How to Successfully Tier a Supply Chain
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By Morgan International Staff Writers
As an organisation grows, it is typical for the number of suppliers they do business with to also grow. As with any type of relationship, to be effective it must be nurtured. The issue arises when there are simply too many suppliers to be successfully managed by the buying organisation. An effective strategy is to tier the supply chain. How can this be done in a robust way?
- Assess the risks
Consider which of your vendors present the most risk to the production of your product/service. These are your tier 1’s. You need to manage them closely, perform the most due diligence on them, and look to grow a strategic relationship. Your tier 1 vendors should be your most trusted, and therefore you may decide to ask them to manage your tier 2 vendors. Any vendor that could cause you significant reputational damage should be a tier 1.
- Insist on visibility
Many companies rely on their tier 1 suppliers to manage their tier 2’s and maybe the tier 3’s. Of course some have a waterfall model whereby the tier 1’s only manage the 2’s, the 2’s manage the 3’s, and so on. Devolving management does not devolve responsibility. A good approach is to implement a global supplier database and insist on it being kept up to date with various pieces of important information. For example you may ask for tier 1’s to formally manage supplier performance of 2’s and update summaries of metrics and meetings to the database.
- Maintain your culture
Just because a tier 1 supplier is managing a tier 2, does not mean that you don’t want the tier 2 supplier observing your company values and culture. A key way to permeate company culture is to hold events for all suppliers where you update them all on your vision and strategy. Also ensure you still communicate important news to the entire supplier database.
For many organisations it is not feasible to manage the entire supplier base appropriately. Therefore a good option is to tier the supply chain – however this must be done in a robust fashion, and should never involve attempting to devolve ultimate responsibility.