A category lead closes the quarterly review with a slide procurement loves: supplier count down from 47 to 12, addressable spend concentrated, unit price down 9 percent. The room nods. Eighteen months later, the same category renews at plus 6 percent, and the three remaining incumbents all came in within half a point of each other. Nobody is surprised, and nobody says the obvious thing either.
The 9 percent was real. So was the 6 percent. They were the same decision.
Consolidation does not remove your risk. It moves it from the market into the room you sit in.
Why the saving and the exposure are the same lever
When you drop a supplier, you remove a competitor. Each remaining supplier now holds more of your volume, more of your product knowledge, and more of your switching cost. Their bargaining power rises exactly as yours falls. That is not a side effect of consolidation. It is the arithmetic of concentration, and procurement is the function that sets it in motion.
McKinsey's latest procurement benchmarking describes the shift plainly: leading companies are "abandoning old approaches to globalization and supplier consolidation in favor of a new model that prioritizes supplier diversification and risk management" (McKinsey, "Where procurement is going next"). The efficiency playbook that made consolidation a default is being walked back because it concentrated the saving and the risk in the same place.
The tell is in McKinsey's own retail example: a retailer cut its warehousing suppliers to two, "while maintaining some competitive tension" — a second source kept on purpose, not by accident (McKinsey, "Beyond procurement"). The disciplined consolidators keep the tension. The others celebrate when it disappears.
Three questions before you cut a supplier
Consolidation is not wrong. Blind consolidation is. Before any supplier leaves the base, answer three questions — and write the answers down, because they are the difference between a saving and a liability.
1.What leaves when this supplier leaves? Not just the invoice. The competition at the next bid. The benchmark that proves the incumbent's price is honest. The contingency that covered you the last time a line stopped. A tail supplier was cheap to drop; the supplier that was your only real alternative was expensive to drop — and the cost shows up later.
2.Who carries the switching cost after the cut? Consolidation lowers your unit price by raising the survivor's share of your spend. Past a line, the survivor owns the relationship. Bahal, Jenkins and Lenzo (Reserve Bank of Australia, 2025) found that firms buying from many suppliers within an industry cut output declines by 55 to 70 percent after a shock. Multisourcing is insurance with a measurable payout; consolidation spends it on a lower sticker price.
3.Did we keep enough tension to negotiate the renewal? A qualified second source is a negotiating position. If the only thing standing between you and a renewal increase is hope, you consolidated too far.
What the market already shows
Bain & Company's analysis of the EV battery chain shows why forced concentration is dangerous: the top three suppliers provide 70 to 80 percent of announced capacity for electrolyte salts and separators, a single point of failure the industry never chose (Bain & Company, "Building a resilient global EV supply chain"). It shows what forced consolidation looks like when nobody planned it.
And the same leaders who consolidate also guard against it. Deloitte's 2025 Global CPO Survey finds 34 percent of CPOs name "consolidating spend" a top strategy to deliver value in 2025 — yet 74 percent name "maintaining active alternative sources" their single most effective risk mitigation (Deloitte, 2025 Global CPO Survey). The overlap is the job.
Consolidate by what's at stake, not by headcount
The fix is not to stop consolidating. It is to consolidate where consolidation is free and keep options where options are expensive.
The tail — one-off suppliers, redundant regional contracts, categories where any qualified vendor performs the same — should be consolidated hard. That is pure administrative saving with no leverage lost, because there was no second source worth keeping.
The categories that would actually stop a line, or carry most of a product's cost, are different. There, a qualified second source is not waste. It is what keeps the first source's renewal honest. McKinsey's two-supplier warehouse model is the pattern: fewer, deeper relationships — but never one.
The goal was never the smallest supplier list. It was the lowest total cost with someone else still in the room.
Before the next rationalization, label every supplier you plan to cut: administrative save, benchmark you are willing to lose, or leverage you cannot afford to give up. If too many land in the third column, you are not simplifying the base. You are surrendering it.