Spend Concentration
Risk Calculator
Your top 3 suppliers hold X% of your spend. Industry safe zone is 40%. Find out if you’re dangerously concentrated before your auditors do.
Supplier Spend Data
HHI Score (0–10,000)
Why Spend Concentration Is the Procurement Risk Auditors Find First
The Herfindahl-Hirschman Index was developed by economists to measure market concentration — how much of an industry’s output was controlled by a small number of firms. Procurement teams apply the same mathematics to their supplier portfolio: how much of their spend is controlled by a small number of suppliers. The answer, in most procurement audits, is too much.
What HHI Measures and Why It Matters
HHI is the sum of the squares of each supplier’s spend share. If your top supplier holds 60% of spend, that single supplier contributes 3,600 points to the index. A portfolio where one supplier holds more than 50% of spend has an HHI above 2,500 from that single relationship alone — already in the high-concentration danger zone before any other supplier is counted.
The “effective supplier count” — 10,000 ÷ HHI — translates the abstract index into an intuitive number. An HHI of 5,000 means your portfolio behaves as though you have only 2 equal-sized suppliers, regardless of how many suppliers are on your vendor list. Most procurement teams dramatically overestimate their effective diversification because they count total supplier numbers rather than measuring concentration by spend share.
The 40% Rule for Top-3 Concentration
Industry practice in most procurement governance frameworks sets a maximum of 40% combined spend for the top 3 suppliers in any category. Above 40%, any single supplier disruption creates a supply crisis rather than a manageable shortfall. Above 60%, a single disruption is almost certainly a production crisis.
From HHI to Action
The output of this calculator is not a score to archive — it is a roadmap for supplier development spend. The gap between your current HHI and a target of 1,500 quantifies the diversification work required: which suppliers need to grow, which need to be qualified, and what the concentration looks like after diversification investment. Run this calculation before the auditor does. The findings will be identical. The difference is whether you arrive with a plan or without one.
HHI Benchmarks
Top-3 Rule
Best practice: no more than 40% of category spend with the top 3 suppliers. This is the most common trigger for procurement audit findings.
Key Insight
Effective supplier count = 10,000 ÷ HHI. A portfolio with 12 listed suppliers but HHI of 4,000 effectively has only 2.5 suppliers. Supplier count is not diversification.