What is supplier spend concentration risk?

Spend concentration risk is the exposure created when a large fraction of your total procurement budget is with a small number of vendors. In ForgeFlow, one supplier accounts for 66% of total raw material spend. If that supplier has a disruption - a factory fire, a logistics failure, a price increase - 66% of the supply chain stops simultaneously. The risk is not visible from an ERP report showing totals; it only becomes visible when you calculate the spend share per vendor and compare it to the vendor's reliability score.

How is risk-adjusted spend different from just looking at supplier grades?

A supplier grade tells you how reliable a vendor is. Risk-adjusted spend tells you how much money you are placing with unreliable vendors. A D-grade vendor that supplies 2% of your spend is manageable. A D-grade vendor that supplies 11% of your spend is a financial exposure. In ForgeFlow, Paschim Steel has a D grade and receives 11.1% of total procurement spend - meaning Rs 5L per half-year is going to a vendor with 0% on-time delivery and repeated quality failures. The score alone does not surface this; you need to cross it with actual spend data.

What is a sole-source dependency and why is it different from concentration risk?

Concentration risk is about spend share. Sole-source dependency is about whether an alternative exists at all. In ForgeFlow, Vishwakarma Tooling represents only 2% of spend - well within safe concentration limits - but they are the only vendor qualified for custom tooling. If Vishwakarma stops delivering, production cannot continue regardless of spend share, because no alternative exists. Both risks need to be tracked separately. The dashboard flags each: concentration risk by spend bar width, sole-source by explicit label.

How do you calculate the Herfindahl-Hirschman Index for supplier concentration?

The Herfindahl-Hirschman Index (HHI) is the sum of the squared market share percentages for all suppliers. In ForgeFlow: (66^2 + 12.5^2 + 11.1^2 + 8.4^2 + 2.0^2) = 4356 + 156.25 + 123.21 + 70.56 + 4 = 4710. The US Department of Justice considers markets above 2500 "highly concentrated." ForgeFlow scores 4710 - well above the threshold - driven almost entirely by the 66% Purohit share. The notebook calculates HHI and interprets it against the standard concentration bands.

Can we build this on top of the supplier scorecard from the previous playbook?

Yes, and that is the intended pattern. The supplier scorecard gives you each vendor's grade. The spend analysis gives you how much money is riding on each grade. Joining the two gives you risk-adjusted exposure: a single table showing vendor name, grade, spend amount, spend share, and a recommended action. In the notebook, the grade is loaded directly from the scorecard output of playbook 1, and joined with purchase order data from ForgeFlow. No additional data sources are needed.

Manufacturing Series Built on ForgeFlow

Supplier Intelligence Dashboard

One supplier holds 66% of your procurement spend - find out before the disruption, not after

The Problem

Your scorecard knows which suppliers are bad. Now find out how much you’re paying them.

The previous playbook ranked your suppliers by quality, delivery, and lead time. This one asks the follow-on question: how much spend is riding on each grade? A D-grade supplier at 2% of spend is a nuisance. A D-grade supplier at 11% of spend is a financial exposure. And a 66% share with any single vendor - even an A-grade one - is a concentration risk that doesn’t show up in any individual PO.

66%

Single-vendor share

Purohit Steel - one disruption stops 66% of supply

Rs 10.7L

At-risk spend

With C-grade or D-grade vendors over 6 months

4,710

HHI concentration score

DOJ "highly concentrated" threshold is 2,500

Calculates spend share per supplier from 32 purchase orders across 6 months
Overlays scorecard grade to produce risk-adjusted spend exposure
Flags sole-source dependencies separately from concentration risk
Computes HHI index to give a single concentration score comparable to industry benchmarks

The Data

Purchase orders + scorecard grades

Purchase Orders32

5 suppliers, Jan-Jun 2026. Total spend Rs 45.4L. Source of per-vendor spend amounts.

Supplier ScorecardPlaybook 1 output

A/B/C/D grades from the AI Procurement Assistant. Joined on supplier name to produce risk-weighted spend table.

Suppliers5 active

Purohit, Sudarshan, Paschim, Amrit, Vishwakarma. One sole-source (tooling). One D-grade receiving active spend.

Concentration indexHHI 4,710

Herfindahl-Hirschman Index. Sum of squared spend shares. Highly concentrated above 2,500.

Results

Spend with risk overlay

Sort by spend to see concentration. Sort by grade to see who gets stopped next. Sort by risk exposure to see where spend meets failure. Click any row for the recommended action.

