THE TIERED SUPPLY CHAIN: What Automakers Across All Levels Require from their Logistics Providers

When it comes to the automotive supply chain, the time and complexity of the shipping process is compounded by the various tiers that exist within the organizational structure across the industry. These tiers — OEM, Tier-1, Tier-2, and Tiers-3-and-4 — refer to the distance between manufacturers and supplier companies. (While these organizational structures apply to just about every industry, they are most often used in reference to the relationships between auto manufacturers and their suppliers, where many different components and sub-assemblies are needed during the larger assembly process.) On either end of the supply chain, businesses need to rely on logistics providers who are well acquainted with these tiers, and can operate across all of them.

The first, and most streamlined, of the tiers is the Original Equipment Manufacturer (OEM). OEMs within the automotive industry — think Ford, GM, Mitsubishi, and others — are those that manufacture the equipment that is used in the assembly of the final product, which, more often than not, they also put out on the market themselves. They may also produce these parts for other channels, including carmakers for new vehicle installation or construction and resale. The supply chain in these cases is, for obvious reasons, relatively straightforward, and many of the larger automakers rely on their own in-house logistics operations for such.

Things get more complicated once the next tiers are brought in.

The first of these is, obviously, Tier-1. Tier-1 companies are those that supply parts and equipment to OEMs. These suppliers find themselves constantly trying to optimize their operations in order to keep up with the multi-billion-dollar investments that OEMs have made to their own facilities over recent years. This means that Tier-1 companies tend to focus on shortening lead times, reducing cycle times and inventory costs, and investing more in robust technologies. These needs necessitate partnerships with logistics providers that focus on the same solutions.

Tier-2 suppliers are those who supply Tier-1 suppliers, rather than OEMs. While this seems straightforward enough, their supply chains can get complicated because a single company might operate as both a Tier-2 supplier to Tier-1 businesses, as well as a Tier-1 supplier to OEMs. These companies need to be able to ensure that their inventory is well maintained, and that their product lines do not get crossed during the delivery process. Thus, it is essential that logistics providers who work with them have invested in top-of-the-line warehouse management systems (WMS), while also offering high levels of visibility throughout the shipment process.

Finally, there are the lower Tiers, 3 and 4, which primarily deal in raw materials such as glass, rubber, steel, and plastics, and who generally supply Tier-2 companies for sub-assembly equipment. Because of the complexity of these materials, many of which require special permits, a logistics provider that needs to be equipped to handle high-value, oversized, and potentially hazardous cargo, while keeping in mind the various government regulations that may come up during the process.

All told, the complexity of the supply chain means that industry professionals must give extra attention to it. Michael Mytinger, Vice President of Supply Chain Solutions for Aeronet Worldwide, breaks it down succinctly:

“We support both the OEM and Tier-1 suppliers — in North America as well as globally — with time-sensitive transportation solutions inbound to assembly and sub-assembly plants, as well as Tier-1 to Tier-1 supplier orders. We also have expertise in the aftermarket supply chains supporting the service parts networks that are extensions of the OEMs. We do all this in concert with the many 3PLs who operate as onsite logistics operatives for the OEMs, as well as the OEMs and suppliers direct.”

Aeronet Worldwide has worked with the automotive industry for over three decades, and is equipped to handle supplier needs for Tiers 1, 2, and 3. No matter how time-critical the shipment, or how complex the operation, Aeronet is best suited to deliver, be it to an OEM or the closest available Tier-1 vendor. Aeronet has the connections, the expertise, and the experience to ensure that their client’s supply chain never falls behind schedule.