Supplier concentration and firm performance: the role of relative size, relative reputation, and network position

Abstract

Firms face a fundamental trade-off in managing their supplier base: consolidating suppliers can streamline operations and reduce coordination costs, yet it may also heighten dependency on a few key suppliers, diminishing bargaining power and value capture. This study measures supplier concentration using an extended HHI index built from Bloomberg SPLC buyer-side cost shares for each Tier 1 supplier. Using this extended HHI framework, we empirically examine how supplier concentration shapes firm performance, drawing on a unique dataset of 216 firms spanning 5 years and 10 industry sectors. Results show that higher supplier concentration significantly undermines firm performance through intensified power asymmetries. However, firms can offset these adverse effects by leveraging three forms of inter-organizational power: relative size (resourcefulness and bargaining power), relative reputation (attractiveness power), and network position (positional power captured by betweenness centrality and clustering). Additionally, preferred supplier programs and multisourcing can further buffer these negative consequences. By applying an HHI-based concentration measure within a power-dependence framework, the study advances research on buyer–supplier dynamics and offers managers and regulators guidance on assessing and optimizing supply chain value creation, and on how supply-base structure and power imbalances shape performance, providing a baseline for understanding vulnerabilities revealed in subsequent disruptions.