Supply Chain Management - Tesla PDF

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Lean and agile supply management and recommendations for an existing company's problem using relevant theories ...

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Supply Chain Management TESLA For 10th May, 2019 Student I.D. MOD004425 Word Count:

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Contents 1. Executive Summary – P3 2. Analysis of Current State of Tesla – P3/4/5 2.1 PESTLE Analysis 2.2 PESTLE Findings Diagram 1: Supplier Relationships Model – P5 Diagram 2: Maslow’s Hierarchy of Needs Theory – P5

3. Supply Chain Management & Collaboration Issues Identified – P4/5 Diagram 1: Supplier Relationships Model – P5

4. Supplier Management & Collaboration Improvement Strategies – P6/7/8 4.1 Cloud Computing – P6 Diagram 3: Benefits of Cloud Computing – P6 4.2 Implementation of Cloud Computing with Flow Management System – P7 Diagram 4: A Conceptual Model of Supply Chain Collaboration – P7 4.3 Hiring Experienced Number Two into Horizontal Structure – P7 Diagram 5: Horizontal Organisational Model Example for Tesla Adapted – P7 4.4 3D Printing – P8 Diagram 5: Scope of 3D Strategy and the Three Subject Areas – P8

5. Conclusion – P8/9 6. References – P10/11

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1. Executive Summary This report addresses Tesla’s current supply chain issues with opportunities to over-come problematical issues within their comprehensive strategies in supply management. A PESTLE analysis begins an analysis into exposing potential external risks within the auto-motive industry (Srdjevic, et al. 2012). The findings gave insight into how external issues have manifested Tesla’s supply management demands. There is a risk that suppliers will continue to fail and not achieve the targets in which Musk requires in order to meet demand. Lack of communication between Musk and their suppliers have played a significant role in the failure of not fundamentally adapting to the way in which they need to operate. At first launch of Model 3, the Toyota Production System was not applied, resulting in the deferral of product and increased lead-times (Sherman, 2018). Hence, the recommendation of inter-linking the Flow Management System with modern technology (CP) to enhance management in performance and real-time visibility on a global scale. Without the use of Cloud Computing Tesla may struggle to implement the levels of engagement between partners in order to avoid bottlenecks. To establish this type of strategy, Andy Palmer of Aston Martin has been identified as an ideal executive assistant to help establish long-term relationships within the supply chain and relieve pressure off the CEO (Ferris, 2019). A range of models and illustrations have been used to further elaborate and give deeper understanding on how the performance of Tesla and Musk can be measured, and identifies possible methods of collaboration between partners. Evidently, the TPS has consistently worked for major players within the industry, thus focus should be re-aligned to influence increase in supply. 3D printing is something Tesla need to consider for investment to reduce reliance on suppliers. Although, use of man and automate should be complimented equally with each other to fulfil consumer orders. Extreme use of auto-mate in the short-term is not advocated at this time as it is not a proven system that has worked in the auto-motive industry. Inter-linking each improvement strategy will deliver a Lean and effective approach that delivers on Musk’s orders of half-a-million in a short-lead time, and could dramatically increase profit that Tesla desperately need to innovate ahead of up-and-coming competitors (Sherman, 2018) 2. Analysis of Current State of Tesla Something as complex as a supply chain in this modern era cannot be easily defined. Different companies have their own unique chain, but the fundamental concepts in managing supply chain’s are completed in a generic manner (Hugo, 2003). According to Hugo “Supply chains encompass the companies and the business activities to design, make, deliver and use a product or service” (Hugo, 2003, p.1). Macarthy, et al. (2016) highlights the importance of adapting to continual changes within supply chain’s as they develop from frequent and rapid tech innovation, which ultimately affects the nature of exchange and level of complexity that meets the various demands within modern society. This is particularly crucial to Tesla as the product is superiorly advanced, making them increasingly vulnerable when implementing internal processes that haven’t been attempted before (Hassan, 2019). Undertaking a PESTLE analysis will help further one’s understanding into the external factors that have grown over-time, and evolved the current supply chains fundamental issues within Tesla (Srdjevic, et al. 2012). 2.1 PESTLE Analysis Political

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Tesla and GM are in-line to retrieve tax credit back of upto $7500 on the next 400,000 electric cars after triggering a phase out cause after selling 200,000 (Lambert, 2019).

