Companies that supply original equipment manufacturers with subassemblies, components, and materials may be arranged into tiers that represent their commercial distance (degree of direct access and accountability) from the OEM. Tier One suppliers provide their products directly to the manufacturer, whereas Tier Two suppliers (and lower) provide their products and services to the supplier at the next level along the supply chain.
According to the Houston Chronicle, this tiered supply chain approach is widespread in the automotive, aerospace, and computer industries, where the final product comprises of numerous complicated components and sub-assemblies that must adhere to stringent quality, manufacturing, and business standards. Original equipment manufacturers (OEMs) are the companies that produce the final consumer product, be it an automobile, an aeroplane, a computer, or something else. Tier One suppliers offer OEMs with components (e.g., seats, electronic modules, windows, etc.) that satisfy the specified requirements and level of completion. Tier Three outputs are sent to Tier Two suppliers. Lower tiers (such as tiers three and four) deliver subassemblies, components, and/or materials with diminishing levels of completion, finally reaching suppliers of raw materials: steel, glass, rubber, plastics, etc.
According to Tier1parts.com, suppliers desire Tier One status because it demonstrates the credibility and dedication demanded by manufacturers of their closest business partners who are “trusted to design, create, and validate the products, systems, and services required for their goods.” Some suppliers are Tier One for one organisation and Tier Two for another, or Tier One for one product and Tier Two for another. All suppliers, regardless of tier status, must meet the stringent quality and production criteria of their customers, which are ultimately defined by the original equipment manufacturer.
