Small Pool of Suppliers Could Be Risky for Businesses

May 7, 2009
Only 110,000 suppliers make up 95% of the total spend of Fortune 500 companies.

Years of strategic sourcing and supplier consolidation has created a dangerously small group of suppliers that receive most of the Fortune 500 companies spend, according to a study done by CVM Solutions, LLC, a provider of enterprise supplier management solutions.

If these common suppliers become "high risk" suppliers, then that risk will likely impact a high percentage of Fortune 500 companies. CVM defines high risk suppliers as having a significant probability of failure to some aspect of their business within 12 months. The potential impact of this increased supplier risk could mean interruptions in business operations, financial loss and damage to brand reputation.

CVM recently completed a detailed cross-industry analysis using the CVM Master Supplier Database, which includes hundreds of data points per supplier including customer/supplier spend levels. Through this analysis of the data, CVM identified a core set of 10,500 suppliers that are recipients of 80% of Fortune 500 spending.

Only 110,000 suppliers make up 95% of the total spend. CVM was also able to identify a relatively small set of suppliers with significant spend, 16,060, that are common among the Fortune 500.

"It's a near-daily occurrence: Companies of all sizes in all geographies are going out of business, which has a ripple effect both upstream and downstream. Additional measures and due diligence are needed in today's economic turmoil to identify in advance suppliers at risk in a multi-tier supply chain," said Mickey North Rizza, research director at AMR Research.

"It was surprising to discover from our research that such a relatively small group of suppliers were beneficiaries of such a large portion of Fortune 500 spending. And, we believe these findings should signal a strong warning to large enterprises that the current economic storm is posing great harm to their supply chain by concentrating the risk across fewer and fewer suppliers," said Rajesh Voddiraju, president and CEO of CVM Solutions. "We are committed to helping our customers meet the complex demands and challenges of running their business day-to-day. And, to help our customers mitigate their risk, we have significantly enhanced our offerings with the introduction of Supplier Central 6.0, to ensure they have the supplier information they need, readily available at their fingertips."

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