Supplier Concentration Is a Risk You Can Quantify
Single-source categories rarely look risky on a balance sheet. They look efficient — right up until the day they don't. A simple index makes the exposure visible.
Whitney R. Harris · August 29, 2026
A supplier that carries forty percent of a critical category feels like a good relationship. Volume earns better pricing, communication is easy, and the account team knows your business. Efficiency is real. So is the concentration.
The problem is that concentrated supply chains fail in ways that are impossible to schedule for: a fire, a labor action, a bankruptcy filing, a single piece of equipment going down for six weeks.
Start with a concentration index
For each critical category, calculate the share of spend held by the largest supplier and by the top two combined. Rough thresholds are enough to start a conversation:
- Largest supplier above 40 percent of a critical category: watch
- Top two above 75 percent: act
- A single supplier at 100 percent with no contractual protection: urgent
This is not an argument for spreading spend thin. Fragmentation has its own costs. The goal is to know where you are exposed and to decide deliberately whether the exposure is worth it.
Then ask four questions
Can this supplier be replaced inside your tolerance window? A qualified alternate for commodity packaging might take two weeks. A qualified alternate for a specialized casting might take five months. The second supplier matters more, even if the first one is cheaper.
What does the contract actually protect? Capacity commitments, lead-time guarantees, tooling ownership, and continuity obligations are worth more in a disruption than a discount.
Where does the second source sit? A backup supplier who has never received an order is not a backup. Rotate a small share of volume — even ten percent — so the relationship, the qualification, and the lead times stay live.
What is the true cost of a stockout? For most operations it is not the lost margin on the item. It is the overtime, the expedited freight, the customer escalation, and the reputational cost of a missed commitment. That number is what justifies investing in redundancy.
Put it on one page
A supplier risk summary belongs in front of leadership quarterly. One page, one line per critical category: supplier, share of spend, replaceability, contractual protection, and mitigation status.
The value is not the document. It is that the conversation happens while everything is calm — which is the only time you can actually fix it.
Written by
Whitney R. Harris
Chief Executive Officer, West & Mae Holdings LLC
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