Strategic supply chain management
Abstract
This study aims to present suggestions on a case improvement of the supply chain. Tesla motors supply chain is selected for analysis. The study thus analyses the strengths and weaknesses of Tesla’s supply chain management through theoretical analysis. Drawing from this analysis, the paper then finds suitable suggestions on the improvements of Tesla’s supply chain. This study finds that Tesla has a vertical supply chain. Through this model supply chain, the company has been able to capture a wide range of both luxury and middle-class car consumers. This model presents the benefit of high internal control, high customer value, and the ability to maintain company culture throughout its supply chain. However, the unsustainability of this model calls for review in the future if the company is to expand as it is envisioned. Among the suggestions made is an improvement in pipeline management, inventory and distribution model, and the general supply chain.
Introduction
The nature of the supply chain and its strategic application in business defines a great deal towards the success of the business. Over the past, scholars and experts alike have stressed the need for businesses to focus their supply chains on improving on the organization operations, which generally rely on these supplies and to create value for both customers and stakeholders. Among the companies with interesting supply chains to look at is Tesla, a company adopting a unique supply chain from the convectional supply chain adopted by other auto manufacturing companies (Gold, Seuring & Beske, 2010). Tesla has employed a vertical supply chain model, one that was long applied traditionally by auto manufacturers like Ford, and which has been subject to some of its successes and problems. Analyzing the company supply chain against the theoretical and conceptual framework on the supply chain unveils some of its supply chain strengths and weaknesses and uses this to make suggestions over improvements in the company’s supply chain.
Background
Tesla Motors has attracted the attention of both car lovers and that interest in environmental issues. Ideally, everyone loves a car, and the technology and innovation in auto manufacturing have improved the quality of life of people across the world (Ralston et al., 2015). Supposing that the world in the 20th century never had cars and the auto industry in general, it would be entirely difficult to make movements to work and other places. Even with these benefits emerging from the auto industry, the challenge on environmental pollution and global warming has, over the past decades, but the auto industry in the spotlight as a significantly high contributor to the emission of greenhouse gases in the air. Besides, the increase in auto numbers across the world has put the oil reserves at stake, causing problems with their sustainability. Tesla was started in 2003 as a company interested in responding to the problem of dependence on fossil fuel on cars and embarked on the development of an electric car (Wu & Yang, 2017). Five years later, in 2008, Tesla launched its first model, the Tesla Roadstar (Ralston et al., 2015). Due to dependence on new technology present, then in the auto industry, Tesla had to take up most of its supply chain needs.
As a new entrant in the electric car market, Tesla has to invest its own investments into research and development in electric car manufacturing and its parts design and manufacturing. Some of its critical parts, like the manufacture of engines and battery, had to be produced within the company (Ralston et al., 2015). Thus, besides creating an assembly line, the company had to create its own parts using the chemistry and technology the company had invented (Jiang & Lu, 2018). The result was a company whose supply chain is heading up towards vertical integration, rather than horizontal integration. Among some of the things the company adopted to contribute to its vertical supply chain is building up a battery factory in Nevada to serve its battery needs (Gold, Seuring & Beske, 2010). Further, unlike most companies that have relied on overseas production, Tesla has sought to redefine this by making production in California where its head manufacturing station is, and where it is planning to build a location for the production of its own spare parts. Additionally, the company has established many fast charger locations in many parts of the US (Wu & Yang, 2017). Lastly, the company sells all its own cars directly to consumers, and there are no intermediaries involved. This defies the conventional supply chain practices by the present auto manufacturers and inspires the adaption of supply chain management practices that suits its gals and the 20th-century consumers.
