4 ways purchase order consolidation benefits your business

July 1, 2020

Many procurement leaders with the opportunity to consolidate their purchase orders still neglect to do so. Engaging in purchase order consolidation is nothing but beneficial to your accounting department, the collective stress level of your procurement and supply chain organization, and the strategic planning process within your company.

In order to consolidate your purchase orders, simply combine all of your POs from multiple units of your business. From there, you can submit that single purchase order to a vendor capable of fulfilling the requirements of that order, as opposed to sending several purchase orders to multiple vendors. Many procurement software systems provide a feature within their programming that simplifies this process and assists you in generating consolidated purchase orders.

The resultant, aggregated purchase order is commonly referred to as a Blanket Purchase Order, and it is most commonly used when a business has a recurring need for expendable goods. Suppliers also benefit from blanket purchase orders because they guarantee ongoing business and assist the suppliers with their own orders and cash-flow projections.

Plainly put, there is no acceptable reason for this practice to persist if it can be avoided, for two very simple reasons. First, the consolidation process is so easy to execute, and second, there are crystal clear ways that purchase order consolidation can benefit your business, and they can be summarized in the following four categories.

1. It will reduce your monthly expenses

By consolidating its purchase orders, your procurement team has the ability to link together the small purchases from several different departments and then submit fewer purchase orders to your regular suppliers. These much larger purchase orders individually qualify for quantity discounts based on the overall increase in the number of items included in each order. As a result, your company will save more money over the course of conducting its regular business simply by lumping its purchases together, which is a benefit you would otherwise fail to qualify for by continuing to submit smaller and more frequent purchase orders.

2. It will make your business more efficient

Perhaps the most plainly obvious benefit to consolidating your purchase orders is the clear boost in efficiency that comes from submitting one solitary purchase order instead of orders that may potentially number well into the hundreds. Certainly, this massive reduction in total orders also reduces the time spent internally generating and tracking smaller orders, which reduces the workload of your procurement team and frees them up to perform more meaningful tasks. Also, if you are able to situate the majority of your purchases under the care of a single vendor, you will considerably diminish the total number of vendor interactions your procurement team is forced to engage in on a monthly basis.

Purchase order consolidation illustration

3. It will make your stocking easier to manage

One of the underrated benefits to consolidating purchase orders is the opportunity to negotiate the simultaneous arrival dates and quantities of every material or product necessary for a company’s ongoing production schedules of projects. As a result, your organization will be able to tether materials to one another and take concurrent possession of every required production component. By doing this, your supply chain will need to devote less time to superfluous materials, and can allocate space that would otherwise be used for storage to more constructive pursuits. While your company could certainly manage scheduling without the consolidation of purchase orders, the process becomes far easier for both procurement and supply chain teams to navigate when it is undertaken through a sole vendor as opposed to coordinating numerous deliveries with miscellaneous vendors.

4. It will make contracts terms easier to navigate.

Another helpful feature of consolidated purchase orders is they often include clauses to cover subsequent purchases during the contract period, partially out of a desire for vendors to make terms as attractive as possible to their most loyal customers. These clauses allow your company to submit additional invoice items as needed until the terms of the agreement are fulfilled, the order period terminates, or some other threshold is reached. Inclusions like these within the structure of the contract will allow you some flexibility and peace of mind, knowing that you can make adjustments in quantities and scheduling while still enjoying the benefits of only interacting with a single vendor. While you may presently be dealing with several different vendors that allow for some level of flexibility, having to remember and work within the constraints of multiple vendor contracts can be an administrative nightmare. This annoyance is easily avoided when you only have one set of contractual terms to uphold.

Making contracts terms easier to navigate

There is no down side to purchase order consolidation

Realistically, there is are no negatives impacts to purchase order consolidation—only benefits to your procurement team, supply chain team, and your company as a whole. Not only will it save you money and increase the efficiency of your employees, but it can also reduce the amount of space within your production facilities that is allocated to stocking unnecessary materials. Plus, PO consolidation provides you with a contractual safety net that permits you to make quantity adjustments in the middle of billing periods.

Expert procurement and supply-chain tips sent straight to your inbox.