In company law, a tier is one of one or more layers or levels eg in a management system. The term can also refer to companies in a manufacturer’s supply chain: tier one and tier two suppliers. The terms indicate the commercial distance in the relationship between the manufacturer and supplier.
The term original equipment manufacturer (OEM) refers to a company that makes a final product for the consumer marketplace. For example, Ford and General Motors are OEM companies that manufacture cars, and Apple is a computer OEM.
Tier one companies are direct suppliers to OEMs. The term is especially common in the automobile industry and refers to major suppliers of parts to OEMs. For example, Sensata Technologies is a tier one supplier of exhaust gas sensors to automotive OEMs.
Tier two companies are the key suppliers to tier one suppliers, without supplying a product directly to OEM companies. However, a single company may be a tier one supplier to one company and a tier two supplier to another company, or may be a tier one supplier for one product and a tier two supplier for a different line of products.
Companies sometimes find it convenient to distinguish other tiers. Tier three companies are supply tier two firms. Tier four companies are the providers of basic raw materials, such as steel and glass, to higher tier suppliers.