A fabrication shop in Tennessee buys 30,000 pounds of 10-gauge HRC every two weeks. They have been buying spot for years, calling around for the best price each time. Their purchasing manager spends 2 hours per order comparing quotes, negotiating, and placing the order. That is 52 hours per year on a single repetitive purchase. Meanwhile, the service center quoting the business wins about 60% of these orders and loses 40% to competitors on price. Inconsistent volume makes inventory planning impossible.
A blanket order fixes both problems.
How Blanket Orders Work
A blanket order is a commitment from the customer to purchase a specified total quantity over a defined period (typically 6 to 12 months) at an agreed price. The customer releases material against the blanket as needed, typically with 48 to 72 hours notice. The service center holds inventory to support the releases and ships on the customer's schedule.
For the customer, the benefits are price certainty (they know their material cost for the contract period, which helps them quote their own projects accurately), guaranteed supply (the service center has committed to stock the material), and reduced purchasing effort (releases against the blanket are a one-minute phone call or email, not a multi-hour quoting process).
For the service center, the benefits are demand predictability (you know exactly how much this customer will buy over the next 6 to 12 months), customer lock-in (the customer is committed to purchase from you for the contract period), and purchasing efficiency (you can buy mill-direct against committed demand rather than stocking speculatively).
Pricing a Blanket Order
Blanket order pricing can be fixed, indexed, or hybrid. Fixed pricing gives the customer maximum certainty: the price stays the same for the entire contract period regardless of market movements. This is the simplest structure but it puts all the price risk on the service center. If your replacement cost rises during the contract, your margin compresses. If it falls, your margin expands.
Indexed pricing ties the blanket price to a published market index (CRU HRC index is the most common) with a fixed markup or discount. The customer gets pricing that moves with the market but is always competitive because the markup is set at a level that reflects their volume commitment. This structure shares price risk between both parties.
Hybrid pricing fixes the price for a shorter period (quarterly) and resets based on market conditions or index movements. This provides moderate certainty for the customer while limiting the service center's price exposure to 90 days at a time.
Managing Blanket Inventory
The most common failure mode for blanket orders is inventory. You committed to supply 30,000 pounds biweekly but your purchasing team does not have the blanket releases on their radar. The customer calls for a release and you are out of stock. Now you have a contractual obligation, an angry customer, and a scramble to source material.
Build blanket order commitments into your inventory planning system. Each blanket should have a dedicated safety stock allocation that is separate from your general inventory. Automate reorder triggers so that when the blanket inventory drops below 2 release quantities, a purchase order is automatically generated. The point of a blanket order is guaranteed supply. If you cannot guarantee supply, do not offer blankets.
Which Customers to Target
Blanket orders work best for customers with regular, predictable consumption of standard products. A fabrication shop that buys the same material every two weeks is ideal. A project-based buyer whose needs change with every job is not. Target your top 20 accounts who buy standard products at regular intervals. A well-structured blanket program with 15 to 20 customers can lock in 40% to 50% of your monthly revenue as committed business, providing a stable base that makes everything else in the business easier to manage.