For businesses that manufacture a physical product, breaking suppliers down by tiers helps to bring clarity to everything that goes into an end product. When you identify and understand more about your supply chain—namely your Tier 1, 2, and 3 suppliers—you can take steps toward building a more reliable, transparent, and resilient business.
Even if you don’t manufacture a product, thinking of how and where you purchase anything is a relevant exercise for any organization. If you want to be more critical about sourcing things like IT hardware, office furniture, and snacks for your organization, examine each company or partner in the same way you would if they were your manufacturing suppliers.
Supply chain and sustainability
Understanding your suppliers is also a big step towards addressing environmental sustainability and social responsibility. A holistic approach will help you start to weed out bad actors and unsustainable practices that you could unknowingly support.
Especially if your organization wants to create a better connection with customers, a traceability exercise is a worthwhile effort. Showing customers and other suppliers that you’re careful and critical of the companies you do business with goes a long way in building brand trust.
Understanding how your product arrives in customers’ hands requires a broad and comprehensive view of your entire list of manufacturing partners, including factories, vendors, and their suppliers. Start by mapping your supply chain to identify all the materials and partners that come together to bring a product to market.
Having this information on hand helps when you’re ready to address sustainability initiatives throughout your supply or value chain, including scope 3 greenhouse gas emissions and product footprint analyses.
Supply chains can be broken down into a system of “Tiers” based on closeness to your business or final product.
TIER 1 SUPPLIERS
Partners that you directly conduct business with, including contracted manufacturing facilities or production partners. Take, for example, a company selling apparel: The factory that assembles that company’s cotton t-shirts is a Tier 1 supplier.
TIP: If you’re looking to identify your Tier 1 suppliers quickly, look at your company’s spending—Tier 1 suppliers are often significant cost centers.
TIER 2 SUPPLIERS
It’s simplest to identify Tier 2 suppliers as the sources where your Tier 1 suppliers get their materials. Again, using the apparel company example: That t-shirt factory receives its materials from a fabric mill. That mill is a Tier 2 supplier to the apparel company.
TIER 3 SUPPLIERS
Tier 3 suppliers or partners are one step further removed from a final product and typically work in raw materials. Once again, following our apparel company example: The Tier 3 supplier here is the farm that sells cotton to the fabric mill.
While no two supply chains look alike, many companies and organizations require far-reaching networks to bring a finished product to the consumer. Painting a complete picture of your supply chain takes time and effort, which often includes months of investigation and asking for supplier connections. Be patient—in the long run, it’s a necessary step to creating a more sustainable product.