Which strategy best mitigates supplier risk in a small business?

• A. Rely on a single supplier to maximize bargaining.
• B. Ignore supplier finances and contingency plans.
• C. Only monitor supplier performance quarterly.
• D. Diversify suppliers, negotiate favorable terms, and maintain safety stock.

Answer: (D)

Mitigating supplier risk comes from building resilience in your sourcing. Diversifying suppliers prevents a single point of failure—if one supplier faces disruption, others can fill the gap. Negotiating favorable terms improves cash flow and flexibility during shortages or delays, giving you more options and stability. Maintaining safety stock creates a cushion so operations can continue while you deal with supplier issues or longer lead times. Collectively, these practices strengthen the reliability and responsiveness of the supply chain.

The other approaches miss key aspects: relying on one supplier increases vulnerability to any disruption; ignoring supplier finances means you might not spot weakness until it’s too late; monitoring only quarterly leaves significant issues unaddressed between reviews. In practice, identify critical items, qualify alternative sources, and set up agreements and reorder points to implement this strategy.