Certification in Supplier Diversity Practice Exam

How are tiers defined in supplier relationships?

1. Based on geographical location of suppliers

2. Tiers are determined by supplier performance ratings

3. Tier one supplies the main company, while others supply upward

4. Tiers are identified based solely on company size

The correct answer is: Tier one supplies the main company, while others supply upward

Tiers in supplier relationships are defined in a way that clarifies the hierarchy and flow of goods and services within the supply chain. The concept of tier one suppliers refers to those who directly supply the main company or primary contractor. These suppliers have a direct relationship with the company and provide the goods or services that are essential for production or service delivery. Subsequent tiers, such as tier two or tier three suppliers, play a complementary role. They supply goods or services to tier one suppliers, thereby supporting the main company indirectly. This structure emphasizes how different suppliers interact within the supply chain and the dependencies that exist. Understanding this hierarchical structure is crucial for effective supplier management and ensures that all levels of the supply chain function smoothly. It also aids businesses in implementing diversity initiatives, as they can focus on uplifting not only tier one suppliers but also those in subsequent tiers. In this context, defining tiers based on their role in the supply chain provides a clear framework for assessing and managing supplier relationships effectively.