Why might OEM use several supplier tiers?

Supply chains consist of “Tiers” based on their closeness to you or your final product. For businesses that manufacture a physical product, breaking suppliers down by tiers helps to bring clarity to everything that goes into an end product.

What is the difference between Tier 1 and Tier 2 suppliers?

Tier 1 & Tier 2 suppliers refer primarily to suppliers of the automotive industry. A Tier 1 supplier supplies products (usually parts) directly to an OEM (What is an OEM?). The difference, then, is that a Tier 2 supplier supplies products to a Tier 1 supplier (who then supplies the parts to an OEM).

What is a Tier 1 OEM?

Tier 1 suppliers are companies that supply parts or systems directly to OEMs. These suppliers usually work with a variety of car companies, but they’re often tightly coupled with one or two OEMs, and have more of an arms-length relationship with other OEMs.

What is OEM in automotive?

An Original Equipment Manufacturer or OEM is a company that manufactures and sells products or parts of a product that their buyer, another company, sells to its own customers while putting the products under its own branding. OEMs commonly operate in the auto and computer industries.

What are Tier 3 suppliers?

Tier 3 suppliers are the foundation of the entire supply chain. They provide the required materials, such as metals and plastic, in their raw form or almost raw state to Tier 2 and Tier 1 companies. Tier 2 refers to companies that produce and supply parts from the material obtained via Tier 3 to Tier 1 level.

Is tier 1 or Tier 3 better?

In layman’s terms, tier 1 companies are the big guns, and the tier 3 ones are the more modest firms. Over time, companies can move up the tiers if they fit the criteria. Now, let’s explore the different tiers a little more. Tier 1 firms are the largest, wealthiest, and most experienced in the industry.

Is tier 1 or Tier 2 better?

Tier 1 capital is the primary funding source of the bank. Tier 2 capital is considered less reliable than Tier 1 capital because it is more difficult to accurately calculate and more difficult to liquidate.