Chat with us, powered by LiveChat
2 minute read

What is a Tier supplier?

Structure of a supply pyramid

A supply pyramid describes the structure of a supply chain with the end product producer (OEM) at the top. OEM stands for Original Equipment Manufacturer. The suppliers of modules and systems are directly underneath the OEM. These suppliers are supplied by component suppliers who in turn buy their goods from parts suppliers.


Supply Pyramid
Supply Pyramid

Suppliers are referred to as Tier 1, Tier 2, Tier 3, Tier-n suppliers, depending on their distance from the OEM. This reflects the sub-supplier structure.

Example from the automotive industry

The automotive industry is characterized by complex and closely interlocked logistics chains. Instead of producing all their components in-house, automotive manufacturers procure the individual modules from specialist suppliers. These suppliers will in turn assemble components supplied by specialized component suppliers. The suppliers of individual parts are found on the third tier.

These boundaries are not always defined that clearly. A supplier may thus be both Tier 1 and Tier 2 – they may, for instance, deliver antenna modules to both OEMs and Tier 1 suppliers.

The following diagram illustrates an example of an automobile supply chain.


Supply pyramid in the automotive industry
Supply pyramid in the automotive industry

Challenges along the supply chain

Close interlinking between OEMs and their individual Tier Suppliers pose special challenges to the smooth operation of processes. The horizontal integration of many different suppliers and their own suppliers will, for instance, demand that required quantities are communicated fast and effectively if the supply of modules, components and individual parts is to be ensured. This is a critical factor in success especially with just-in-time and just-in-sequence processes. Electronic data interchange is used to ensure communication, whilst the concepts of delivery schedule and just-in-time deliveries may for instance be deployed. Standardization organizations such as ODETTE or VDA have already developed many useful standards to allow efficient operation of automobile supply processes.

Apart from logistics messages such as delivery schedule, despatch advice, etc., continuous digital engineering is essential. This will, for instance, include the exchange of construction data such as CAD (Computer-aided design) drawings and the like.

Any questions?

Do you have questions about logistics in the automotive industry or would you like to implement an EDI based process? Please contact us – we look forward to hearing from you!

subjects

most read

Keep on reading

Cookie Settings

All marketing cookies
LinkedIn (cn_LinkedINActive)
LinkedIn uses cookies so as to provide you with a personalised user experience and show you relevant content.
Google Analytics (cn_AnalyticsActive)
Used to send data to Google Analytics about the visitor's device and behaviour. Tracks the visitor across devices and marketing channels.
Facebook (cn_FacebookActive)
Used by Facebook to display a range of promotional products, such as third-party real-time bidding.
Google Adwords (cn_AddWordsActive)
Used to identify users visiting the website via Google Ads.
Pardot (cn_PardotActive)
Pardot uses cookies to make your interactions with our website more meaningful. They help us better understand what you’re looking for, so we can tailor content for you