Concentration risk is the exposure that comes from over-dependence on a small number of vendors, customers, or geographies for a large share of the business. A material disruption to a concentrated relationship has amplified impact.
Measuring concentration
Common metrics: percentage of spend or revenue with the top 5 or 10 counterparties, Herfindahl-Hirschman index across the counterparty portfolio, or percentage from a single geography. Thresholds vary by industry and regulatory framework.
The contract-portfolio angle
Concentration hides when contracts are managed individually. Aggregation by normalized counterparty across all entities and categories surfaces the true exposure - which is the first step toward managing it.
