In
tiered production, the buying company deals primarily with the top-tier suppliers, while lower-tier suppliers are managed by those above them in the pyramid.
The Toyota System
"A key to Toyota's competitive success is the way the company has organized and tightly controlled its
many-layered production system.
[…]
Toyota organized its concentrated production system into interlinked layers of firms making products that are incorporated into the final vehicle. The first layer consists of subcontractors engaged in direct transactions with Toyota Motor Corporation, including manufacturers of machinery (robots, jigs, large body panels), subassemblies (engines, seats), and major body parts (brakes, transmissions, and so forth) […].
First-layer firms are parents to second-layer firms, which are subcontractors providing metalworking services, dies, small body parts, and single components like brake lining to first-layer subcontractors. In like fashion, second-layer subcontracting firms are parents to third-layer firms, and so on down the production chain.
Parent firms at each level are responsible for checking the quality and coordinating the inflow of parts, materials, and services from the next lower level in a production system organized in its entirety on the model of an extended family tree (Oshima 1986).
Through hierarchical specialization among different-sized firms with varying productive capacities, capital intensities, and wage costs, Toyota created a production chain from small workshops through businesses of various sizes and descriptions all the way up to the parent Toyota Company (Keneko 1978, 1982, 1983; MITI 1977). Thus tiered specialization gives rise to a complex system of stratification among firms and among segments of the labor force employed by those firms […]."
(Fujita, K. and R. C. Hill,
Japanese Cities in the World Economy, Temple University, 1993, visited 2010-02-16)