Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

5.2.4 Supplier Scheduling: Blanket Order Processing and Blanket Release

Intended learning outcomes: Produce an overview on supplier scheduling. Explain the systematics of blanket orders and blanket releases with quantities and time periods.

One objective of resource requirements planning in long-term, or master, planning, is to prepare the channels for later procurement. In the case of goods, the challenge is to determine what suppliers can fulfill the company’s requirements in terms of quantity, quality, delivery, and delivery reliability. It is in this phase that the purchasing budget should also be set.

Experience in recent years — particularly in connection with the demand for faster delivery at lower procurement costs — has shown that for efficient logistics, a company must work together more closely with its suppliers.

Supplier scheduling is a purchasing approach using blanket agreements, discussed below when viewing the company as a customer (it has a corresponding significance to the company in its role as a supplier in a supply chain).

The supplier has to have some knowledge of the company’s master planning so that its own master planning can allow fast delivery. This exchange of information is a matter of trust, and it cannot be practiced with all or even very many suppliers (see Section 2.2.2).

Gross requirement calculated by resource requirements planning is, after all, a forecast that can be placed with suppliers as blanket orders. A blanket order is, in nonbinding cases, a “letter of intent.” A minimum blanket order quantity for a planned time period, together with a maximum quantity, increases the binding nature of the agreement and thus also raises planning security.

In medium-term planning, blanket purchase orders are defined ever more precisely, step by step. In agreement with the supplier, a company sets procurement quantities per period in medium-term planning (such as for three months hence, for two months hence, for the next month) with a decreasing range of deviation. From a certain point in time onward, the part of the blanket order planned for “next month” becomes a short-range blanket order.

A short-range blanket order is only for a set quantity. A company gradually sets due dates for parts of the order by means of an appropriate technique of execution and control of operations.

A blanket release is the authorization to ship and/or produce against a (short range) blanket agreement or contract ([ASCM22]). It sets the maximum quantity per week or per day, for example.

A delivery schedule is the required or agreed time or rate of actual delivery of goods. A systems supplier, for example, may be requested by the company to deliver to the assembly line of an automobile manufacturer or machine builder in synchrony with production.

Figure shows an example system of blanket orders and blanket releases. In this case, the two overlap.

Fig.        Systematics of blanket orders and blanket releases with quantities and time periods (example).

The idea is that both the long-range blanket order and the medium-range, more precise blanket orders will be brought up to date on a rolling basis. In the example, the rolling cycle is one month. Blanket orders are given a plus or minus deviation. Each month’s continuation of the blanket order must not contradict earlier agreements as to the acceptable range of deviation.

In this example, the company orders the exact required quantity for the next month, or, in other words, it places a short-range blanket order. The delivery schedule during the next month will be determined by a control principle such as a Kanban. In the course of the monthly period, unpredictable requirements arise, so that if a company has not given precise dates for probable delivery, the supplier will have to ready the entire quantity of the short-range blanket order at the start of the month. Additional quantification of a short-range blanket order could also set maximum requirements for blanket releases in that month.

A system like this, of continuous, ever more precise blanket orders and blanket releases, demands investiture in logistics, and planning & control, between a company and its suppliers. Therefore, the system is economically feasible only with a certain number of suppliers. Rapid and efficient communication techniques for information exchange and for updating the planning data are not only an advantage but also often a requirement of coordination. In some cases, a supplier may even have access to the company’s database, while the company may check the status of the supplier’s planning and implementation of procurement orders. See also Section 2.3.5.

Course section 5.2: Subsections and their intended learning outcomes