Is Tier 2 Supply Management a Sound Strategy?

Tier 2 visibility is difficult at best, however, advanced AI-powered analytics have made tier 2 "visibility not just aspirational, but practical—removing the traditional barriers of data complexity and resource constraints," according to a recent article from consulting firm Kearney. 

The authors of the article note that companies that use these tools are able to elevate supply chain strategy from the procurement department to the boardroom, as the ability to unlock value from the broader ecosystem can affect the entire enterprise. 

Their analysis explains how a deeper dive into Tier 2 can benefit companies:

• Revenue growth. Tier 2 co-development shortens time-to-qualify and increases on-time product launches.
• Operating model. Streamlined materials and enterprise pricing reduce complexity and cost.
• Risk management. Diversified sourcing lowers single-point dependency.
• Capital efficiency. Aligned payment terms and faster pass-throughs improve cash conversion.
• Talent and culture. Cross-functional governance accelerates decisions and embeds collaboration.
• Sustainability. Some of the most intractable scope 3 emission reductions can only be unlocked through multi-tier collaboration.

The authors explain that the highest value results from material inputs and supplier networks, which drive a high share of total cost, innovation, or risk.

• Limited leverage environments. When suppliers control finished-goods design, specifications, or IP, companies are locked into opaque cost structures. Visibility into tier 2 suppliers restores influence and enables joint cost validation.
• Commoditized or semi-commodity inputs. In packaging, resins, excipients, and basic materials, tier 2 suppliers often set pricing more than the tier 1 supplier itself. Consolidating demand and negotiating directly with tier 2s unlocks scale advantages and transparency.
• Regulated or high-qualification sectors. Food, beverage, pharma, automotive, and electronics—industries where qualification cycles or compliance barriers limit switching—gain outsized value from transparency and structured co-innovation.

Read the full analysis of Tier 2 strategies.