What risk can occur when a supply chain is overly reliant on a single supplier?

Reliance on a single supplier creates a significant risk of supply disruptions. When a supply chain is dependent on just one source for its materials or products, any issue that affects that supplier—such as natural disasters, financial instability, labor unrest, or even changes in governmental policies—can halt the entire supply chain process. This vulnerability becomes particularly problematic if the supplier is unable to deliver goods on time or at all, ultimately impacting production schedules, inventory levels, and the ability to meet customer demand.

In contrast, if a company utilizes multiple suppliers, it can mitigate the risks associated with potential disruptions from any one supplier by having alternative sources available. Additionally, an over-reliance on a single supplier can lead to complacency in the relationship, reducing the incentive for the supplier to maintain consistent, high-quality service or innovative practices. Hence, the correct answer emphasizes the critical nature of diversification in supply chain management to ensure resilience and continuity of operations.