Difference Between Tier 1 & Tier 2 Companies

From    http://smallbusiness.chron.com/difference-between-tier-1-tier-2-companies-25430.html

 

Manufacturers sometimes refer to companies in their supply chain as tier one and tier two suppliers. The terms indicate the commercial distance in the relationship between the manufacturer and supplier. Although supply tiers can apply to any industry, the terms most commonly describe manufacturer and supplier relationships in the automotive industry.

    

OEM

An original equipment manufacturer, or 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

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

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 product line.

Other Tiers

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.

Other Meanings

The terms tier one and tier two are sometimes adopted with slightly different meanings or definitions. For example, companies might use billing patterns to define tiers. Companies that submit bills to OEMs are considered tier 1 and companies that submit invoices to non-OEM companies are tier 2.