2nd Tiering 101

2nd tiering is an excellent option for Supply Nation Members who wish to do business with Certified Indigenous Suppliers. Without it, Indigenous businesses, due to their size, might not be sufficiently equipped to handle the contract. This could be for financial reasons, with regard to workforce or in terms of output capacity. Supply Nation aims to encourage its Members to introduce their 1st tier, or prime suppliers, to Certified Indigenous Suppliers.

What is 2nd tiering?

The most basic definition of a 2nd-tier supplier is one that sells goods to a 1st tier supplier. To better clarify, a 1st-tier Supplier – or primary supplier – works directly with the customer. This company then outsources a task or role to a 2nd-tier supplier. An example might be a construction company (1st-tier) which liaises with the customer on planning, design and deadlines. The builder will then outsource a range of services to 2nd-tier suppliers such as carpenters, plumbers, concreters and landscapers, all of whom have little to no contact with the customer throughout the job.

Similarly, with manufacturing, a cabinetmaker (1st-tier) will outsource the supply of components of their kitchen packages – door handles, hinges, laminates – to 2nd-tier suppliers.

2nd tiering provides the ideal opportunity for Supply Nation Certified Indigenous Suppliers to take on smaller, more manageable projects and to avoid being seen as unviable and therefore excluded from tendering invitations. Additionally, they benefit from the credibility that comes with an introduction from a 1st tier supplier.

Best practice in 2nd-tiering

Companies are moving towards strategic sourcing – purchasing more products and services from a smaller assortment of businesses – because it saves money and makes procurement and administration more efficient. In turn, it provides a benefits for smaller suppliers to 2nd tier to a larger supplier and reach a larger market without the same contractual obligations or the need to scale their business immediately.  This is not to say however that suppliers do not have to adhere to rigorous quality standards.

Given that one of the main benefits apart from income generation is credibility in the marketplace, 2nd-tiering suppliers are expected to deliver top quality goods and services. Thorough screening processes ensure that selection criteria are met or exceeded and a company’s ability to fulfil orders comes under scrutiny.

In the case of Compass Group, Compass exclusively uses Nallawilli paper throughout their business. However, as they have a number of offices in cities around Australia, a solution was required to deliver the paper to various locations, near and far. Staples Office Supplies, a Nallawilli stockist, was engaged to freight the paper, as they have existing infrastructure in place to manage the contract.

In terms of the Indigenous supplier selection, Compass Group has established their own database of Supply Nation Certified Suppliers and they benchmark Indigenous suppliers with non-Indigenous Suppliers. No special treatment is afforded and this further provides evidence that our Certified Indigenous Suppliers are doing exceptionally well and holding their own in mainstream business.

Becoming a 2nd-tier Supplier

Supply Nation encourages Members to introduce their 1st-tier suppliers (whether they are Supply Nation Certified or mainstream suppliers) to potential 2nd-tier Supply Nation Certified Suppliers. Our Members have signed up with our organisation because they are committed to supplier diversity and embrace the culture of reconciliation, mentorship and encouragement. Connecting 1st and 2nd tier suppliers perpetuates the cycle of mutual benefit.

From the supplier viewpoint, entering into 2nd-tier or indirect supplier relationships can be an opportunity to step up to a new level of capability and credibility. Several considerations must be taken into account. Firstly, suppliers need to also examine the 1st-tier suppliers they will be working with, to gauge whether they share core values and can work effectively together. It’s wise to take a good look at the supply opportunity overall to determine whether meeting the requirements and deliverables is truly within their capabilities or if new infrastructure or more staff are required. Full transparency is vital so that the business doesn’t come to a grinding halt through failure to deliver, which could significantly impede long-term growth.

Would-be 2nd-tier suppliers must also examine how likely it is that fulfilling this role may have a detrimental effect on other existing contracts.

2nd-tiering represents a valuable opportunity for Indigenous businesses that might otherwise miss out on lucrative contracts and expansion prospects. Managed appropriately and overseen by invested stakeholders, it is a giant leap forward for Indigenous prosperity.