Uncovering the Advantages and Disadvantages of Blanket Purchase Orders

While you may have heard that blanket purchase orders are a big “no-no” when it comes to health system AP and Supply Chain processes, there are circumstances where they do make sense. The key is knowing when and how to use them effectively. We took a look at our data over the past ten years and came up with the following do’s and don’ts for blanket POs.

 

When to use blanket Purchase orders

When used correctly and sparingly, blanket POs can help reduce costs, increase efficiency and purchasing power, and streamline procurement. With blanket POs, the key is to use them for long-term agreements with vendors for purchases of the same goods or services on a regular basis. Examples include:

  • Recurring payments that occur at regular intervals like leases and software subscriptions
  • Service and maintenance contracts like capital equipment maintenance
  • Consistent supply of a specific product

 

 

When not to use blanket purchase orders

While the ease and efficiency of blanket PO usage is attractive, it can also be a source of lost funds, wreaking havoc when it comes to reconciliation.

  • Cost is unknown at the time of purchasing
  • Prices are subject to change without notice
  • Products where demand or need can fluctuate

 

Here’s an example

Over a four-year period, we noticed that a large hospital system client had very high PO usage, with quite a few blanket POs. The number of supplier returns, supplier rebates and duplicate payment claims was also relatively high. While we were able to recover over $1.1 million in these categories, we recommended less blanket PO usage, increased monitoring, and regular communication and analysis to ensure Supply Chain and AP alignment.

 

If you’re going to use blanket POs, here’s what they should include:

  • Pricing
  • Specified start and end dates
  • Terms and billing
  • Description and details of what is covered under the PO
  • A cancellation clause

 

One of the most important things to remember before using blanket POs is to never rely on the vendor to keep track of your AP processes. There should be alignment between your Supply Chain and AP departments with system procedures and checks and balances in place to monitor invoices to ensure they are only paid once, they meet the terms of the PO and that returns and cancellations are communicated to everyone involved, including the vendor.

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