Economical

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Auto-Motive supply chains consistently fluctuate from 30% to 50% in price due to unpredictable weather, tariffs and lead times (Hassan, 2019). Tesla slash 7% of workforce after releasing fourth quarter results, although still saw an increase in profits and revenue (Denning, 2019).

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Socio-Cultural

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Tesla currently lead the electric car market with no clear wave of competition on the horizon, consumer patterns consist of slow growth towards EV but fuelbased auto-mobiles are seen as most desirable (Debord, 2018). In a globalised society a profound push for planet friendly products is evident, EV are produced with coal which contributes heavily to polluted air, something that could affect purchasing behaviour (Winton, 2016). Thousands of consumers have been left waiting months for their model to be built in an efficient time-frame due to supplier issues (Mazzolini, 2018).

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43% of manufacturers admit to not having the infrastructure put in place as they don’t have the knowledge and commitment from shareholders to confidently implement newly developed practices (Hassan, 2019).

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Tesla’s shareholders on the other hand understand the value in data-driven culture, thus, continue to lead the market through futuristic developments in technology (Hassna, 2019).

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Failed door mechanism may have affected driver of escaping from Tesla in fatal crash, adding worries to the quality of product (Palmer, 2019).

Legal

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Tesla and suppliers under investigation after two crashes in the US, suppliers are not permitted to sell directly to consumer until cause is understood (Palmer, 2019).

Environmental

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It is estimated similar vehicles to Tesla will on average will emit 14 tonnes of CO2 from the production of batteries alone (Winton, 2019).

Technological

2.2 PESTLE Findings The fundamental findings from the PESTLE analysis portrays a number of uncertainties within the workforce structure and implications of internal disruptions in the process of the supply chain. Technological failures indicate a possible outcome from the quality of equipment from suppliers as they have struggled to implement Musk’s unrealistic targets. Further funds could be obtained through the federal tax cut which could be used to increase workforce or increase quality of production, their profound reputation still seems intact with no clear competition in-sight (Debord, 2018). 3. Supply Chain Management & Collaboration Issues Identified 3.1 After analysing Tesla’s external factors, it is now possible to focus an extract the critical factors within the supply chain based on external findings. At this moment in time Tesla face some issues, including:  

Deferrals in production due to supply chain issues Ineffective elements of Agile/Hybrid strategy

Lean “in a business or manufacturing environment, describes a philosophy that incorporates a collection of tools and techniques into the business processes to optimize time, human resources, assets and productivity, while improving the quality level of products and services to their customers.” (Becker, 1998, p.1). When looking further into Tesla’s current situation with their suppliers it was discovered that they are finding it most difficult to produce mass production that satisfies consumer demand, due to not having an abundance of suppliers and the capability to programme machines to operate on a larger scale (Mazzolini, 2018).

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Traditionally, the auto-motive industry follows the Toyota Production System that aims to use both man and equipment equally to optimise the process that cuts all unnecessary procedures, enabling the product to be completely engineered just-in-time with each process producing in accordance with demand (Becker, 1998). On launch of the Model 3, Musk exposed his naivety by not following the TPS and took over half-amillion orders without having the infrastructure in place todo so (Sherman, 2018). Resulting in the decision to heavily rely on automation instead of equal balance of man and auto-mate (TPS), this resulted in failing to reach targets, adding extra costs in purchasing equipment as equipment had been over-used which created defects within some EV, and finding new suppliers on a short-term basis to attempt in meeting demand (Sherman, 2018). 3.2 This type of approach from Tesla portrays Agile elements (diagram 1) as their supply partnerships were only short-term and without the benefits of reducing lead times and complete optimisation (Becker, 1998). Brande, et al. (2013) stresses in his article the importance of developing purchasing strategies with long-term suppliers and building collaborative relationships to further enhance inventory management. Curruti (2013) supports Brande, et al. (2013) statement by highlighting that it allows suppliers to maximise economies of scale and reduce transaction costs. These statements evidently suggest elements of the Lean should be integrated into the TPS that has been justified extensively (Sherman, 2018). Diagram 1: Supplier Relationships Model (Cerruti, 2013, p.46) 3.3 It has been noted that Elon Musk has been working one-hundred hour weeks as a result of supply chain issues and technical problems (Debord, 2018). Currently, Tesla’s hierarchy mirrors a horizontal organisational structure that is popularly put in place to allow a small efficient team to communicate effectively and works to deadlines (Curruti, 2013). Evidently Tusk is finding it difficult to find a balance in delegating to his workforce, but also extreme cuts of 7% in staff has inevitably ramped up the pressure on Musk to reach his high standard targets (Denning, 2019). Mcleod (2007) highlights in Maslow’s Hierarchy of Needs theory that it is essential physiological needs are satisfied first in order to progress and fulfil their full potential. In Musk’s case, one would suggest he isn’t meeting minimal physiological (rest) needs (diagram 2). Consequently, it can be observed as having a negative effect on aspects of supply and demand, aswell as possible in-sufficient staff numbers to operate rate in a Lean manner, which is what a horizontal structure is suppose to reflect (Lansley, et al. 2003). Furthermore, with over tenthousand parts making up a complete Tesla, one could suggest simplifying the product and process using the facilities available to them, helping to build long-term established partnerships with suppliers through transparent communicative forms (Lambert, 2017). This will be further elaborated below in Diagram 2: Hierarchy of Needs Theory ways to improve Tesla’s strategies. (Mcleod, 2007, p.2) 5

