What Is a Tier 1 Company?
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.
References
Writer Bio
Based in the United Kingdom, Ian Linton has been a professional writer since 1990. His articles on marketing, technology and distance running have appeared in magazines such as “Marketing” and “Runner's World.” Linton has also authored more than 20 published books and is a copywriter for global companies. He holds a Bachelor of Arts in history and economics from Bristol University.