Total procurement spend

Rs 45.4L

6 months, 5 vendors, 32 POs

Top supplier share

66%

Purohit Steel — single point of failure

At-risk spend

Rs 10.7L

With C-grade or D-grade vendors

Sole-source dependency

1 vendor

Vishwakarma — no tooling alternative

Spend concentration — Jan to Jun 2026

Purohit 66%

Sudarshan 12.5%

Paschim 11.1%

Amrit 8.4%

Vishwakarma 2%

Supplier spend with risk overlay

Sort by

At-risk spend = C-grade (Sudarshan Rs 5.66L) + D-grade (Paschim Rs 5.04L) = Rs 10.70L (23.6% of total procurement). Grade from AI Procurement Assistant scorecard. Click a row for recommendation. Data: 32 POs, Jan-Jun 2026.

Paschim Steel: stop all new POs immediately

Rs 5.04L spent with a D-grade vendor over 6 months. Paschim has 0% on-time delivery and a 40% rejection rate. Every rupee spent here carries maximum supply chain risk. Source SS304 and AL6061 from an alternative before the next procurement cycle.

Purohit: qualify a second steel vendor

66% spend with a single A-grade supplier is still a concentration risk. Purohit delivers reliably today, but a 6-week disruption - fire, labour dispute, logistics - stops 66% of raw material supply. Target 40% Purohit, 25% second vendor as the rebalancing goal.

Vishwakarma: document the sole-source risk

Only 2% of spend, but the only qualified tooling vendor. A disruption here does not affect procurement budget - it stops the shop floor. Raise a risk register entry and begin qualification of a secondary tooling supplier for standard dies.

The Approach

3 analysis layers

Spend share per vendor

Group purchase orders by supplier, sum total spend for the period
Calculate share as vendor_spend / total_spend - gives the concentration bar
Purohit: Rs 30L / Rs 45.4L = 66%. Paschim: Rs 5.04L / Rs 45.4L = 11.1%
Simple pandas groupby on supplier + sum of amount column

Risk-adjusted exposure

Join spend share table with supplier scorecard grades from playbook 1
Flag C-grade spend as "medium risk", D-grade spend as "high risk"
At-risk spend = sum of C + D grade vendor spend = Rs 10.7L (23.6% of total)
This single number answers: "how much money is riding on failing suppliers?"

Concentration index (HHI)

Herfindahl-Hirschman Index = sum of squared spend shares (as percentages)
ForgeFlow: 66^2 + 12.5^2 + 11.1^2 + 8.4^2 + 2.0^2 = 4,710
DOJ thresholds: <1,500 unconcentrated, 1,500-2,500 moderate, >2,500 highly concentrated
One number that summarises the entire concentration problem for management reporting

Core Concepts

Key ideas in this playbook

Spend Concentration vs Supplier Performance

Two separate risk dimensions that must be tracked together
Performance (scorecard grade) tells you how reliable a vendor is today
Concentration (spend share) tells you how badly a failure would hurt
Low share + poor grade = manageable nuisance. High share + poor grade = financial exposure

Herfindahl-Hirschman Index (HHI)

Standard antitrust economics measure adapted for supply chain use
Squaring the shares gives extra weight to dominant vendors - 66^2 is much larger than 33^2 + 33^2
Range: 0 (infinite vendors, equal share) to 10,000 (single vendor, 100% share)
Gives a single score usable in board-level risk reporting and supplier KPI dashboards

Sole-Source Risk

Distinct from concentration: the issue is no alternative exists, not that share is too high
A sole-source vendor at 2% share is still a hard stop if they fail
Detection: identify vendors where no other supplier is qualified for the same material category
Mitigation: qualify a second vendor for the category before a failure forces emergency sourcing

Architecture

Taking it to production

Monthly dashboard refresh

Pull purchase orders for the last rolling 6 months from ERP
Recompute spend share and HHI - flag if HHI exceeds 3,000
Re-run scorecard from playbook 1 with latest GRN and quality data
Join spend + grade to produce updated risk-adjusted table

Rebalancing triggers

Any vendor exceeds 50% spend share: open supplier qualification task
At-risk spend (C+D grade) exceeds 20% of total: procurement review meeting
Sole-source vendor misses a delivery: escalate to operations director
New vendor qualifies: recalculate HHI and update rebalancing target

Run the notebook

Builds the full spend concentration analysis from ForgeFlow purchase order data. Calculates spend share, risk-adjusted exposure, HHI index, and sole-source risk flags. Then joins with the procurement assistant scorecard to produce the complete supplier intelligence view. No API key required.

Open in Colab