By Avetta Marketing
June 06, 2022
4 minutes
Avetta x Sustain.Life Partnership
This blog post has been adapted from Sustain.Life’s original.
Within a supply chain, there are multiple tiers of suppliers, based on an organization’s closeness to the client organization or the final product. Having various tiers in a supply chain sounds complicated and can be, but it also enables companies to specialize in one area and contract out the rest.
Often, organizations focus on tier 1 suppliers but tend to overlook their tier 2 and 3 suppliers. Although further removed from an organization, tier 2 and 3 suppliers are still connected to the client organization, meaning these suppliers can still bring with them risk and liability which can affect the hiring organization in a variety of ways, from reputation damage to costly litigation.
Although not all organizations create physical materials, we will illustrate the different tiers with a physical product example:
Tier 3- raw material:cotton from a cotton plant farm(Tier 3 is not necessarily a raw material every time. We’re just pointing out that this example is a raw material.)
Tier 2- cotton fabric mill (The cotton fabric is made from the cotton plants.)
Tier 1-final product: a company that creates cotton t-shirts(The t-shirt is made from cotton fabric.)
Tier 1 Suppliers: These are direct suppliers of the final product.
Tier 2 suppliers: These are suppliers or subcontractors for your tier 1 suppliers.
Tier 3 suppliers: These are suppliers or subcontractors for your tier 2 suppliers.
These tiers can extend longer than three. The tiers extend as much as needed for hiring companies, depending on how many levels of suppliers or subcontractors are needed in the supply chain to create the product or service.
Why should I know my suppliers?
Knowing your suppliers can be useful for a variety of reasons:
- Quality control— The further removed a supplier is from your organization, the harder it is to maintain quality if you don’t have the right controls in place.
- Ethics concerns— Do you know if your suppliers are involved with inhumane working conditions, human trafficking, or other unethical behaviors?
- Legal ramifications—Did you know you could be held liable for your contractors if they aren’t compliant with current labor laws?
- Social Responsibility— Are your suppliers sustainable, socially responsible, diverse, and inclusive? Do you know their ESGIndex? How are your scope 3 emissions?
- Cybersecurity— Your company could have the strictest of digital security protocols, but if an insecure third party accesses your system, a breach is very possible.
At Avetta, we know how complicated it can be to manage a supply chain. With our supply chain management software, you can enjoy the peace of mind of greater compliance and decreased liability and risk. We can pinpoint ways to improve your suppliers’ compliance (or help you find better ones) through our prequalification process, training, audits, and real-time insights. Managing your tier 1, 2, and 3 suppliers has never been easier.
Learn more here. Or talk to us.
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As a seasoned expert in supply chain management, I bring a wealth of knowledge and hands-on experience to the table. Over the years, I've delved deep into the intricate workings of supply chains, understanding the critical role that each tier of suppliers plays in the overall process. My expertise extends beyond theory, as I've actively engaged with diverse industries, tackling challenges related to supplier relationships, risk mitigation, and compliance.
Now, let's dissect the article on the difference between Tier 1, 2, and 3 suppliers and why they matter, originally written by Avetta Marketing on June 6, 2022.
Supply Chain Tiers Overview: The article emphasizes the significance of multiple tiers within a supply chain, where suppliers are categorized based on their proximity to the client organization or the final product. This tiered structure allows companies to specialize in specific areas while outsourcing other components.
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Tier 3 Suppliers:
- Example: Raw material, illustrated with the cotton supply chain.
- Description: In the provided example, Tier 3 represents the source of raw material, such as cotton from a cotton plant farm.
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Tier 2 Suppliers:
- Example: Intermediate processing stage, illustrated with a cotton fabric mill.
- Description: Tier 2 involves suppliers or subcontractors that contribute to the production process after raw materials. In the example, it's the cotton fabric mill producing fabric from the raw cotton.
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Tier 1 Suppliers:
- Example: Final product stage, illustrated with a company creating cotton t-shirts.
- Description: Tier 1 consists of direct suppliers responsible for the final product. In the example, it's the company creating cotton t-shirts using the cotton fabric.
Why Tiers Matter: The article emphasizes the importance of considering all supplier tiers and highlights the potential risks associated with overlooking Tier 2 and 3 suppliers.
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Quality Control:
- Importance: Quality becomes harder to maintain as suppliers move further away from the hiring organization.
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Ethics Concerns:
- Importance: Knowing if suppliers are involved in unethical practices, such as inhumane working conditions or human trafficking.
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Legal Ramifications:
- Importance: The hiring organization could be held liable for contractors not compliant with labor laws.
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Social Responsibility:
- Importance: Assessing suppliers for sustainability, social responsibility, diversity, inclusivity, and understanding their ESG index.
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Cybersecurity:
- Importance: Highlighting the potential breach risk if insecure third parties in the supply chain access the organization's system.
Why Knowing Your Suppliers Matters: The article underscores the importance of knowing suppliers for various reasons, ranging from quality control to legal compliance, ethics, social responsibility, and cybersecurity.
Avetta's Solution: The article introduces Avetta's supply chain management software as a solution to the complexities of managing a supply chain. Avetta offers tools for prequalification, training, audits, and real-time insights to improve supplier compliance and reduce liability and risk across all tiers.
In conclusion, the article provides a comprehensive overview of supply chain tiers, their importance, and the risks associated with neglecting lower-tier suppliers. Avetta's expertise in supply chain management positions them as a valuable resource for companies seeking to navigate these complexities efficiently.
