Single Supplier Bottleneck Risk
Issue: Supply Chain Optimization Concentrates All Sourcing from Single Supplier (Lowest Cost); Blind to Failure Risk
Frequency: Common
Symptoms
- Model: “Supplier X has lowest cost; order 100% from X”
- Supplier X experiences disruption (natural disaster, bankruptcy, labor strike)
- Supply chain paralyzed; cannot fulfill orders
- No backup supplier; recovery takes weeks/months
Root Cause Optimization models minimize cost without explicit supply chain resilience constraints. Single-supplier solutions are optimal cost-wise; models don’t quantify disruption risk. Nassim Taleb’s “fragility” — looks good until it breaks catastrophically.
Example
Scenario: Semiconductor component sourcing
Suppliers: Taiwan (cost $5/unit), Japan (cost $8/unit)
Model optimization: "Source 100% from Taiwan (lowest cost)"
Taiwan earthquake 2024: All chip fabs shut down
Supply disruption: 6-month recovery
Company impact: Cannot manufacture products; lost revenue $100M+
Expected: Model should diversify (80% Taiwan, 20% Japan) for resilience
Impact: Concentration risk not captured in cost model
Key Statistics
- Single-supplier concentration: 30-50% typical in optimized supply chains
- Disruption event frequency: Every 5-10 years per supplier
- Recovery time: 1-12 months depending on event
- Revenue loss: 10-50% during disruption
Mitigation Strategies
- Resilience Constraints: Require multi-supplier (min 2-3 suppliers per component)
- Disruption Modeling: Include disruption probability in cost model
- Supplier Diversification: Geographic + company diversification
- Safety Stock: Keep buffer inventory for critical components
Metrics
- Supplier concentration ratio (should be <70% from single supplier)
- Disruption recovery time (should be <4 weeks)
- Redundancy cost vs. disruption risk (trade-off analysis)
Alerts
- Single supplier >70% → Diversify sourcing