Many businesses have multiple suppliers and extensive supplier tiers that contribute to a final product. This allows businesses to specialize in specific areas and create a better final product. However, having a clear vision of a business’s supply chain is less common. As low as 6% of U.S companies have reported having clear visibility of their supply chains.
Many businesses focus mainly on their tier 1 suppliers and pay less attention to the lower-tier supplier. However, having a clear understanding of your complete supply chain and the different tiers is essential for the finished product. A clear vision of your tier 1, 2, and 3 suppliers can:
- Ensure continuity of supply
- Improve resiliency
- Reduce costs
- Improve your customer’s experience
- Support your sustainability and social responsibility goals
- Improve quality control
- Maintain government regulation compliance (i.e., the German Supply Chain Act)
Tier 1 Suppliers
Tier 1 companies are the direct suppliers of the final product. A first-tier supplier has the closest connection and relationship with the companies that produce the end products. It is the last step in the manufacturing process before reaching the product-selling company
An example of a tier 1 supplier could be a factory that assembles cotton t-shirts for a clothing company.
Tier 2 Suppliers
Second-tier suppliers are best described as a supplier or a subcontractor to a tier 1 supplier. In the example of the factory that assembles the cotton t-shirts, a tier 2 supplier would be the fabric mill.
Tier 3 Suppliers
Tier 3 suppliers or subcontractors generally produce the raw materials necessary for tier 2 suppliers to manufacture their goods. In our cotton t-shirt example, the tier 3 supplier would be the cotton farm.
Tracking Tier 1, 2, and 3 Supplier Performance
Collecting performance and compliance data for any tier supplier can be a complicated task. Certainty Software’s Supplier Social and Environmental Compliance Checklist can help improve your supply chain management and reduce supply chain risk. This free-to-download checklist is an excellent starting point for improving your supply chain visibility and sustainability.
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