Which practice reduces concentration risk in third-party relationships?

• A. Supplier diversification through multiple vendors.
• B. Consolidating suppliers to a single partner.
• C. Only contracting with vendors in the same country.
• D. Relying on internal processes alone.

Answer: (A)

Reducing concentration risk in third-party relationships comes from spreading dependency across multiple vendors. When you diversify suppliers, no single vendor holds the entire supply or service critical to your operations. If one supplier experiences a disruption, others can continue to support you, limiting the impact on your business and giving you choices, leverage for better terms, and faster recovery options.

Consolidating to a single partner creates a single point of failure—if that vendor fails or faces a disruption, your operations can stall. Limiting suppliers to a single country might still expose you to country-specific risks such as political events, natural disasters, or regulatory changes. Relying on internal processes alone misses the reality that third parties can fail or be compromised; internal controls can’t fully compensate for external disruptions.

Thus, supplier diversification through multiple vendors best reduces concentration risk and strengthens resilience in third-party relationships.