What is supplier diversification and how does it affect risk?

• A. Using multiple vendors to avoid single points of failure; reduces concentration risk.
• B. Using a single vendor to streamline oversight.
• C. Diversifying vendors by country only; no effect on risk.
• D. Reducing vendor concentration without any redundancy.

Answer: (A)

Supplier diversification means using more than one supplier so your operations aren’t tied to a single source. This reduces concentration risk and the chance that a disruption at one vendor will halt your supply. If one supplier runs into a problem—like a factory outage, quality issue, or a political or logistical disruption—other suppliers can continue delivering, helping you maintain production and service levels. Diversifying across vendors (and potentially regions) spreads risk rather than concentrating it in one place, which strengthens resilience. Of course, this approach can add some management complexity and coordination costs, but the core benefit is a more robust supply chain that’s less vulnerable to individual supplier failures.