Supply Chain Management of Tesla Module 3

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 Supply Chain Management of Tesla 1

INTRODUCTION

This research report is all about the analysis the supply chain management of Tesla

module 3 applied by the Tesla, Inc, which is an automobile company found in the United States

Williamson (200, pp.8). In the year 2003 in Silicon Valley more than two engineers came

together with the main goal f designing and producing electric cars which produced no emissions

t the environment Williamson(1985,p.67) . These type of cars performed betters than gasoline

driven cars. This approach p lead to production of a lot of electric cars and in return t promoted

an environment friendly transport system worldwide. The company is also concentrated in

coming up with better innovation in the energy sectors to reduce carbon emissions. The CEO of

this company is Elon Musk who is known world-wide due is entrepreneurial skills especially in

promoting innovative action which address the climate change which has a negative effect on the

environment

All over the world professional be it businesspersons, physicists, politicians and so in are

concerned about the effect of carbon dioxide, nitrogen oxides produced as waste gases by

gasoline cars b since theses kind gases s lead to rapid disappearance of the ozone layers causing

an increase in the temperature advantages world. There is an increase promotion of using a

renewable energy sources in most of the world economies which depend heavily on oil to run

their industries and businesses.

Elon Musk has a strong belief that electric energy will be stored in different kind of batteries after

being generated by solar and wind blowing in farms in the near future .This kind of thinking is

due to the demand of renewable energy in the market and environment friendly sources of

energies policies being implemented by the government all over the world. Leadership in Tesla,

Inc claims that the average size sedan car which covers a distance of 15000 miles every year will
 Supply Chain Management of Tesla 2

cost the owner around $6,975 on fuel while the person driving the same kind of automobile

covering the same distance will incur a cost of$ 540 per year (Perkins and Murmann 2018 p.474)

.Another added advantage is that the electric car owner will save 35% on the maintenance

cost unlike the new of the gasoline-driven car).It is due to this economic advantage of the electric

cars over the gasoline cars that has made this idea of electric driven cars commercially possible

The supply chain management strategy used by Tesla, Inc, is to penetrate the high end

market which has customers who are ready to pay premiums on the products being offered and

afterwards try to produce many units per volume at lower price from one model to another The

company is committed to strong commitment in offering better services via reliable and durable

super chargers and batteries. Also it has formed important alliances with automobiles leaders like

Toyota, and Daimler which help the company to boost its growth through latest innovations n the

industries Williamson (200, pp.87).. Tesla, In, is focused in increasing the production units of

model 3 per year by building bigger factories .It also sales directly to clients through shops

owned by the company due to their policy of explaining to customers about their products and

improves service deliveries. This helps them whenever they revisit the business model to improve

their revenues.

The old franchise sales models practices was by-passed by Telsa, Inc, for the direct

company to customers sales approach because they s will reduce unwanted additional costs.

Tesla, Inc controls all the activities involved from the production stages s to the distribution

stages unlike the other automobiles manufacturers. This saves them 8.6% operational costs. The

management strategy in supply chain applied by the company is dedicate more to long term goals

to boost its strategic growth in size and profits .This stage involves the following three phases:
 Supply Chain Management of Tesla 3

Increase in production level, improving perfection in inventory management and reliable

distribution services.

The following table shows sources of data that will be used in the evaluation section of

this report:

Author Type of data summary

Williamson book Defines supply chain

Zhao, X and others journal Explains responsiveness

Michael E. W and others journal Explains Relationships management

Lamming and Hampson, journal Explains reliability

Lysons and Farrington journal Explains resilience

Esbenshade article Explains social responsibility

EVALUATION OF SUPPLY CHAIN STRATEGY

Supply chain can be defined as an organization network which is achieved via upstream

and downstream connection in various activities arranged in logical manner to add value to

commodities and services to meet the demands of customers while Supply chain management

involves transport of products and services from production facility to retailers shops or stations

where customers can get those services (Kalaitzi, Matopoulos and Clegg 2019 p.264). For one to

compete productively in any supply chain competition the following 5Rs the supply chain must

be observed: Reliability, Relationship management, Responsiveness, Resilience and

responsibility
 Supply Chain Management of Tesla 4

Reliability approach in supply chain can be defined as the consistency in performance in

supply chain if which the all parties are satisfied. Human personnel’s in chain supply are

concerned more about the following parameters: increasing degree of reliability, inventory

reduction and being always ready for nay demands that might arise in the market.. To show

strong commitments to their cars after-sales Tesla increased the warranty of model 3 to n8-years

(Lamming and Hampson 1996 p.54). Management of inventory involves costs and reduction in

production cost through making strategic policies in inventory activities. In Teslas, Inc, workers

ensure the product quality is not damaged by the inventory activities as well helps in reducing

costs.

From above strategy, in case a certain supplier does not meet the evolving technology that

meet the needs f the company, he/she will be replaced by a more dynamic and qualified supplier

to meets the requirements of the company Sako(1992,p.68)By taking care of its interests in

supply chain Tesla was able to meet its unique characteristics especially in its vehicles since there

was nose disruption in the supply chain activities in the automobile industries. Effectiveness of

this approach can be seen in whenever the company wants double its production units it will

implement new plans in the supply chain arrangements. Suppliers are required to guarantee

reliability prior to being allocated resources this leads to strong mutual relationship with

suppliers,

To be more successful in supply chain activities business need to do the following steps:

1. Being able to evaluate performance of any suppliers involved.

2. Ensure you have the right technology to help in automating operations to reduce workload

and time wastage.

