KPIOperations & Supply Chain

Supplier Dependency Ratio

Percentage of total spend concentrated in the top 5 suppliers

What is Supplier Dependency Ratio?

Supplier dependency ratio is the share of total procurement spend that goes to a business's top five suppliers. It shows how concentrated buying is.

High concentration can bring better terms, but it also raises risk if a key supplier fails or raises prices.

How this KPI is measured

Function
Operations & Supply Chain
Sub-function
Procurement
Industry
All Industries
Type
Lagging
Impact
Risk
Unit
%
Measurement frequency
Annual
Formula
(Spend with top 5 suppliers / Total procurement spend) × 100

How to calculate it

Divide spend with the top five suppliers by total procurement spend, and multiply by 100.

For example, if 6,000,000 of 10,000,000 total spend goes to five suppliers, the ratio is 60%.

Look at the criticality of each supplier as well as the spend, since a small supplier of a unique item can be a bigger risk than a large supplier of a commodity.

Where it is used

  • Managing supply risk

    See how exposed you are.

  • Negotiating

    Use volume for leverage.

  • Planning alternatives

    Develop backup suppliers.

How to improve it

Tips and common mistakes

  • Concentration is not always bad, but it needs a plan.
  • Consider supply criticality, not just spend.
  • Watch supplier financial health.

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