Depending on one supplier for a critical ingredient is a major financial risk. If that supplier disappears, your costs spike suddenly or you can't make your signature dishes. In this article you'll learn step by step how to calculate this risk and what it could cost you.
What is supplier risk?
Supplier risk is the chance that your supplier disappears, multiplied by the impact on your business. For critical ingredients, this can threaten your profit or even your entire menu.
💡 Example:
Your best dish is salmon tataki. You have one supplier for fresh salmon at €24/kg. This dish is 40% of your revenue.
- Current salmon tataki revenue: €8,000/month
- If supplier fails: emergency supplier at €36/kg (+50%)
- Extra costs: €500/month
Risk: €6,000/year in extra costs
The risk formula
Calculate your total supplier risk like this:
Risk = Failure chance × (Extra costs + Revenue loss)
- Failure chance: Percentage likelihood that supplier stops (realistic: 5-15% per year)
- Extra costs: Difference between current and emergency supplier
- Revenue loss: If you can't temporarily offer the dish
Step 1: Identify critical ingredients
An ingredient is critical if:
- It's in your best-selling dishes (top 5)
- You have only one supplier
- It's hard to replace (specialty, quality)
- It has long lead times with new suppliers
⚠️ Note:
Even 'ordinary' ingredients can be critical if you use large quantities. Think of olive oil, butter, or onions from specific suppliers.
Step 2: Calculate the failure chance
Realistically estimate how likely it is that your supplier will disappear:
- Small local supplier: 10-20% per year
- Established regional company: 5-10% per year
- Large national player: 2-5% per year
Consider factors like financial health, ownership changes, or their dependence on their own suppliers.
Step 3: Calculate the financial impact
💡 Example calculation:
Critical ingredient: premium beef for your signature steak
- Current price: €28/kg
- Emergency supplier: €42/kg (+50%)
- Monthly consumption: 200 kg
- Extra costs: (€42 - €28) × 200 = €2,800/month
- Failure chance: 8% per year
Expected risk: €2,800 × 12 × 0.08 = €2,688/year
Finding alternative suppliers
Once you know the risk, you can take action:
- Second supplier: Split your purchases 70/30
- Backup supplier: Agreements for emergencies
- Inventory: Longer buffer for critical items
- Menu adjustment: Develop less dependent recipes
💡 Real-world example:
Restaurant De Kust had one supplier for fresh mussels. When that supplier went bankrupt, they had to drop their mussel special for 3 weeks.
- Revenue loss: €1,200/week × 3 weeks = €3,600
- New supplier: 20% more expensive
- Total impact: €4,800
Now they always have 2 suppliers and an emergency contact.
Weighing risk vs. costs
Prevention measures also cost money. Compare the cost of prevention with your calculated risk:
- Second supplier: Possibly 5-10% higher price
- Extra inventory: More working capital, possible spoilage
- Contracts: Legal costs, minimum orders
If prevention is cheaper than your calculated risk, it's worth the investment.
How do you calculate supplier risk? (step by step)
Make a list of critical ingredients
Write down all ingredients where you have only one supplier and that appear in your most popular dishes. Also note monthly consumption and current price per kilo.
Find alternatives and compare prices
Call 2-3 other suppliers and ask for quotes for the same ingredients. Pay attention to quality differences, delivery times, and minimum orders.
Calculate the financial risk per ingredient
Multiply the price difference by your monthly consumption, then by 12 months, then by the estimated failure chance (usually 5-15%). This gives you the expected risk per year.
✨ Pro tip
Make arrangements with backup suppliers before you need them. A call saying 'we'd like to get to know you for emergencies' often opens doors and ensures faster help when things go wrong.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
How do I estimate a supplier's failure chance?
Look at factors like company size, financial stability, owner's age, and dependence on their own suppliers. Small local companies often have 10-20% chance, large players 2-5% per year.
Do I need to calculate this for all ingredients?
No, focus on critical ingredients: those in popular dishes, with only one supplier, and hard to replace. Usually it's about 5-10 ingredients.
What if a second supplier is much more expensive?
Compare the extra costs of a second supplier with your calculated risk. Sometimes it's cheaper to accept the risk than to pursue preventive but more expensive alternatives.
How often should I recalculate this?
Check this at least once a year, or if your supplier situation changes. Prices, failure chances, and your menu can shift, so keep your risk analysis current.
Can I insure supplier risk?
Business interruption insurance exists that covers supplier failure, but it's often expensive and has many exclusions. Prevention through multiple suppliers is usually more effective.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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