Tier 2 Spend
What is the definition of Tier 2 Spend?
Tier 2 spend is the amount of spend or procurement dollars that an organization’s suppliers spend with their Tier 2 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.
