Why Most Supply Chain Visibility Efforts Stop at Tier 1—and What That’s Costing You

Article Highlights:

• Establishing transparency with sub-tier suppliers is an ongoing challenge that has only grown more difficult as supply chains have widened and deepened over the past decade. 
• When the stark difference between the average number of tier one suppliers and the magnitude of OEM sub-tiers is taken into consideration, it’s not entirely surprising that visibility for many organizations plunges after tier one.  
• Organizations that don’t possess comprehensive sub-tier visibility lose agility and responsiveness, and are forced to assume a reactive, defensive risk management posture, relying on crisis management in a way that’s chaotic, inefficient, and costly. 

Today, few businesses take stability for granted in their supply chains. In the wake of the COVID-19 pandemic, the global semiconductor shortage, and a slew of other crises that have snarled supply chains this decade, most organizations now realize how fragile their vast manufacturing networks actually are. Further, a growing body of research and evidence is concluding that a business’s sub-tiers are the primary source of supply chain disruptions. According to SupplyChainBrain, more than half of these incidents occur in tier 2 or beyond, and newer research has suggested that this figure may now be even higher. 

Further, a growing body of research and evidence is concluding that a business’s sub-tiers are the primary source of supply chain disruptions.

In order to identify, assess, and mitigate these sub-tier disruptions, original equipment manufacturers (OEMs) first need to establish visibility into their sub-tier suppliers. Despite all the advantages it would appear to confer, however, this level of visibility remains uncommon. According to a 2024 study published by McKinsey, only 30% of businesses have achieved supply chain transparency beyond tier one, and additional research over the past few years further illustrates just how starkly visibility plummets for most companies beyond their direct suppliers. 

This fractured, incomplete visibility landscape begs a single, straightforward question: if achieving sub-tier supply chain visibility is so critical to mitigating and preventing disruptions, why don’t more companies do it?

Why Supply Chain Visibility Stops at Tier One

In most cases, an organization’s tier one suppliers should be self-evident. These are the manufacturers that OEMs do business with directly, submitting orders, discussing inventory and lead times, and corresponding with when delays or other issues materialize during the shipping process. Sub-tier suppliers—defined as the manufacturers who supply your direct suppliers (tier two), those who supply the manufacturers who supply your direct suppliers (tier three), and beyond—belong to a completely separate category. Establishing transparency with these indirect manufacturers is an ongoing challenge that has only grown more difficult, as supply chains have widened and deepened over the past decade. 

Lack of Coordination With Direct Suppliers

The first and most obvious supply chain stakeholder businesses seek out when pursuing sub-tier visibility is their direct suppliers. These manufacturers should theoretically have information on the businesses they source from, making them critical gatekeepers for unlocking multi-tier transparency. 

Unfortunately, a few calls to a tier one supplier rarely yield the intelligence necessary to fill out sub-tier supply chain maps. Direct manufacturers are not always eager to share information on the organizations they source from, whether because of regulatory compliance concerns, potential ESG issues, or other latent threats to their own business continuity. Even in cases where direct manufacturers don’t harbor any fears about their sub-tier suppliers, smaller organizations often lack the operational bandwidth to commit time and resources to retrieving supplier data. 

Direct manufacturers are not always eager to share information on the organizations they source from, whether because of regulatory compliance concerns, potential ESG issues, or other latent threats to their own business continuity.

In either case, the ultimate outcome is that working with direct suppliers is rarely a sufficient path to achieving multi-tier supply chain visibility. These stakeholders may help OEMs fill out part of their sub-tier maps, but regulatory considerations, a culture of confidentiality, and finite resources all make this an imperfect, incomplete solution to the objective of sub-tier supply chain visibility. 

Sub-Tier Suppliers Seeking Anonymity

It’s not just direct suppliers that can be loath to reveal information about sub-tier manufacturers. Those businesses may themselves value the supply chain opacity that has prevailed within sub-tiers for decades. After all, greater transparency across the supply chain introduces heightened scrutiny, forcing sub-tier manufacturers to adhere more closely to compliance regulations, practice greater diligence around human rights, and incorporate ESG considerations in a way that simply isn’t necessary when you’re anonymous. 

After all, greater transparency across the supply chain introduces heightened scrutiny, forcing sub-tier manufacturers to adhere more closely to compliance regulations, practice greater diligence around human rights, and incorporate ESG considerations in a way that simply isn’t necessary when you’re anonymous. 

Because of the advantages of opacity, sub-tier manufacturers may withhold certain types of data and information from their customers, or even build confidentiality and nondisclosure into contracts with direct suppliers. Suffice it to say, these are all structural hurdles that OEMs must find a way to navigate and ultimately overcome in their efforts to establish sub-tier visibility. 

Growing Supply Chain Complexity 

Many industries’ supply chains have become so sprawling and multifaceted that many sourcing professionals couldn’t even tell you how many suppliers they actually have. According to the Hackett Group, a consulting firm based in Miami, the average U.S. business sources from 3,000 suppliers for every $1 billion they spend. This metric is useful because of the way it scales up and down, illustrating the extent to which supply chain complexity corresponds to an organization’s size. 

Today, larger organizations often source from one or two hundred tier one suppliers—a relatively manageable figure that can be tracked and monitored without imposing a disproportionate logistical burden. Once that scope is expanded to all supplier tiers, however, that figure multiples exponentially. According to McKinsey, the average auto manufacturer has 18,000 suppliers in their entire supply chain, while aerospace and defense firms work with a total of around 12,000 manufacturers.

According to McKinsey, the average auto manufacturer has 18,000 suppliers in their entire supply chain, while aerospace and defense firms work with a total of around 12,000 manufacturers.

