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.
More Operations & Supply Chain kpi library
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