The Importance of Understanding Common Sub-Tier Suppliers

6th May 2022
What is a common sub-tier supplier?

A common sub-tier supplier is a supplier that appears more than once in your supply chain - often across multiple tiers. These suppliers may appear several times within a specific tier, or in numerous instances across multiple tiers. 

Many industries have been severely affected by the Shanghai lockdown, as one of the world’s largest electronics manufacturing hubs near Shanghai is grinding to a halt due to extremely strict lockdown rules - also affected are trucking companies, raising concerns about the effects to global trade.

Automaker Nio said its suppliers in Shanghai had ceased production, forcing them to halt deliveries. Also, over 30 Taiwanese electronics manufacturers have announced closures of factories near Shanghai, disrupting production of semiconductor chips.

Taiwan Semiconductor Manufacturing Company (TSMC) recorded a market share of approximately 52% in the global semiconductor foundry market in Q4 2021, meaning the consequences of the lockdown could have wider reaching results; China and the United States rely almost exclusively on TSMC to supply their advanced semiconductor chips. 

Why do common sub-tier suppliers matter?

When a supplier occurs numerous times in the same tier or across multiple levels, the consequences of a disruption are worsened when this supplier faces disruption. With poor supply chain visibility, common sub-tier suppliers can be tougher to detect.

Renesas is a major chip supplier to Ford and Toyota, and one of the biggest worldwide,  producing almost one-third of the microcontroller chips used in vehicles globally. In Ford’s case, nine of their Tier 1 suppliers rely on Renesas to meet demands.

Renesas faced similar difficulties prior - a fire in a plant last year was a main contributor to a setback in Ford’s planned Q2 gains in 2021. The fire also affected Toyota, who suspended operations in over half of its Japanese plants for three days due to the damages.

As Renesas is a common sub-tier supplier to both Ford and Toyora, this created a supplier concentration risk - disruption from natural disasters to Renesas led to major shortages that significantly affected both major automotive companies.

Another example: A 7.4 magnitude earthquake in March 2022 disabled Renesas’ plants in Naka, Takasaki and Yonezawa, causing a major interruption to their operations. While Renesas were able to bring test lines online at Yonezawa, at the time of writing it was thought to be several days before full production could resume.

How can you find out if you have common sub-tier suppliers?

Identifying sub-tiers is, in practice, finding out your suppliers’ suppliers. Most companies will have sufficient data about their Tier 1 suppliers - who they are and how much they spend with each supplier, as they have a direct transactional relationship. However, Tier 2 and below becomes much more opaque, requiring supply chain mapping to identify common sub-tier suppliers. Identifying common sub-tier suppliers can be a difficult task.

Following the 2011 Fukushima Earthquake, one auto executive said: “It took an entire year to design Renesas out of the supply chain… We thought we had good supply chain visibility, but we were still surprised that behind tier 1 & 2 we had Renesas everywhere.”

Conventional approaches are typically manual and time-consuming; sending surveys to suppliers to disclose their suppliers, or paying consultants to create a one-off snapshot of data. Companies may have 2-3 supply chain experts per product category, or hire consultants for large change programmes, but the high cost of acquiring the information needed to understand complex, multi-tiered supply chains means it is often not economically viable. A report from the Economist states that: “in the wake of the Japanese tsunami in 2011 a global semiconductor giant tried to map its vulnerabilities to third- and fourth-tier vendors; it took a team of 100 executives more than a year to work out which firms were in its extended supplier networks”.

Furthermore, your suppliers may not be incentivised to share such information with you, for fear of losing sales to a direct relationship, as well as a heavy burden on suppliers who must fill out surveys from all their clients.

Supply chain mapping software is now helping identify risks in supply chains by revealing common sub-tier suppliers. Sophisticated AI-powered supply chain mapping can not only identify who your supplier’s suppliers are, but will also identify which are most critical to your supply chain’s stability, and present the most risk.

What can you do about it?

Versed AI’s cutting-edge AI delivers easy, rapid and secure multi tier supply chain visibility, helping you make better risk management decisions, with a more cost effective solution compared to doing it in-house. By distinguishing your most common suppliers, you can adapt your supplier management strategy accordingly, deepen those relationships and mitigate risk. 

AI helps to automate previously-lengthy analysis, allowing you to make fast and effective decisions regarding business-critical supply chain risks. Up-front knowledge enables preventative rather than reactive responses to supply chain risk, and a lead time to act when unforeseen events occur.  To find out more, click on our ‘request a demo’ page.

Keep Up To Date With Versed AI's News

For latest company updates and exciting news.

Sign Up To Our Newsletter

Share this article

Copy link
Link Copied to clipboard