Planning
Planning is an important step in the management of the supply chain of various processes in an organization. It is through proper planning that excellent executions of the plans are carried out. In the supply chain, planning involves identifying the supply needs of a company, and identifying the sources and planning on the logistics of getting the supplies delivered (Ralston et al., 2015). Planning is done ahead of time so that when the time is ripe for the supplies, they are made in a timely manner so that operations continue without hitches caused by delayed supplies. In a study to examine what role a customer order plays in the design and implementation of a business’ supply chain, Olhager (2010) presents strong evidence on the importance of panning to create value for the customer through the supply chain. The author argues that one of the best efforts that a company can do is to make timely deliveries of ordered items. If customers make orders on products in the manufacturing lines, the business needs hasted production and ensure r[timely delivery. This is relevant for Tesla motors, especially in that the company makes its own deliveries to consumers (Wu & Yang, 2017). The customer delivery time is thus an important aspect of the production of its cars.
While the customer in the supply chain is a major stakeholder, Tesla has often been faced with challenges to the total fulfillment if this requirement. For instance, in 2016, Tesla made a promise after it unveiled its most successful car model 3. The company announced that it would be able to produce and deliver over 400,000 drivers in a period of one year (Thomas & Maine, 2019). These drivers had paid an upfront payment of $1000 to secure their car. However, at the end of 2018, less than a quarter of the cars had actually been delivered. With only 55,840 deliveries made to that point, the car manufacture failed to match the time required for the deliveries. However, most of the challenges the company has faced in making timely deliveries, as promised, are problems with the expansion of the company’s vertical supply chain (Ralston et al., 2015). A single shift in one line, say assembly requires a similar immediate shift in all the other supply chains all managed by the company. If these were managed by external suppliers, it would have perhaps, been an easier way to trigger faster and more efficient supply shifts.
Customer service
Another factor that is widely acknowledged in the design of excellent supply chains is the issues of customer service. The supply chain and customer service are inseparable. Proper management of the supply chain supports a high value on customers. Among the major customer services that are on high demand in an auto manufacturing company like Tesla include the safety and quality of supplies made in the product. Schmitt (2011), in an article on protection against the risk of customers, explains the importance of verification and insistence on the quality of supplies in a manufacturing company. The author argues that all risk considerations, like back up plans and abilities, should be put in place. Tesla designs have made provisions for safety, high quality and have also allowed a chance to the input of devices and services that emerge. For instance, in earlier models that were not installed with GPS, the company now offers such services (Thomas & Maine, 2019). The new interesting music systems are also installed in the older designs at requirements from the owner. All these contribute to customer service, which is managed by the company’s vertical supply chain.
To make sure that customer service is offered to match a business culture and values, it is better managed by the company itself. Most other services in the supply chain can be outsourced, but the service to customers achieves a high value when it is offered directly to consumers. Schummit (2011) adds that it is important for businesses to protect customer service through multiple means when a disruption occurs. Tesla has been making repair and maintenance of Tesla cars and offers direct services to consumers like superchargers and providing charging stations (Ralston et al., 2015). The company’s charging stations located across the country offer an opportunity for the company to offer fuel charging services like those offered by gasoline services. No other auto company has been involved in the fuel services of its consumers, and they all have relied on other businesses’ provision of these services to fuel the cars that they sell to consumers (Jiang & Lu, 2018). By Tesla managing these charging stations similar to gasoline stations, higher quality service, and customer protection is assured.
JIT/Quick Response and Agile
Quick response is a concept that is focused on the creation of systems in the supply chain that leads up to faster response to customer orders and timely deliveries. In other words, timely orders inspire up timely deliveries in a typical business process. This means that in an effective supply chain, the business supply chains should focus on increasing response time, to shorten the time that it takes for order collection and delivery to the consumer. Sundarakani et al. (2012), in a study to examine how information technology can be used to improve the supply chain, examines how companies located in the United Arab Emirates used technology to improve customer value, especially in the supply chain. The authors present findings that indicate the importance of quick response, especially in a technology-filled world. Technology helps make quick orders, manage quick deliveries, which results in an agile approach. Mittal, Abbasi, & Pareek (2012) also echo similar sentiments through an analysis of the Advantage of Japanese vendor management strategies. The author writes that in time operations, including deliveries is one of the advantages associated with the Japanese, a cultural advantage in time management. Perhaps in a bid to achieve time inventory management, Tesla motors should consider the diversity of its employees and ensure the supply chain has a good Japanese representation.
