Supply chain concentration can be a death knell

A recent announcement by Apple; brought to my attention by a blog by JD Miller of BravoSolution; was about the supply chain.  Apple severed a relationship with one of their suppliers.  Well, companies lose clients all the time.  And companies lose their vendors or suffer a diminished supply chain as well.  But when a customer or a vendor hold a majority interest in the well being of that company, well that can be a death knell.

Supply Chain

Supply Chain breakage

In this instance, Apple’s discontinuance of their relationship caused Imagination Technologies stock price to plummet.  According to Mr. Miller, at one point 72%.  Why?  Because Apple was about 50% of Imagination Technologies revenues.

If I were the CFO, without the use of hindsight, I would have been worried.  Actually, I’ve been there many times before.  I’v also raised the issues I will outline shortly.

While I’m talking about customers, think about your vendors as well.  We’ll circle back to the vendors later.


As the revenue comes rolling in, year after year and deal after deal the following happens:

  • We want to sell more and more.As long as we’re making money on each order and their are paying their bills, sales wants to  sell more.
  • We become complacent.

Hey revenues are going up and our egos start to increase with that slippery slope.

  • We become blinded by the light.We stop or slow down looking for other clients (especially the group that brought in the large account).

Now we’ve put ourselves into the same predicament as Imagination Technologies and hundreds or thousands of unnamed companies.  One or a group of customers make up a way too large percentage of our revenues, cash flow and ultimately EBITDA.  Our spending and budgeting as well as other growth elements are based on the assumption (and you know what happens when you assume).  The assumption of course is that it will continue and grow.

Vendor Supply Chain

The reverse inter-dependency between customer and vendor can also be a source of supply chain issues.  A former client had their major supplier fire them.  Another client had a supplier go bankrupt.  During the tsunami that hit Japan a few years ago, not only were the auto market hit, but the computer hardware market as well.  The supply chain we either cut totally or squeezed so only a small percentage of product could flow.

In any case, the effect is the same.  Customer or vendor; when the company is dependant on one or a small group of other parties, the C-Suite, especially the CEO, CFO and COO need to go into risk analysis mode and plan for alternatives.


You should, after reading this blog, look at your relationships. Examine and analyze the effects of a negative event on the company.  Start mitigation planning immediately.  Also plan for recovery should your mitigation plans not fully protect the company from that “death knell”.