Chapter 3 Are deep-tier suppliers the weakest link?

Are deep-tier suppliers the weakest link?

In brief:

Managing deep-tier suppliers is far from straightforward. A large multinational’s supply chain ecosystem is often complex, extending to hundreds of tier-one suppliers, which in turn rely on thousands of tier-two and tier-three suppliers. Once the entire supply chain ecosystem is considered, it can run to over a hundred thousand suppliers.

An organisation can have numerous indirect suppliers. I don’t know the extent of work that an organisation can do when it comes to having control over the indirect suppliers.

Chief Financial Officer
Oil and Gas, United Arab Emirates

These tiers of suppliers make it difficult to achieve full transparency throughout the ecosystem, but ironically, it is also in the deeper tiers where achieving visibility can make the most difference.

Our data shows however, that achieving the right level of visibility and control with indirect suppliers remains a weak spot. The research consistently highlights the challenges of managing indirect suppliers across all indicators. Broadly speaking, it illustrates the difficulty of monitoring them.

More specifically, it emphasises the low importance given to ensuring their environmental practices are acceptable, with only 40% viewing this as important. The research also highlights the shortfall in finance available to these suppliers, many of them the smaller companies that need it most.

Figure 9: Deeper insight into supply chain needed

Many companies prioritise their immediate suppliers for actions related to sustainability or resilience, perhaps due to the immediate focus on optimising resources on account of COVID. However, the importance of the deeper tiers of suppliers is not completely lost. Companies need to improve access to financing for suppliers further upstream, so we have been partnering with technology platforms like Linklogis to make deep-tier financing cheaper, easier and more convenient.

Pradeep Nair
Head, Structured Solutions, Standard Chartered

Figure 10: Finance needs to reach deeper into supply chains

There are those who have little access to banking and are generally still marginalised from a finance point of view - the ‘unbankables’, so to speak, who should be bankable. That is where you want to foster development.

Stephen Hogan
Vice President, Regional Treasury Asia Pacific, Deutsche Post DHL

Top tip:

Companies that employ technology solutions that provide greater visibility are able to conduct more accurate risk assessments of both direct and indirect suppliers. This facilitates better business continuity plans, as well as deep-tier financing. For example, Standard Chartered uses machine learning algorithms to predict supplier performance risks. This combines supplier performance risk and buyer credit risk to develop tailored financing solutions for direct and indirect suppliers.