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Spend share with key suppliers: concentration risks

Share of Spend with Key Suppliers shows what portion of procurement spend goes to an approved group of priority or top-N suppliers. It is a balance between economies of scale and the risk of dependence.

What the Metric Measures

The share of spend with key suppliers or the share of the top N (CR3/CR5/CR10) overall and by category (Kraljic), legal entity, and region.

Calculation

  • Share with Key, % = Σ spend with key suppliers / Σ all spend × 100
  • CRn = Σ spend with top-n suppliers / Σ all spend × 100
  • HHI = Σ (supplier share)^2
  • On-contract spend, % = Spend under contracts / All spend × 100

Agree on the spend source (invoices/GR/IR), period, currencies, consolidation of affiliated legal entities, and the criteria for "key" status.

Calculation example

Annual purchases are 30,000,000, of which 21,000,000 go to the three largest suppliers. Key supplier share = 21,000,000 / 30,000,000 × 100 = 70%, and the largest one alone is 40%. A supply failure there would hit 40% of purchases.

Data Sources

ERP/1C (POs, GR/IR, invoices), supplier and group master data, contract/catalog register, GL/accounting, category management module.

Interpretation

  • High concentration — better terms and service, but greater dependence; dual-sourcing, SLAs, and contingency plans are needed
  • Low concentration — less dependence, but higher transaction costs and weaker economies of scale
  • Targets differ by category: strategic — controlled concentration; routine — consolidation

Useful Breakdowns

  • Category / Kraljic; region; legal entity
  • Supplier / group; currency; Incoterms
  • Contract status; critical materials/SKUs
  • Risk level (financial/ESG/geo)

Dashboard Visualizations

  • Pareto of spend by supplier
  • CR3/CR5/CR10 panel and HHI trend
  • Dependence map by category
  • Bubble chart: share vs. risk vs. service
  • On-contract spend panel and single-source alerts

How to Set Targets

Approve the list of "key" suppliers and targets for CRn/HHI and on-contract (e.g., ≥80%). For strategic categories — at least two qualified sources or a backup plan; for routine ones — optimal consolidation.

Common Mistakes

  • Calculating from POs instead of actual spend
  • Mixing VAT/currencies and different periods
  • Unconsolidated affiliated suppliers
  • "Averaging" different categories without breakdowns
  • Ignoring quality/OTIF and risks in decision-making

Questions for Discussion

  • Who accounts for 80% of spend in each category, and why?
  • Where is there excessive dependence, and what is the dual-sourcing plan?
  • What will consolidating routine purchases and diversifying strategic items deliver?
  • What is the on-contract share in critical categories?

Questions and answers

How do you calculate the key supplier share?

Share, % = purchases from the N largest suppliers / all purchases for the period × 100. Also watch the share of the single largest supplier and of critical items.

Why is high concentration dangerous?

A supply failure, price rise or worse terms from one supplier hit the company hard, and its negotiating position weakens.

How do you reduce dependence on suppliers?

Keep backup suppliers for critical items, buy part of the volume from alternatives and hold safety stock of the most important materials.