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In the complex world of supply chain management, understanding the nuances of Tier 1 and Tier 2 supplier diversity spend is essential. This article provides insights into the current trends and key differences between Tier 1 and Tier 2 supply chain finance (SCF) programs, which play a crucial role in ensuring the smooth operation of global supply chains.

Tier 1 suppliers represent the most immediate level of the supply chain, working directly with companies. These suppliers range from tech companies to manufacturers and consulting firms, and they are a crucial barometer of supplier diversity. By tracking the number and percentage of diverse businesses in the overall supplier portfolio, companies can measure their Tier 1 spend in terms of both dollars and the percentage of total spend​​.

In contrast, Tier 2 suppliers are essentially the suppliers’ suppliers. Despite their indirect ties to a company, they are a key component of the supply chain, particularly in ensuring that Tier 1 suppliers have the necessary materials for production. Tier 2 supplier diversity reporting offers insight into how diligent Tier 1 suppliers are at contracting their own diverse partners, and thus indirectly contributes to a company’s overall supplier diversity requirements​​.

The supply chain finance landscape has seen significant evolution and growth in recent years. SCF has ceased to be a luxury only the largest suppliers can afford. In fact, small and midsize enterprises (SMEs) are increasingly being included in SCF programs, a trend that has continued since the onset of the pandemic​. However, the sector is not without its challenges, as demonstrated by the collapse of Greensill Capital. This has highlighted the need for greater transparency in SCF, particularly as nonbanks and fintechs seek to disrupt the field with the latest technologies​​.

The SCF market is also witnessing a changing mix of providers, with new tech-savvy entrants bringing innovative approaches and business models to address niches not currently well served by traditional SCF providers​. It is now recognized that a “one size fits all” approach is not effective, and a variety of solutions are needed to address the diverse needs of suppliers at every stage or tier of the supply chain​​.

One emerging trend in SCF is the growing recognition that it needs to benefit all parts of the supply chain, not just the largest suppliers in key markets. SCF is being leveraged to provide early liquidity to suppliers in more vulnerable countries, reflecting the ongoing shift in the SCF landscape​. This shift has been accelerated by the global pandemic, causing demand and supply shocks in global supply chains, and cash shortfalls for companies enduring months of disruption​.

In conclusion, while both Tier 1 and Tier 2 SCF programs play essential roles in the global supply chain, they differ significantly in their operations, focus, and impact. The evolution of SCF in response to recent challenges and advancements presents new opportunities for both tiers of suppliers to benefit from early payment for goods or services provided, making the SCF landscape more inclusive and resilient than ever before.