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Supplier performance and risk
Supplier concentration risk calculator
Enter your category spend and the spend with your five largest suppliers. You get the share of each, the top three share and a concentration index.
Supplier concentration is the share of spend with your largest suppliers. At the default numbers the top supplier holds 36% of spend and the top three hold 72%.
Written by Procurement VMS Editorial Team · Reviewed by Michael, Procurement Advisor Expert · Updated
Your numbers
The boxes start with an example so you can see how it works. Replace them with your own figures.
Your result
The top supplier holds nearly a third of spend or more. Decide whether that gives you buying power or leaves you exposed, and set a limit.
| Share with the top supplier | 36% |
|---|---|
| Share with the top three | 72% |
| Share with the top five | 85% |
| Share with all other suppliers | 15% |
| Concentration index of the top five | 2,065 points |
The currency box changes the label only. Enter amounts in the currency you choose.
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How the supplier concentration risk calculator works
The formula
Share = supplier spend / category spend x 100. Concentration index = sum of squared shares for the suppliers entered, on a 0 to 10,000 scale.
Putting more spend with fewer suppliers can lower prices and cost to manage. It also raises risk: if the main supplier has a fire, a cyber incident or financial trouble, your supply stops.
The concentration index squares each share, so one large supplier weighs more than several small ones. It is only a signal. Whether a given level is a problem depends on how easily you could replace the supplier.
The example numbers are illustrative and are not benchmarks. Use your own data for any decision.
How to use it with your own data
- Enter total category spend and the spend with your five largest suppliers.
- Read the top supplier share and the top three share.
- Set a limit per category, and a plan for the categories above it. See the supplier consolidation guide.
Mistakes that skew the answer
Treating consolidation as always good
Lower unit prices can come at the cost of resilience.
Counting parent companies as separate suppliers
Group suppliers under their parent, since a shared owner shares risk.
Ignoring switching cost
A supplier you cannot replace in under a year is a bigger risk than the share suggests.
What to do with the result
For critical suppliers, run a risk review with the vendor risk assessment template and check their switching cost with the supplier switching cost calculator. The procurement risk management guide covers response plans.
Questions about the supplier concentration risk calculator
What is supplier concentration risk?
It is the exposure created by relying on a small number of suppliers for a category or input.
What is a safe concentration level?
There is no universal level. Many firms set limits per category based on how critical it is and how easy it is to replace the supplier.
How is the concentration index calculated?
Square each supplier share in percent and add them. A single supplier at 100 percent gives 10,000.
How can I reduce concentration?
Qualify a second supplier, split volume, and keep a standing agreement with a backup.