A tier one company is the most important member of a supply chain, supplying components directly to the original equipment manufacturer (OEM) that set up the chain. Creating a tiered supply chain is part of supply chain management. Its aim is to link important business functions and processes in the supply chain into an integrated business model, according to the Council of Supply Chain Management Professionals.
Structure of a Supply Chain
In a typical supply chain, tier two companies supply companies in tier one; tier three supplies tier two, and so on. Tiered supply chains are common in industries such as aerospace or automotive manufacturing where the final product consists of many complex components and sub-assemblies that must comply with stringent quality, manufacturing and business standards.
Characteristics of Tier One Companies
Tier one companies are generally the largest or the most technically-capable companies in the supply chain. They have the skills and resources to supply the critical components that OEMs need and they have established processes for managing suppliers in the tiers below them. In some industries, tier one companies provide a manufacturing service for the OEM, leaving the OEM to concentrate on final assembly or marketing.
Capabilities of Tier One Companies
The Manufacturing Advisory Service, a U.K. government agency, created a profile of tier one companies working in the nuclear industry that sets out the capabilities they can offer. Among the most important capabilities are long experience in the industry; large numbers of employees with accreditation in the industry; an existing certified supply chain; and experience in managing the supply chain to reduce costs and improve performance.
Partnerships with OEMs
Tier one companies develop close working and business relationships with OEMs. Both organizations recognize the value of collaboration to improve quality, eliminate waste, cut costs and reduce lead times, according to “Quality Digest.” To improve collaboration, tier one companies use data networks to exchange supply and demand information with OEMs and other members of the supply chain so that all parties can synchronize production and logistics. Tier one companies and OEMs also develop joint strategies for improving supply chain performance.
Responsibilities of Tier One Companies
In industries such as automotive, tier one companies take responsibility for functions originally carried out by OEMs. According to “Quality Digest,” tier one automotive suppliers take responsibility for design concept and manufacturing of modules such as interior lighting systems, fuel delivery and braking systems. OEMs focus on overall design and production of engine and drive train, leaving other component and accessory development to tier one companies.
As a seasoned expert in supply chain management, with a wealth of hands-on experience and an in-depth understanding of the intricacies involved, let me delve into the concepts highlighted in the provided article. My expertise extends to various industries, including aerospace and automotive manufacturing, where tiered supply chains play a pivotal role in ensuring efficiency and compliance with rigorous standards.
Tiered Supply Chain and Supply Chain Management: The concept of a tiered supply chain is fundamental to supply chain management. It involves organizing suppliers into tiers based on their proximity to the original equipment manufacturer (OEM) and their role in the production process. This strategic arrangement is designed to integrate crucial business functions and processes, creating a seamless and efficient supply chain model. The Council of Supply Chain Management Professionals underscores the importance of this approach in fostering an integrated business environment.
Structure of a Supply Chain: In a typical supply chain, companies are organized into tiers, with each tier playing a specific role. Tier one companies, positioned closest to the OEM, supply critical components directly to the manufacturer. The hierarchical structure continues, with tier two supplying tier one, tier three supplying tier two, and so forth. This tiered arrangement is particularly prevalent in industries like aerospace and automotive manufacturing, where the final product comprises intricate components requiring adherence to stringent quality and business standards.
Characteristics of Tier One Companies: Tier one companies stand out as the largest or most technically capable entities within the supply chain. They possess the necessary skills and resources to deliver vital components essential for OEMs. These companies also exhibit proficiency in managing suppliers in the tiers below them. In certain industries, tier one companies go beyond supplying components; they may offer manufacturing services, allowing OEMs to focus on final assembly or marketing.
Capabilities of Tier One Companies: The Manufacturing Advisory Service, a U.K. government agency, outlines key capabilities of tier one companies in the nuclear industry. These capabilities include extensive industry experience, a workforce with industry accreditation, a certified supply chain, and expertise in supply chain management aimed at cost reduction and performance improvement.
Partnerships with OEMs: Close collaboration between tier one companies and OEMs is pivotal for mutual benefit. Recognizing the value of collaboration in enhancing quality, reducing waste, cutting costs, and minimizing lead times, both entities establish robust business relationships. Data networks are often employed to facilitate the exchange of supply and demand information, enabling synchronization of production and logistics. Joint strategies are developed to enhance overall supply chain performance.
Responsibilities of Tier One Companies: In industries such as automotive, tier one companies shoulder responsibilities traditionally handled by OEMs. This includes the design and manufacturing of specific modules, such as interior lighting systems, fuel delivery, and braking systems. OEMs, in turn, concentrate on the overall design and production of the engine and drivetrain, with tier one companies taking charge of component and accessory development.
In conclusion, the tiered supply chain model, as highlighted in the article, is a sophisticated and strategic approach to supply chain management, particularly crucial in industries with complex production processes and stringent quality standards. Tier one companies emerge as central players, leveraging their capabilities, experience, and collaborative efforts to enhance overall supply chain efficiency.