When the stark difference between the average number of tier one suppliers and the magnitude of OEM sub-tiers is taken into consideration, it’s not entirely surprising that visibility for many organizations plunges after tier one.  

Lack of Internal Technology and Expertise

Given the size and complexity of modern supply chains, companies can hardly expect to achieve comprehensive visibility through communicating with direct manufacturers alone. Organizations need the technology and expertise to identify supply chain relationships, trace products and parts upstream, and parse the slew of documentation and resources that provide sub-tier insights. 

But not all businesses—and few small and medium-sized enterprises (SMEs)—have these capacities internally. One result is that companies simply accept a lack of supply chain transparency and all the risk it comes with. Firms dedicated to a proactive risk management approach, however, may want to consider taking advantage of supply chain risk management (SCRM) software. Tools like these, including Z2Data, use large databases, experienced research terms, and AI augmentation to expand visibility for their customers. When organizations bring on an SCRM tool, they start on a progressive path toward visibility and transparency, illuminating their supply chains and giving themselves the data and context to develop risk management measures customized to their unique vulnerabilities. 

Firms dedicated to a proactive risk management approach, however, may want to consider taking advantage of supply chain risk management (SCRM) software.

What Sub‑Tier Blind Spots Are Costing You 

Supply chain visibility isn’t just static information. Rather, it’s practical, dynamic data, informing sourcing decisions, SCRM strategies, and due diligence efforts. Organizations that don’t have comprehensive visibility lose that agility and responsiveness. Instead, they’re forced to assume a reactive, defensive risk management posture, responding to disruptions in real time and relying on crisis management in a way that’s chaotic, inefficient, and costly. Worst of all, a lack of sub-tier visibility drives up the chances that a business will be blindsided by incidents they never saw coming—events that lead to production issues, revenue loss, and even reputational damage. 

Worst of all, a lack of sub-tier visibility drives up the chances that a business will be blindsided by incidents they never saw coming—events that lead to production issues, revenue loss, and even reputational damage. 

Supply Chain Shortages You Don’t See Coming

Being able to monitor sub-tier suppliers allows companies to see potential risks as they’re materializing, before they turn into consequential disruptions. OEMs and other firms that don’t know their tier two and tier three suppliers, on the other hand, have no way of identifying potential issues in a timely fashion. Factory closures, labor strikes, and natural disasters can all trigger production interruptions that can ultimately lead to shortages, but firms with sub-tier blind spots won’t be able to connect the dots fast enough. As a result, instead of highlighting a developing risk and proactively mitigating it, they’re stuck waiting to hear from their suppliers at the last possible moment, leaving them helpless and reactive. 

ESG and Sustainability Issues

It’s widely understood that sub-tier suppliers are more likely to underperform on ESG issues like carbon emissions, waste management, treatment of employees, and adherence to international labor standards. OEMs that know their sub-tiers are able to monitor those suppliers for potential ESG problems and controversies, using that knowledge to either lobby for change or move on to more compliant, ethical manufacturers. Those organizations operating without sub-tier visibility, contrastingly, have no coverage for these sub-tier ESG risks. Because of this, they’re effectively leaving themselves continuously vulnerable to ESG scandals, whether it be ties to forced labor in China, minerals mined from conflict zones, or illegal entities operating deep within sub-tiers. 

Risk of Future Noncompliance 

It’s not just ESG concerns and accompanying reputational risk that businesses need to be able to recognize within their sub-tiers. As global ESG regulations move closer to implementation—and, in some cases, expand their existing scopes—covered organizations will need to carry out due diligence across their entire supply chain. 

Sub-tier visibility, in other words, is going to become a regulatory requirement for some companies within the scope of directives like the Corporate Sustainability Reporting Directive (CSRD) the Corporate Sustainability Due Diligence Directive (CSDDD), and the German Supply Chain Due Diligence Act. More than just a risk management measure, sub-tier visibility is poised to evolve into an essential component of regulatory compliance. 

More than just a risk management measure, sub-tier visibility is poised to evolve into an essential component of regulatory compliance. 

A More Reactive SCRM

As discussed earlier, a lack of sub-tier visibility imposes strict limits on the amount of proactive risk management companies can develop and implement. If a business can’t see all its suppliers, it can’t identify the compliance, ESG, financial, and geopolitical risks they’re exposing it to. The result is a basic, boilerplate SCRM framework that relies on reactive responses to disruptions. Without the right sub-tier data, OEMs simply can’t tailor their risk management to the unique risks endemic to their supply chain.  

Z2Data Powers Sub-Tier Visibility and Boosts Proactive SCRM

Proactive SCRM is only achievable through supply chain data and the visibility it creates—including and especially visibility into sub-tiers. Today’s SCRM tools offer supply chain mapping that extends deep into manufacturing networks, providing OEMs and other businesses with an expansive look at their upstream supply chains. 

Z2Data’s sub-tier intelligence is powered by underlying technology that analyzes millions of data points to pinpoint verified relationships between direct suppliers and sub-tier entities. Through this comprehensive research, Z2Data is able to provide companies with extensive out-of-the-box mapping capabilities, laying the groundwork for the kinds of supply chain insights that generate new strategies and bolster long-term resilience. Z2Data’s sub-tier intelligence is informed by a broad range of highly credible sources:

• Company websites
• Corporate filings
• Sustainability reports
• Official trade data
• High-credibility media coverage
• Z2Data’s own internal supplier surveying

To learn more about Z2Data and how its sub-tier supply chain mapping can help companies expand their visibility beyond tier 1 and see deep into their supplier tiers, schedule a free trial with one of our product experts.