Blanket PO and a Standard PO
One of the main differences between a blanket PO and a standard PO is the amount of control the business has over the cost and quality of the goods or services being purchased. With a blanket PO, the business is locked into a certain price, while with a standard PO the business has more flexibility and can negotiate the price each time it needs to make a purchase. Additionally, a blanket PO may require less paperwork, while a standard PO may require more paperwork.
Key Considerations when Choosing Between a Blanket PO and a Standard PO
First, consider the length of the agreement. If the agreement is long-term, a blanket PO may be a better option, as it will allow the business to lock in a certain price for the duration of the agreement.
On the other hand, if the agreement is short-term, a standard PO may be a better option, as the business will have more control over the cost and quality of the goods or services being purchased.
Second, consider the amount of flexibility needed. If the business needs to be able to make changes to the terms of the PO without renegotiating the price, a standard PO may be a better option. On the other hand, if the business doesn’t need as much flexibility, a blanket PO may be a better option, as it will allow the business to lock in a certain price.
Finally, consider the amount of paperwork required. If the business needs to issue multiple POs for the same goods or services, a standard PO may be a better option. On the other hand, if the business only needs to issue one PO, a blanket PO may be a better option.
Conclusion
When it comes to choosing between a blanket PO and a standard PO, businesses need to consider the length of the agreement, the amount of flexibility needed, and the amount of paperwork required.
A blanket PO may be a better option for long-term agreements, as it will allow the business to lock in a certain price. A standard PO may be a better option for short-term agreements or for when the business needs more flexibility, as it will allow the business to control the cost and the quality of the goods or services being purchased.
