A product has a series of stages, linked from design to purchase. Each link in the chain may happen all in one location, or be spread globally. Large companies often have very complex chains.
A company may also outsource some of the production, paying another company to make part of the product.
For example, HP laptops are assembled for sale in Kunshan, China. Manufacture of each laptop’s printed circuit board (PCB) is outsourced to a company in Penang, Malaysia - this is called the first tier of outsourcing.
The PCB requires parts, such as memory chips or a cooling fan. These can be sourced from other Malaysian factories and firms - this is called the second tier of outsourcing.
The wire, screws and plastics used in the manufacture of each component part will be sourced separately, as a result there are additional tiers of outsourcing.