In the context of supply chain management, what does reliance on fewer suppliers typically increase?

Relying on fewer suppliers generally increases supply chain risks. This occurs because a company becomes more vulnerable to disruptions from those specific suppliers. If any issues arise, such as a supplier facing financial difficulties, natural disasters, or logistical challenges, it can significantly impact the entire supply chain. In contrast, having a diverse supplier base can act as a buffer against these types of risks, as it allows an organization to source materials or components from alternative suppliers more easily.

While fewer suppliers may create some cost efficiencies due to bulk purchasing or simplified supplier management, the potential risks associated with dependence on a limited number of suppliers can outweigh these benefits. This underscores the importance of balancing supplier relationships to manage operational performance and risk effectively.