In steel procurement, blanket orders are a popular tool to secure supply and pricing in advance, especially for high-volume flat-rolled steel like hot-rolled coil (HRC) and cold-rolled coil (CRC). But when forecasts fluctuate wildly—as they often do in construction, automotive, and manufacturing sectors—blanket orders can become a double-edged sword.
For Senior Buyers at steel service centers, managing blanket orders in volatile environments requires balancing commitment with flexibility to avoid excess inventory, missed deliveries, and margin erosion.
Here’s how to navigate that challenge effectively.
Understand the inherent risks of blanket orders
Blanket orders commit you to buying a set volume over a period, often at negotiated pricing or with priority allocation. While this secures supply and price, it can also:
Lock you into volumes you don’t need
Create excess inventory if demand softens
Limit your ability to capitalize on price declines
Strain cash flow if payment terms require upfront commitments
Recognizing these risks upfront helps you structure your agreements wisely.
Negotiate flexible volume commitments and delivery schedules
One of the most effective ways to manage unpredictable demand is to build flexibility into your blanket orders. This might include:
Rolling quarterly volume commitments that can be adjusted based on updated forecasts
Defined minimum and maximum order quantities per month or quarter
Flexible delivery windows allowing you to defer or accelerate shipments
Options to convert excess volume to spot market purchases or cancellations with minimal penalties
The goal is to balance supplier commitment with your ability to adapt as demand changes.
Incorporate clear pricing mechanisms
Price volatility is a major pain point in steel buying. Your blanket order pricing should reflect this by:
Linking prices to industry indexes (CRU, AMM) with agreed formulas
Establishing price floors and ceilings to limit exposure
Defining surcharge pass-throughs transparently for freight, duties, and other variables
This clarity protects your margin even when volumes shift.
Use consumption tracking and reporting
Implement a robust system for tracking how much volume you’ve used versus committed. This helps:
Avoid penalties for under-delivery
Provide data for renegotiating commitments
Spot trends early—whether demand is accelerating or slowing
Regular consumption reports, shared between procurement and suppliers, build trust and accountability.
Align blanket order strategy with inventory management
Work closely with warehouse and operations teams to understand storage capacity and inventory turnover. If your forecast softens, you want to avoid costly overstock or obsolescence.
In volatile markets, just-in-time delivery aligned with flexible blanket orders reduces carrying costs and scrap risk.
Engage sales and customers in forecast accuracy
Better forecasts lead to better purchasing. Encourage your sales teams to collaborate with customers on forward-looking demand visibility.
Consider implementing collaborative planning, forecasting, and replenishment (CPFR) programs to improve forecast reliability and allow your blanket orders to flex accordingly.
Establish contingency plans for demand swings
In case demand suddenly drops or surges, have plans in place to:
Redistribute excess inventory through promotions or alternate markets
Expedite additional deliveries if demand spikes
Adjust blanket order terms or volumes in collaboration with suppliers
Flexibility and communication are key to navigating uncertainty.
Leverage technology for dynamic blanket order management
Modern ERP and procurement software can automate:
Volume tracking against blanket commitments
Alerts when usage approaches minimums or maximums
Price recalculations based on index movements
Delivery scheduling and adjustments
Automation reduces manual errors and keeps procurement agile.
Build strong relationships with suppliers
Open, ongoing dialogue with mills and service centers helps when renegotiating terms or adjusting volumes. Suppliers who see you as a strategic partner are more likely to accommodate changes without punitive terms.
Frequent check-ins and transparent forecasting build this trust.
Blanket orders remain a powerful tool for steel procurement—but only when paired with a proactive, flexible approach to forecasting and demand management. Senior Buyers who master this balance protect margins, improve service levels, and reduce the risk of inventory write-downs in unpredictable markets.
