Most products manufactured today consist of multiple components and parts. The manufacturer your company uses likely works with tiers of suppliers instead of producing each piece itself. Each supplier is responsible for providing a particular part. Understanding the tiers of manufacturing — 1, 2 and 3 — can help manufacturers choose the best suppliers.
The distance between suppliers and the manufacturer on the supply chain determines their tier. The further the supplier is from the manufacturer, the higher their tier number. Despite their names, each supplier plays an important role in the manufacturing process.
Tier 1 suppliers are the companies closest to the manufacturer. They work directly with the manufacturer and are often well-known brand names that may produce their own products. For example, a refrigerator company may manufacture its own refrigerators and provide components for other original equipment manufacturers (OEMs).
The components a Tier 1 producer supplies are typically complex and consist of multiple parts. Tier 1 companies get their parts from Tier 2 and Tier 3 suppliers.
Tier 2 suppliers provide materials to Tier 1 suppliers. A Tier 1 shirt company purchases the fabric it needs to make shirts from a Tier 2 fabric mill. A Tier 1 aviation company sources wheels from a Tier 2 supplier that produces wheels.
One way to think of Tier 2 companies is as subcontractors to Tier 1 companies. The Tier 1 company receives an order from the original equipment manufacturer (OEM). It then reaches out to its Tier 2 supplier for the simple components required to produce the more complex parts.
Tier 3 suppliers are the companies that produce the raw materials. In the case of a Tier 1 company that manufactures apparel, the Tier 3 supplier makes the cotton or wool, which it sells to the Tier 2 supplier. The Tier 2 supplier then turns that wool or cotton into fabric.
A Tier 2 supplier that produces wheels for airplanes likely works with a Tier 3 supplier that makes the metal or rubber for those wheels.
The further a supplier is from an OEM, the less control the manufacturer has over the parts’ quality or the distant supplier’s manufacturing process. Knowing who every party is in the supply chain is critical, though. If a Tier 3 supplier produces lower-quality raw materials or a Tier 2 or Tier 1 supplier is the subject of an investigation or scandal, it affects the quality of the products your manufacturing company produces.
Knowing as much as possible about each company in your supply chain matters for your business’s reputation and your products’ quality.
PBZ is a full-service manufacturing company, meaning we provide one-stop-shop capabilities that reduce the risks of working with tiered suppliers. We are dedicated to delivering value to our clients and have worked to build long-lasting relationships since 1947. Contact us today to learn more about how our services can benefit your manufacturing process.