To achieve a quick response, an organization needs to implement a JIT process. The four main principles of JIT include making continuous improvements, managing efforts to reduce and do away with waste, make proper internal control, and create a smooth flow or productions throughout the company. These four principles are important in enhancing a company response time and contribute to the JIT concept (Ralston et al., 2015). One of the efforts that Tesla supply chain management is doing contributing to waste reduction is the ongoing plan to create a parts production unit near its current California plant. This will reduce wastage in sourcing parts from other parts of the country and worldwide. Parts sourced elsewhere have a cost attached to logistics costs, taxation, and also the time between order and delivery. Currently, the company sources supply for windshields from AGC automotive, brakes area sourced from Brembo, power seats sourced from Fisher dynamics, and liftgate gas spring sourced from ZF (Jiang & Lu, 2018). With Tesla cars, for instance, Model 3 has more than a thousand parts, then it means that managing the supply chain for many parts from many different suppliers may cause challenges in proper supply management and quality checking of these parts supplied. Having its own car part manufacturing would also reduce the wastes of defective parts supplied. With less than 100,000 annual productions in 2016, the company has continuously improved its production capacity, and in 2019, the company recorded a high annual production of 367,500 cars (Jiang & Lu, 2018). This indicates roughly four times improvements in production capacity, which contributes to JIT process. Therefore, Just in time (JIT), process implementation at Tesla’s supply management has made a significantly good process and needs to be improved even more given the continued demand for an electric car by car consumers.
Pipeline management
The supply chain entails important interaction with the customers. In addition to the factors added above, the relationship of a business to the customers entails not only making in time deliveries but also delivering important information to the consumer, that is correctly predicted. For instance, when Tesla motors receive orders, it should be able to correctly predict the day the consumer will revolve their complete car (Cho et al., 2012). This triggers the concept of pipeline management. This concept relates to the management of inflows and outflows, especially of products and services in predictable and manageable times (Richey et al., 2010). From a look into the history of Tesla, this area has been of significant challenge. Elon Musk had originally promised the launch of model 3 in 2015, which would later be produced two years later. Also, in 2017 when production commenced, Elon musk communicated to the company stakeholders that the company would be able to produce 5,000 models three cars per week (Kumar, Singh & Shankar, 2015). The company however, did not make up a quarter of the promised production rate (Jiang & Lu, 2018). The pipeline management of Tesla thus should be improved so that projections communicated to the public, customers, and stakeholders are accurate.
The pipeline management concept is equally as important in the supply chain as it is important to marketing. In a study to examine empirical evidence in support of the relationship of pipeline management and company CRM, Peterson, Rodriguez & Krishnan (2011) examined results from opportunities facing a company. In their study, the researchers assumed that competitiveness in a rapidly changing business environment is a cause for strategic initiatives in marketing today. In the analysis, such themes as customer relations were examined and how the pipeline management helps in enhancing customer relations (Ralston et al., 2015). In the last two cases of Tesla failed promises, customer trust has lowered amid high criticism over what is termed as too ambitious for the 21st consumer. Some of the drivers who had already paid an upfront fee withdrew their payments from the company as a result of long delays and disappointment with the company’s poor pipeline management. Keith & Struben (2018), in an article based on Tesla’s case in failing to meet the customer expectations that it had created in them, consider the effect of drastic change from expectation to frustration. The authors argue that although frustration cannot be quantified and that different consumers behave differently, Tesla was the ultimate loser as a result of these customer frustrations (Gianesello, Ivanov & Battini, 2017). Thus, Tesla should work on its pipeline management is that projections and communications made to the company stakeholders inaccurate.
