From TIER 1, TIER 2 and TIER 3 to “TIER all toghether”

12 Oct 2020

The role of car suppliers has been well structured for many years. The established hierarchical chain provided clarity and understanding, both to observers outside the industry and to observers from the companies responsible for manufacturing the components or technologies. However, the scenario is rapidly changing.

The 2019 edition of Automotive World with the theme What is the future of mobility? explore this change. We talk about changes in the ways in which changing communication and propulsion technology, as well as new business models, changes in emissions and safety requirements, are affecting the ways in which people and goods move and are moved.

The report of Automotive World highlights the most interesting changes taking place in the automotive industry. These include OEM portfolio adjustments, the industry transition to mobility services, the evolution of the supplier base, changes in trucks and the prospect of an entirely new form of mobility in the form of hyperloop.

In complex manufacturing ecosystems such as aerospace and automotive, there is a hierarchical structure in the supply chain. This structure starts with the companies that produce the raw materials, up to the companies that sell products with brands that we all know. Today, we find brands like Ford, GM and Boeing at the top of that chain. But as we transition from vehicle ownership to autonomous mobility services over the next few decades, some brands like Fiat Chrysler could be relegated to becoming tier-one suppliers to companies like Waymo and Apple.

We verified that over the last decades, OEMs (Original Equipment Manufacturer), have moved more component development and production to various levels of the supply chain. At the top of this chain are the big TIER 1 companies (such as Bosch, Continental, Delphi and ZF). These companies purchase raw materials and parts from lower-tier suppliers (TIER 2 and 3), and deliver finished subsystems (such as wiring harnesses, driving assistance, transmissions) directly to the OEM's final assembly lines.

However, as the autonomous vehicle moves closer to reality, it may not be OEMs who provide the transport brands that consumers pay for. Many OEMs are actively developing autonomous driving and related mobility services needed for their deployment. Companies such as GM, Ford, Nissan-Renault, Volkswagen, BMW and Mercedes-Benz are all well positioned to provide mobility services with the autonomous vehicles they manufacture in the future. They own the manufacturing, distribution and service infrastructure through their dealer networks.

In the past, for OEMs to manufacture a vehicle, they simply purchased components from a list of suppliers, but when entering new areas of technology, this choice is much more fragmented and not always defined by the industry itself. Partnering with suppliers changes the transactional nature of your relationship and blurs the boundaries between an OEM and TIER 1 . With the confidence that their customers are loyal to TIER 1, they become partners in innovation, and are no longer just fulfilling purchase orders.

In this perspective, a new way of working for OEMs opens up, let's call it "TIER all toghether, others claim that a new channel is opened for a “TIER 0.5” supplier.


In fact, this new paradigm works in the long term with its customers, often setting cost targets together and sharing product development. This blurred relationship, however, raises questions about how to negotiate contracts with a supplier, such as:

“Will it be difficult to quantify this type of relationship?”

“Do we do joint development on this?”

“How do we assess the price of joint development?”

“How do we incorporate third parties into these development prices?”

“Joint development can also create legal complications from which the parties own the intellectual property resulting from the development”

Perhaps this is a critical point in negotiations, it puts a thorn in the supplier-OEM relationship. Despite the increase in collaboration, supplier-OEM relationships have not improved significantly over the past decade. The Automotive Planning Prospects OEM-Supplier Labor Relationship Index (PPI), for example, reveals that Toyota and Honda are ranked as having some of the best supplier-OEM relationships. However, its classification still falls into the “adequate” category.

What is certain is that the two great consultants worldwide (Deloitte and Roland Berger) have already pointed out this new concept of vehicle manufacturing for the new generations as a trend. Both share that there should be only 4 platforms: Powertrain, Chassis, Exterior and Interior.

In fact, this concept can bring about a gigantic reduction in the environmental footprint. We can already imagine the TIER 1, 2 and 3 of interior manufacturing sharing the same space, development, raw material supplier, the same injection machine, energy, the same truck, etc., etc.



André G. Mendes

Responsible for the ISQ Automotive Testing Laboratory





ISQ has a Center of Excellence in the North of the country, in Monção, for testing automotive components (LABAuto). He is specialized in reliability tests, corrosion and protection index tests, automotive components tests in the physical-chemistry and materials area, electromagnetic compatibility simulation and process engineering.

Also in the automotive sector, ISQ provides services to inspection centers, both nationally and internationally, very focused on road safety. It makes calibrations to the brakemeters, the alignment and suspensions of the vehicles as well as checks the CO values of the gases of gasoline vehicles and opacity in the case of diesel vehicles.

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