For a steel service center purchasing manager, knowing when and how to buy is just as important as knowing what to buy. In markets where hot rolled, cold rolled, or galvanized coil prices can swing $100 per ton in a matter of weeks, deciding between blanket orders and spot buys isn’t just a procurement tactic—it’s a profit lever.
But there’s no one-size-fits-all answer. Each method has advantages and risks, and the best purchasing strategies blend both, adapting to volatility, mill relationships, and customer needs.
Understanding Blanket Orders: Stability with Strings Attached
Blanket POs are long-term purchase commitments—typically over three to six months—issued to a mill or master distributor for a set volume, often with firm pricing or a pegged index structure.
The upside? Predictability. You get guaranteed allocation, prioritized mill slots, and in many cases, better pricing than you’d secure on the spot market. When steel prices rise, your average landed cost holds steady. That’s crucial when feeding predictable downstream operations or supporting large customer programs with locked-in pricing.
But there’s risk. If demand softens or specs shift, you’re on the hook. Blanket orders usually come with take-or-pay clauses. Canceling or deferring without penalty isn’t easy. That’s why purchasing managers must closely align these commitments with accurate forecasts and dependable customer contracts.
When Blanket Orders Work Best
Stable Forecasts: You know your customer needs and product flow 60–90 days out.
High-Volume, Standardized SKUs: Think HRPO, A1011, or A1008 coils that feed slitter lines regularly.
Strong Supplier Relationships: You’ve secured mill capacity and trust their delivery windows.
Index-Linked Pricing Agreements: You’re protected from extreme price jumps but still track market trends.
Blankets give you the supply continuity to run efficient operations and avoid costly last-minute buys. But don’t issue them blindly. Always pair blanket volumes with usage data and build-in staggered delivery dates or opt-out clauses if possible.
The Case for Spot Buys: Flexibility in Motion
Spot buys are transactional—ordered as needed, based on real-time pricing and availability. You’ll often pay a premium, especially in tight markets, but the trade-off is agility. You’re not locked in, and you can shift specs or volumes quickly to match shifting customer orders.
For service centers juggling short lead times, volatile customer demand, or irregular grade requirements, spot buying fills gaps that blankets can’t.
When pricing is softening—like in a post-peak correction—spot buying lets you capture savings that blanket buyers can’t access. But if you’re too reliant on spot markets during a spike, your margins get squeezed hard.
When Spot Buys Make Sense
Short-Lead Orders or Fill-Ins: You need 20 tons of cold rolled slit coil next week—not next month.
New or Uncertain Demand: First-time customer orders that don’t justify long-term commitments.
Market Correction Periods: Steel pricing is trending down and blankets would lock in higher costs.
Spec Flexibility: You can substitute gauge, width, or even grade to align with what’s available.
The danger of overusing spot buys is lack of continuity. Freight costs, inspection variability, and supplier responsiveness can vary widely. Spot buying is reactive by nature—use it strategically, not habitually.
How to Blend Both Approaches
Top-performing purchasing managers build hybrid models. Use blanket orders for base volume—say 70% of your forecast—and leave the remaining 30% open for spot buys that respond to actual sales or operational shifts.
That balance gives you mill priority and inventory predictability, without tying up too much capital in fixed commitments. It also improves your negotiating posture. When mills know you have flexibility, they’ll work harder to win your volume.
Another smart tactic is staggered blanket orders. Instead of locking in all 500 tons of hot rolled for Q3 at once, issue 3 smaller blankets at 60-day intervals. That lets you track pricing trends and adjust volumes more nimbly.
Evaluating Total Cost Beyond Price
Don’t look at spot vs. blanket purely on per-ton pricing. Factor in:
Freight Risk: Blanket orders often include consolidated freight or better routing terms.
Processing Compatibility: Blanket steel is more likely to match your slitter or cut-to-length line specs.
Inspection Requirements: Spot coil from secondary sources may need more QC.
Capital Tie-Up: Large blanket orders can consume working capital if turnover slows.
Create a total cost model that includes unit price, freight, processing adjustments, and inventory days. You may find that a slightly higher spot price still yields better ROI if the steel turns faster or avoids handling bottlenecks.
Avoiding Common Pitfalls
Overcommitting on Blankets: Don’t let mill allocation quotas pressure you into more than you can move. Forecast conservatively.
Waiting Too Long on Spot Buys: In tight markets, delay leads to outages. Monitor inventory days closely.
Spec Misalignment: Ensure spot substitutes are approved for your operations or end-customer specs.
Failure to Track Price Trends: Use CRU, Fastmarkets, or CME futures to inform timing.
Final Thought
Blanket orders offer supply security. Spot buys offer tactical freedom. As a purchasing manager, your job isn’t to pick one—it’s to manage both. Your goal is to keep steel flowing, margins stable, and surprises minimal.
By staying close to your forecast, building supplier trust, and watching market signals, you’ll know when to lock in—and when to let it ride.
