Supplier pyramid
The term supply pyramid describes the hierarchical ordering of all suppliers in a supply chain or network.
Brief description
At the top of this pyramid of suppliers is the contractor or manufacturer of the goods (OEM which stands for Original Equipment Manufacturer) as the "end customer" for suppliers. This manufacturer receives its supplies from so-called 1st-Tier-Supplier suppliers. These, in turn, receive their goods, modules or raw materials from second-tier suppliers "2nd-Tier Supplier." The chains lend themselves to lengthening and branching, respectively, so that a summary of all parties contributing to the creation of the final product is created. The lengths and branching of these hierarchies naturally always depend on the product and industry, as well as the degree of the company's own production.
The automotive industry is a classic example of this hierarchy of division of labor. At the top is the car manufacturer, which gets its parts from a small number of component suppliers, who get their products from module suppliers. The pyramid thus consists of the following types of suppliers: component supplier, part supplier, raw material supplier. However, strict adherence to this hierarchy is not enforced, so that lower-level suppliers can jump a few rungs and deliver to high-level suppliers or even directly to the manufacturer. Depending on their distance from the manufacturer, OEMs become suppliers referred to as Tier-1, Tier-2, Tier-3, etc.