Automotive Supply Tiers 1, 2 and 3 Explained

What are Automotive Suppliers?

Automotive suppliers provide the components, systems, materials and services necessary for vehicle manufacturing. From the smallest fasteners to the most sophisticated electronic systems, these suppliers each play a critical role in the automotive supply chain.

Automotive suppliers range from large multinational corporations to smaller specialised firms, each contributing to the supply chain with their unique expertise and capabilities.

These suppliers are responsible for ensuring that their products meet the stringent quality standards and specifications set by the automobile manufacturer, such as Ford, General Motors, Toyota and others. They work closely with these manufacturers during the vehicle development process, collaborating on design, engineering and testing to ensure seamless integration and optimal performance.

Chassis of car

What are Automotive Supplier Tiers?

With over 30,000 individual components in a single car, organising the automotive supply chain is crucial. To better manage and help visualise the network of suppliers involved in automotive manufacturing, the industry has established a tiered system. This hierarchical structure categorises suppliers based on their proximity to the main manufacturer and the nature of their offerings.

Tier 1 Suppliers: Component/module suppliers or original equipment manufacturers.

Tier 2 Suppliers: Individual parts or sub-assembly manufacturers.

Tier 3 Suppliers: Raw material or very simple part suppliers.

In addition to these main tiers, there may be additional sub-tiers or lower-tier suppliers that provide specialised materials, tools or services to the higher tiers. These sub-tiers can vary depending on the specific supply chain and the level of granularity required for analysis or management purposes.

The tiered structure of the automotive supply chain serves several crucial purposes, including better organisation and coordination, effective supply chain management, quality control, risk management and specialisation.

What is an OEM in Automobile Manufacturing and How Does it Relate to Supply Tiers?

In the automotive industry, the term "OEM" (Original Equipment Manufacturer) is used to refer to both the automobile manufacturers (such as Ford or Toyota) and certain Tier 1 suppliers (such as Bosch and Denso). This dual usage of the term can be confusing and stems from the close relationship between these entities in the vehicle manufacturing process.

Here's why the term OEM is applied to both:

  • Automobile Manufacturers as OEMs: The most widely accepted understanding of an OEM is the company that designs, manufactures, and assembles the final product – in this case, the automobile itself. Companies like Ford, Toyota, JLR and others are considered OEMs because they both manufacture parts for themselves and are responsible for the overall vehicle design and assembly.
  • Tier 1 Suppliers as OEMs: Certain Tier 1 suppliers, particularly those that manufacture complex systems or modules that are directly integrated into the vehicle, are also referred to as OEMs. This is because these suppliers design, engineer, and manufacture these systems or equipment to the specifications provided by the automobile manufacturer (Ford, Toyota, etc.).

In many cases, Tier 1 suppliers are acting as OEMs for the specific components or systems they supply. For example, a Bosch car battery installed as standard on a brand-new car would be considered an OEM part, even though they are not the final automobile manufacturer. They are responsible for the design, development and manufacturing of these components, which are then supplied directly to the automobile manufacturer for integration into the final vehicle.

For the purposes of this article, we may refer to automobile manufacturers such as “OEMs” but will refer to Tier 1 suppliers as simply a “tier 1 supplier”.

What are Tier 1 Automotive Suppliers?

Tier 1 suppliers, also known as direct suppliers, are companies that supply fully assembled components or systems directly to automobile manufacturers. These components are integrated directly into the vehicles during the assembly process. Tier 1 suppliers are responsible for the design, engineering and manufacturing of their products, ensuring they meet the OEM’s specifications and quality standards.

Examples of Tier 1 suppliers and some of the finished components they provide include:

  • Bosch: Automotive electronics, control systems.
  • Denso: Climate control systems, engine components.
  • Continental: Tyres, brake systems, powertrain components.
  • ZF Friedrichshafen: Transmissions, driveline systems.
  • Lear: Automotive seating.
  • CATL: Lithium-ion Batteries for electric vehicles (EVs).

These large automotive suppliers often have long-standing relationships with automobile manufacturers and are closely involved in the vehicle development process.

Worker holding tier 1 automotive supplier part

What are Tier 2 Automotive Suppliers?

Tier 2 suppliers are one step removed from the OEM, providing components, materials or services. They typically manufacture or process individual parts or sub-assemblies that are then used by Tier 1 suppliers in their final products.

These components are essential for the proper functioning of the larger assemblies and systems. Some examples of parts provided by tier 2 suppliers include:

  • Stamped metal parts: Brackets, clamps, housings.
  • Plastic components: Interior trim, exterior body parts.
  • Electrical components: Wiring harnesses, connectors.
  • Rubber components: Gaskets, seals, hoses.
  • Machined parts: Shafts, valve bodies.

Kiyokuni Europe, for example, is a Tier 2 automotive supplier, providing high-quality pressed metal parts, components and sub-assemblies to Tier 1 suppliers and direct to automobile manufacturers for final assembly.

Aluminium Parts

What are Tier 3 Automotive Suppliers?

Tier 3 suppliers, also known as raw material suppliers, provide the basic raw materials used in the automotive manufacturing process. These suppliers offer materials such as steel, aluminium, rubber, plastics and chemicals to Tier 2 suppliers or, in some cases, directly to Tier 1 suppliers.

The raw materials supplied by Tier 3 suppliers are processed, transformed or combined by the other tiers to create the components and parts required for vehicle assembly. This tier forms the foundation of the automotive supply chain, ensuring a steady supply of essential materials.

In some cases a tier 3 supplier may also be responsible for creating very basic parts for use further up the supply chain. This is the case in more complex supply chains or where it is more practical/economical for the tier 3 supplier to process some of the raw materials it provides.

Raw materials as part of the automotive supply chain

More Information on Automotive Supply Tiers

As an established tier 2 supplier, Kiyokuni Europe contributes high-quality components and sub-assemblies to Tier 1 suppliers and OEMs. If you are interested in gaining further insights into the complexities of the automotive supply chain, get in touch with Kiyokuni Europe for more information.

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