Inventory/distribution management
Inventory and distribution management is an important area of research when it comes to the discussion of supply chain management. This is because; the management of distribution and inventory is core to the movement of products and services from the manufacture or the vendor to the consumer. Again, here, Tesla manages this and does not involve third parties (Bulman, 2015). Tesla has relied on the technology systems already in place in the present generation to market its products online, received orders online, and then make direct deliveries (Harms, Hansen & Schaltegger, 2013; Bilbeisi, & Kesse, 2017). This means that there are no outside licenses or sale to third parties. Tesla has defied the conventional practice for large manufacturers; critics argue that the present business to customer model is not sustainable for large productions, which Tesla has insisted it is possible and, through its eye-catching innovations, tends to defy the odds. Among the odds defied is the possible production of a low-cost car, the $35,000 Model 3 car (Akakpo et al., 2019). Cars manufactured in the US have been high priced due to the high cost of production, which Tesla is set to offset. With its own management of sales to distribution, the company stands a big opportunity and ability to manage sales and customers effectively.
The management of the inventory and logistics has been a subject of a competition to the other players who apply other conventional means. Cooke (2020) writes that Tesla faces challenges in its Gigafactory, mainly because of its management of its supply chain using means that are not attractive to many consumers. The author argues that most car battery buyers do so from spare parts or garage, which has a traditional network of cheap batteries from manufactures making sales to resellers. This makes Tesla batteries not readily available. Further, due to high investments in research in the Gigafactory, there may be a higher price difference making consumers very sensitive to prices, below which the company cannot sell (Manna, 2017; Wu & Yang, 2017). With increasing production and pressure to expand to other companies worldwide, it may be appropriate for Tesla to trust outsourced resellers and other groups, making the present vertical supply chain not sustainable for future growth.
E-supply chain and closed-loop supply chain
The supply chain for Tesla is entirely managed online. Consumers make orders and payments through online systems, thus opening for an e-commerce base through the company website. Supplies for car parts are also managed through the company’s online system so that the suppliers are supplied with sufficient information over the need and requirements of the parts that they supply. Ross (2016) writes that e-supply is an emerging tactical tool that is currently being used and whose adoption is gaining rising momentum. Traditionally, supply management needs one to access their needs and make supply requests whenever they emerge. However, web-based supply chain management is important and different suppliers can rely on information that is automatically generated by information systems to enhance proper and efficient supply management. Li et al. (2013) present an algorithm for dealing with a routine problem in supply management, especially with location supply inspiration. The suppliers would be able to access the level of suppliers at the company and when additional ones will be needed, and all suppliers managed within the company also to improve internal control. Govindan, Soleimani & Kannan (2015) explores how a closed-loop supply chain works, which involves both forward and researcher supply chain. The authors present that this model of the supply chain has been seen with few other companies like Coca-Cola (Gold, Seuring & Beske, 2010), and where innovation has been an important factor of success. Tesla makes reverse supply when it makes repairs and maintains the cars for its consumers. In its earlier years, many cars produced by Tesla motors stuck along the road for a mechanical problem that is managed by the company engineers.
6 Sigma
This is a concept in supply chain management that focuses on the improvement of the business by considering six principles geared towards operation management. The first step in this concept is defining the goals. In this stage, the company defines and states what it needs to achieve, in a specific, measurable manner and specified timeline. Then, the present achievements or provisions are measured against the goals (Zhu, Sarkis & Lai, 2012). The analyst is then made to come up with suggestions on the next step of improvement. Lastly, control is exercised to ensure that quality is maintained. Tesla needs to implement the six sigma approach in achieving improvement at the company.
Conclusion
In conclusion, the supply chain management of a company is an important concept whose success in an organization contributes significantly to the success of the company. In a manufacturing company like Tesla Motors, the supply chain is important in making timely and effective management of the supply and deliveries of car parts as well as managing inventories and distribution of cars to various customers (Wu & Yang, 2017). The above analysis has evoked important insights into Tesla’s success and failures in its supply chain management. Among the successes include the ability to control customer value as it manages its own sales. Further, the company has a vertical supply chain model that allows the company to manage its own supplies and creating value to company stakeholders (Thomas & Maine, 2019). However, the present mode and supply subsystems fall short of sustainability with its growing ambitions and failures incorrect productions of sales and production capacity. In light of this evidence, this study recommends that Tesla motors focus on improving pipeline management, improve its inventory and distribution management to ensure long term and growth sustainability, and to use the six sigma model in general supply chain improvements.
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