4. Supplier Management & Collaboration Improvement Strategies In order for Tesla to improve their overall efficiency within the supply chain, one would suggest improving on these key factors: 

Providing products in an adequate lead-time through full utilisation of the Lean Manufacturing System - which is embedded in the TPS

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Managing workload within their horizontal structure to allow supplier relationships to flourish in the long-term

4.1 Cloud Computing For Tesla to have any prospect of dealing with these issues, one would suggest full visibility of data is required in order to expose potential bottlenecks (Debord, 2018). What one can observe is that Musk has promised to produce an abundance of Tesla Model 3 EV’s to consumers, which is unrealistic for suppliers to produce in a short-period of time (Sherman, 2018). One way in which to enhance visibility in the supply chain is to implement a comprehensive digital network known as Cloud Computing (Accenture, 2013). Diagram 3 gives you an insight into the benefits that are clear-to-see when having the capability for unprecedented insights in all aspects of the chain (Accenture, 2013). In particular, end-to-end business strategies could be enforced, enabling Tesla to communicate with suppliers in real-time to actively produce and in what time-frame (Accenture, 2013). Another significant element to this technology is that Tesla will be able to integrate all partners on a global scale, making this particularly attractable for Tesla as they expand to China after investing in a new giant factory in Shanghai, China (Wang, 2018).

Diagram 3: Benefits of Cloud Computing (Accenture, 2013, p.3) 6

4.2 Implementation of Cloud Computing with Flow Management System According to Hugo “Traditional logistics focuses its attention on activities such as procurement, distribution, maintenance and inventory management” (Hugo, 2003, p.4). It is not clear as to whether this technology (diagram 3) will benefit both factors that Tesla face equally, but will contribute towards easing the pressure off Musk as the flow of supply can be matched with demand through effective communication (Accenture, 2013). In this instance, a Flow Management System could be inter-linked with Cloud Technology and be used as a simplified production system that balances operator with technical equipment in a timed systematic process (Becker, 1998). Not only will this reduce workload on suppliers but it will help identify which suppliers can be used for the long-term as the relationship is built and accessed through KPI. Melnyk, et al. (2004) supports the use of a performance metrics with suppliers as it allows clear measurement of objectives, which could be crucial to Tesla when EV’s such as the Model 3 has many individual components to it (Lambert, 2017). Performance indicators will give Tesla more clarity to who was responsible for potential defects that caused the crashes discovered in the external analysis (Palmer, 2019). Diagram 4 is a model that signifies a process in which one can follow and identify specific factors that need to be addressed to enhance their performance (Lakshminarasimha, 2017).

