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Framework agreement: definition and important aspects for buyers
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Blanket Order in a nutshell:
A blanket order is a framework agreement that regulates the delivery of a fixed total quantity at agreed conditions over a certain period of time. For the purchasing department, this enables flexible call-off control with simultaneous price security and reduced administrative effort.
Example: An automotive supplier concludes a blanket order with its supplier for 50,000 electronic components for 12 months at a fixed price of EUR 2.50 per unit, whereby monthly call-offs of at least 2,000 units are agreed.
Contents
What is a blanket order?
A blanket order, also known as a call-off order or blanket order, is a long-term agreement between a buyer and a supplier for the procurement of goods or services on fixed terms. Quantities, prices and delivery conditions are specified in advance for a certain period of time, without the need for specific orders to be triggered immediately. Actual deliveries are called off by the buyer in line with demand.
Core elements of a blanket order
Significance for purchasing
Blanket orders offer decisive advantages in the procurement process. They enable buyers to establish stable supply relationships and benefit from volume discounts. Long-term planning can reduce costs and guarantee security of supply. Framework orders also simplify procurement processes and reduce the time and effort required for negotiations and order processing.
Guide: Everything you need to know about the efficient use of blanket orders in purchasing
Blanket order: from individual order to blanket order
In the modern business world, companies are faced with the challenge of making procurement processes more efficient and flexible. Based on the understanding of the blanket order as a long-term agreement, it is clear how important it is to cover recurring requirements without high administrative costs. Traditional individual orders reach their limits here, as they tie up time and resources. The need for a transformation towards agile procurement strategies is becoming increasingly clear in order to secure competitive advantages and reduce costs.
Old: Individual order
Traditional approach: In the past, the procurement process was often based on individual orders. A separate ordering process was initiated for each requirement, starting with the requirement notification, followed by the request for quotation, the order and delivery tracking. This approach required extensive administrative activities and led to longer lead times. The tools were mostly paper-based order forms or simple digital systems without integrations. Challenges arose due to the time required, the risk of errors with manual entries and a lack of flexibility in the event of fluctuations in demand. There was also a lack of opportunity to benefit from volume discounts or long-term conditions.
New: Blanket Order
Blanket order: The introduction of the blanket order revolutionizes the procurement process through a long-term and flexible framework agreement. Instead of placing a separate order for each delivery, a total requirement is agreed with the supplier over a specific period of time. Modern technologies such as e-procurement platforms and automated ordering systems support this implementation. Key innovations here are electronic data transfer, real-time communication and integration into ERP systems. Practical benefits result from a reduction in administrative effort, improved pricing by bundling volumes and greater responsiveness to market changes. Companies can thus optimize their inventories, stabilize supply chains and operate more efficiently overall.
Practical example: Electronics production
A leading electronics manufacturer implemented Blanket Orders for the procurement of PCB components. The long-term framework agreement over twelve months with selected suppliers considerably simplified the procurement processes. Specifically, the administrative effort was reduced by 50% as individual ordering processes were eliminated. The procurement costs were reduced by 20% thanks to negotiated volume discounts. In addition, warehousing was optimized, which led to a 30% reduction in inventories. Nevertheless, the ability to deliver remained high, as flexible call-offs were possible according to production requirements. Overall, this resulted in a 15% increase in production efficiency and a faster market launch of new products.
Conclusion on the Blanket Order
Blanket orders are an indispensable instrument of modern purchasing. Through long-term agreements, they not only offer planning security and cost savings, but also significantly optimize procurement processes. Despite potential challenges such as market volatility or minimum purchase obligations, the strategic advantages clearly outweigh the disadvantages. With increasing digitalization and AI-supported processes, it will be possible to make framework agreements even more efficient and flexible.
