Emerging Threat
MOVEit Transfer Vulnerability: Emerging Threat published
Concentration risk is one of the most overlooked threats in third-party risk management. While many organisations assess individual vendors for security, compliance, and performance, they often miss the broader systemic vulnerability created by excessive reliance on a single supplier, region, or technology.
This type of overdependence, whether geographic, technological, or structural, gradually builds pressure points that traditional assessments cannot detect. A single disruption can trigger cascading failures across the supply chain, even when all vendors appear healthy in isolation.
This article explores what concentration risk is, why it matters, and how organisations can uncover hidden dependencies before they become critical failures. We break down the four main types of concentration risk and show why they remain invisible to one-to-one vendor assessments.
Concentration risk is the exposure a business faces when it depends too heavily on a limited number of suppliers, technologies, or customers. If one of these fails, the impact can be significant.
Think of it as putting all your eggs in one basket. If that basket drops, the consequences are immediate and wide-reaching. In supply chains, this could mean relying on a single supplier for a critical component or trusting a single region to host all key data centres. If you’re unsure if your own supply chain is open to concentration risk, learn to identify it here.
It is imperative that you do so, because this form of risk undermines resilience. It increases the risk of a single point of failure disrupting business continuity and damaging reputation.
Identifying concentration risk is often very challenging. This is because traditional vendor assessments tend to evaluate suppliers independently. They rarely uncover interdependencies between suppliers or shared reliance on the same sub-vendors or platforms.
Many risk frameworks assume that vendors operate independently. But in reality, many share common infrastructure, use the same hosting platforms, or rely on the same critical distributors.
A vendor may appear robust in isolation, yet still expose you to hidden concentration risk through shared dependencies with other suppliers in your network.
There are four primary forms of concentration risk. Knowing each one and how to avoid it will boost your supply chain resilience.
This form of risk arises when critical suppliers or customers are clustered in the same geographic region. This could be a single country, city, or industrial zone.
The danger lies in regional disruptions. Natural disasters, local political unrest, pandemics, or energy grid failures can affect all vendors in that region simultaneously.
For example, an earthquake in Taiwan could disrupt semiconductor supply chains worldwide. A single regulatory decision in the EU could affect multiple financial technology vendors headquartered in a single jurisdiction.
This risk occurs when many suppliers, or your own organisation, rely on the same technology stack or provider.
Cloud hosting is a classic example. If your SaaS vendor uses AWS and your internal systems also depend on AWS, a regional outage could affect you on multiple fronts.
In June 2022, a Cloudflare outage brought down major services like Discord, Shopify, and Fitbit. These were different companies, but all were affected due to their shared reliance on a single infrastructure provider.
The 2017 WannaCry ransomware attack exploited a vulnerability in Microsoft Windows, crippling organisations across 150 countries. A single software dependency became a global risk vector.
Sometimes, you rely on one vendor for a critical function. But often, multiple vendors in your ecosystem depend on the same fourth-party.
This shared dependency is hard to spot. For example, your payment processor, CRM provider, and ERP vendor might all rely on the same DNS provider or global distributor.
Because these fourth-party relationships are buried deep in the supply chain, traditional vendor assessments fail to uncover them. But when these shared suppliers face disruptions, the effects ripple outward—silently and severely.
While most concentration risk focuses on supply-side issues, overreliance on a few customers also creates business risk.
If your top three clients account for 70% of your revenue, a single contract loss can jeopardise your financial stability. Similarly, if your business is tied to a single industry, economic downturns or regulatory shifts in that sector can have an outsized impact.
Diversifying both supplier and customer portfolios is essential for long-term resilience.
Traditional third-party risk management is fundamentally limited in its ability to detect and address concentration risk. The primary shortcomings are as follows:
Most TPRM systems evaluate vendors in isolation. These assessments are helpful in understanding individual security or compliance risks, but they cannot detect system-level concentration.
They don’t account for cross-vendor correlations. Two vendors may pass all assessments individually, yet both rely on the same sub-supplier—creating a hidden point of failure.
To understand concentration risk, you must view your supply chain as a network. In this network, some vendors act as hubs, serving many customers or connecting multiple tiers.
These hubs become critical nodes. If they fail, the disruption affects every connected party. Without visualising this topology, you cannot identify or prioritise high-risk dependencies.
Research in supply chain resilience and systemic risk shows that network models help organisations "rewire" their supply chains to reduce exposure.
Most assessments rely on vendor self-reporting, which often lacks detail on fourth- and fifth-party relationships. Upstream visibility decreases the further you go.
Many organisations simply don’t have a complete inventory of their 3rd-, 4th-, or 5th-tier suppliers. Without this mapping, they remain blind to shared dependencies that lie beyond their direct line of sight.
Start by building a complete map of your supplier ecosystem. This includes primary vendors (tier 1), sub-suppliers (tier 2), and extended dependencies (tiers 3+).
Use platforms or tools that support dependency mapping and visualisation. Look for overlapping nodes—vendors used by multiple suppliers—or critical hubs in the network.
Network maps provide the visibility needed to identify choke points and simulate stress scenarios.
To quantify concentration risk, consider using:
Conduct tabletop exercises and failure simulations. What happens if a key supplier goes offline for 48 hours? What if a region faces a climate event or political disruption?
These drills help expose hidden interdependencies and force planning around resilience strategies.
Combine internal data with external intelligence. Monitor:
Vendor risk platforms with broad telemetry can also alert you to shared infrastructure or common fourth-party dependencies across multiple vendors.
There is no universal benchmark, but many organisations aim to keep top-supplier concentration below 30% of total spend or dependency.
At least one qualified alternative per critical function is a minimum. Where possible, establish multi-sourcing strategies.
Diversification often increases cost in the short term but reduces the likelihood of catastrophic loss. Resilience should be seen as a long-term investment.
No. But it can be reduced and managed through visibility, scenario planning, and intelligent diversification.
Work with platforms that support multi-tier mapping and supplier collaboration. Request supply chain transparency from key vendors as part of onboarding and ongoing assessment.
Concentration risk is a significant threat hiding in plain sight. It stems from geographic, technological, supplier, and customer overdependence—and it often escapes detection by traditional vendor assessments.
This risk grows in complex, interconnected supply chains where hidden dependencies compound system fragility. To manage it, organisations need full visibility into their supplier networks, along with the right metrics, tools, and simulations.
Understanding and addressing concentration risk is not just about avoiding disruption—it’s about building true operational resilience.
Contact Risk Ledger today to learn how our platform can help you detect, visualise, and reduce concentration risk across your entire supply chain.
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