Diagram 4: A Conceptual Model of Supply Chain Collaboration (Lakshminarasimha, 2017, p.34) 4.3 Hiring Experienced Number Two into Horizontal Structure Implementing Lean in a comprehensive manner takes much ownership and engagement between partners, and with Musk working an exhausting amount of hours, the discipline, flexibility and development is likely to not be reaching its full potential, thus it would be wise to simplify the product or ease the workload onto a strong number two (Lambert, 2019). Someone with a proven track record such as CEO, Andy Palmer from Aston Martin who will have strong relationships established already in the industry and has a proven track record for producing mass production successfully (Ferris, 2018). As funds free-up due to the federal tax credit they may receive, this may be a real possibility as cash isn’t something that is in abundance (Lambert, 2019). Diagram 5 portrays the type of role Andy Palmer could take to alleviate work-load of Musk in a horizontal structure. Elon Musk Andy Palmer

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Diagram 5: Horizontal Organisational Model Example for Tesla Adapted (Leahly, 2014) 4.4 3D Printing

Diagram 6: Scope of 3D Strategy and the Three Subject Areas ( Mohr, Khan, 2015, p.158) To finalise the improvement strategy as stated previously, it would be most appropriate to simplify the product. This can be completed by either offering more standardised features (Basic colours or interiors) which will help in reducing the ten-thousand parts each model possesses (Lambert, 2019). Currently, they are in the process of launching two new versions of the Model 3 with new features to further establish their dominance within the EV market, it is important to one considers enhancing their foundational supplier process (Bechtel, Jayaram, 1997). Mohr and Khan (2015) support the idea of integrating 3D printing into the supply chain. Being able to customise your products on a mass scale would be an appropriate route for Tesla to proceed with, and would be an efficient way for Tesla to manage various customization requirements on their models (Mohr, Khan, 2015). The popularity for this type of technology is evidently growing and is predicted to surpass twenty-one billion by 2021 (Mohr, Khan, 2015). Musk must be aware of the potential repercussions of relying on automation can have, something that may be familiar with him when opting for an agile approach on launch of Model 3. With that being said, this is not something to rush into as full reliability on 3D printing may result in issues that are unprecedented, thus damaging the progress that can be made from tweaking the original comprehensive structure (Mohr, Khan, 2015). Diagram 6 conceptualises the scope and the subject areas that correlate with this strategy. 5. Conclusion To conclude, the PESTLE analysis has exposed the type of modern issues that Tesla face in association with their supply chain. Musk has encountered many issues both internally and in the macro-environment due to the process and uniqueness of Tesla’s products. As a result, unprecedented issues could force Musk to appoint a proven individual with extensive experience within supplier management (Srdjevic, et al. 2012). It is clear for one to see that the work-load that Musk has put upon himself has affected the business comprehensively, including the supplier process and management. A correlation can be seen between the incapability to provide mass production of product to appease demand and dis-organised supplier management. At this moment in time, Tesla have the opportunity to resurrect the company by tweaking their current methods of attempting to fulfil supply targets to meet consumer demand. 8

Implementing Cloud Computing technology influences increase transparency within their network on a global scale, which if used effectively will contribute to an undisputable change in the way they communicate and delegate work-load to their workforce, helping to build long-term relationships with suppliers that ultimately will reduce lead-times in a Flow Management System (Becker, 1998). The possibility to tailor their strategy around 3D printing in the near future may be a necessity to simplify the creation of their products, and maintain superior dominance within the market that over-time will most likely become fragmented as more competitors enter the market (Mohr, Khan, 2015). If Tesla are able to implement the appropriate strategies, success over competitors seems inevitable despite concerns.

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5. References Accenture, 2013. Supply Chain Management within the Cloud. How can Coloud-Base Computing make Supply Chains more Competitive. [E-Book] Available at: < https://www.accenture.com/t00010101T000000Z__w__/gb-en/_acnmedia/Accenture/ConversionAssets/DotCom/Documents/Global/PDF/Dualpub_1/Accenture-Supply-Chain-Management-in-theCloud.ashx> [Accessed 1st May, 2019] Christian Bechtel, Jayanth Jayaram, 1997 "Supply Chain Management: A Strategic Perspective", The International Journal of Logistics Management, Vol. 8 Issue: 1, pp.15-34, https://doi.org/10.1108/09574099710805565 Becker, 1998. Lean Manufacturing and the Toyota Production System. [Pdf] Available at: < http://vietnamsupplychain.com/assets/upload/file/publication/1303269779171-3034.pdf> [Accessed 1st May, 2019] Brande, Breg, Brehmer, 2013. Journal of Engine...