TAG, Inc. Saved Healthcare Systems $6M+ in Two Month Pay-It-Forward Recovery Program
July 1, 2020
Keys to Successful Supplier Relationships
August 10, 2020Blanket purchase orders (POs) are often used to help reduce system costs, operate with only necessary inventory, and increase purchasing power. Nonetheless, blanket POs are often a source of lost funds for a healthcare system. Typically, TAG recommends limiting or eliminating the use of blanket POs because of the associated risks. We recognize, however, that some situations necessitate the use of a blanket PO. When those circumstances arise, your system should consider the following risks and implement preventative measures to reduce those risks.
1. Lack of Required Information
Blanket POs often lack many of the standard controls found within traditional POs. Because blanket POs are used to order in bulk across multiple departments, they leave many of the terms outstanding because they simply are not known at the time of PO creation. Blanket purchase orders can be advantageous for healthcare systems to use as they allow an organization to order goods and services in bulk across multiple departments that would normally be purchased in smaller increments throughout the year.
This only works, however, when the blanket PO clearly indicates:
- Pricing arrangements
- Duration of the PO
- Billing conditions
- Description of item(s) covered by the PO
- Ordering maximums for each item and total PO
2. Improperly Assigning Invoices to PO
As blanket POs are utilized for multiple purchases throughout a given time period, hospitals run the risk of receiving multiple invoice copies for the same goods shipped or services performed. Invoices can easily be scanned into an organization’s ERP multiple times with slight keying differences or listed under two different vendor numbers. It is not uncommon for vendors to send out multiple invoices for the same goods, especially if those invoices were not paid immediately. Oftentimes, the PO controls will not prevent these invoices from being paid twice when a valid PO number is referenced. It is essential invoices reflect exactly what the PO calls for. When the PO’s dollar amount cap is reached, no more invoices should be paid until a new PO is created and approved.
3. Standard Processing Procedures
In order to mitigate potential loss, accounts payable, supply chain, the end-user, and the vendor must be clear and consistent with their standard processing procedures. There should be a consistent process for each step relating to blanket POs. For instance, when the end-user needs to cancel an order, that canceling needs to be properly communicated both to the vendor and AP. If AP is not made aware of a cancelation or return and no documentation is made ERP system, AP will not know to withhold funds or to follow up for a credit memo. Since blanket purchase orders do not have a set quantity specified it is difficult to track quantities ordered and returned. Proper communication between all stakeholders and established operating procedures are essential to mitigating the potential for loss.
TAG TIP: If a blanket PO is absolutely necessary for certain orders, the PO should be closely monitored to ensure that the risks are mitigated. Healthcare systems must monitor their own purchasing history and ensure accuracy, as this responsibility cannot be left up to the vendors.
If blanket POs have been a problem at your system, TAG can help retroactively recover funds lost from both hospital and vendor errors, help correct the practices that lead to errors, and prevent these errors from occurring in the future.
