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Supplier Diversity Glossary

Tier 2 Spend

What is Tier 2 Spend?

The amount of spend, or procurement dollars, that an organization’s suppliers spend with their tier 1 suppliers. In regards to supplier diversity, Tier 2 diverse spend represents only those dollars spent with diverse suppliers.

Example of Tier 2 Spend

There are three companies: ABC Corp., Processor Supplier Co., and Computer Parts LLC. ABC Corp. assembles and sells computers to the general public. Processor Supplier Co. assembles the processors needed to complete a computer. Computer Parts LLC, a woman-owned firm, creates the pieces necessary to assemble a processor.

In order to assemble their computers for the month, ABC Corp. needs to buy $1 million in completed processors from Processor Supply Co., who in turn needs to buy $100k in processor parts from the woman-owned company, Computer Parts LLC.

ABC Corp. wants to determine what their tier 2 spend is with diverse suppliers.

In the above example:

  • ABC Corp. is the distributor

  • Processor Supply Co. is the tier 1 supplier

  • Computer Parts LLC is the tier 2 supplier

Keep in mind that the organization in question is ABC Corp. -- they are trying to determine their tier 2 spend. This means that however much Processor Supply Co. spends with Computer Parts LLC, ABC Corp. can count as tier 2 spend. Concluding the example, ABC Corp. has a tier 2 diverse spend of $100k.