3. Good communication skills in sharing information to have good instincts in evaluating,

and managing human resources.

4. Being able to build lasting mutual friendship among partners

From above diagram, to maintain a good relationship with one must reduce costs by

bypassing the tendency of giving business contract based on price quotation but instead give to

one supplier to provide an type of an a commodity or service for long period of time by doing

this one natures trusts among the partners(Lamming, and Hampson 1996 p.71). Manufacturing

techniques involved in Tesla is on basis of build-to-order criteria which comes with its unique

advantage to the company. This will boost a good with the suppliers .In the early stages ton this

automotive industry , Tesla ,Inc, used to have a strict control especially in areas affecting very

critical stages in supply chains hence it produces certain percentage of components. This will

not last long any more because their partners must be shown respect by trusting their contribution

in supply chain to improve the production level of the company.

Responsiveness in supply chain is that tendency of being able to act accordingly in the

right time to the changing demands of various consumers in any market. In lean production more
 Supply Chain Management of Tesla 6

energy is directed to quality product, wastage reduction and creates more value, all this is done to

achieve customer satisfaction (Zhao al.,2016 p.1701).

To improve responsiveness in supply chain Tesla built a gigafactory in partnership with

Panasonic, this plan enabled the company to minimize production costs f batteries by almost to

32%(Zhao al.,2016 p.1708).This also enabled the company to handle raw materials effectively

during logistics exercises and warehousing Activities. Also while model 3 cars were being

produced the company relied in a single l supplier all raw materials at all time. These practices

enabled the company to respond quickly to any changes in the customer request s. By practicing

direct sales approach Teslas can respond faster to customer demands and also increase speed in

coming up with anew product. Also by stationing new shopping centers in new areas the

company increases its quality service delivery to the expanding demands of customers

Resilient in chain supply can be defined as one step ahead of competition that helps

company to transit from less risky management practices to more complex growth those enables

customer to have a good knowledge of the risks associated by the products offered by the

company(Lysons and Farrington 2006, p.112 ).

For Tesla to be have an added advantage in the automotive sectors it must produce more

electric vehicles in the near future this will help it gauge the batteries demand .This will help it

minimizes production costs hence offer new vehicles at low price compared to the other

competitors. For this to come true it must outsource batters production operations from other

partners. Also this will help it minimize time and energy wasted in logistics exercises and

improves innovation. Qualified business plan and stiff competition are the main factors that

contributed to the decision of outsourcing services. This strategy made it possible for
 Supply Chain Management of Tesla 7

implementation of vertical integration supply chain since the company outsourced for some of its

important parts from various partners (Korjian al.,2016 p.2429)

In most developed countries companies are required to explain where they get their raw

materials to manufacture products to avoid bad public image .Businesses are expected to observe

the following protocols at any time: Never interferes with the human rights of the others, Ready

to handle any negative actions that might befall any person residing near the business premise or

anywhere.

Tesla has always been striving to ensure use of sustainable energy all over the world by

abandoning the old traditional sources of energy like gasoline, diesel and coal. To attain this goal

Tesla, Inc, has a strong global supply management strategy which take care of everybody

involved in business Esbenshade (2009, p.7).This strategy involves a unique specialists in the

transport and sectors From this committeemen Tesla demonstrate its determination in its social

responsibility in improving the quality of the lives of human beings .Through this one can

comprehend the company s control features, design parameters and operations requirements in its

supply chain management in the world.

Tesla understands its social responsibility that why it has a corporate acts taking care of

all the need s of anyone affected by business activities be it a an employees, customers,

shareholders, governments and suppliers .According to Corporate social responsibly guidelines

:Communities, customers, employees, shareholders and government.

The above 5Rs are critical in understanding supply chain management strategies Ian any

company .Also the following topics cannot be over looked either

Vertical integration plan is all about any activities and plans the company is the only sole

owner of the entire supply chain, although it has different partners who provide different

commodities and services to meet customers demand. This kind of arrangement is critical due to

the availability of cheap labor in developing world’s countries .This in returns increase

companies revenues. Tesla, Inc has allowed vertical integration to be applied in its supply chain

management.

Transaction cost economics in supply chain is a theory in economy trying to explain a

logical strategy to evaluate components of governance seasonal relations

Williamson(1985,p.157).A lot of losses in businesses have made many car companies like Tesla

to change strategies. It is about to build gigafactory to manufacture its own batteries which help it

save more cash on sources of powers.

The concept of resource-based view is tied to the believe that success in supply chain rely

on the availability of resource to be managed .A firm profits a lot whenever it use tangible and

invisible recourse as detected by the RBV Williamson(1985,p13). This plan has helped Teslas,

Inc, gain more clients in country of origin through diversification. This Take up more than of

its supply chain operations.

With good business practices which involve using assets to increase wealth of

shareholders and good firm management skills companies can achieve optimum gains from

supply chain management. With investments in solar city as well in gigawatt factory Tesla

intends to grow its market shares as long as it can have good supply chain management in place.

Since Tesla is offering electric cars to proved durable transportation cars unlike its rivals it has an

open market policy because it wants to provide quality electric vehicles. Lon Musk believes
 Supply Chain Management of Tesla 9

frequent replying to customer’s feedback is essential for any company to be successful. Tesla, Inc

represents how a company with effective strategy can have a strong sense of identity in any

industry globally. This has assisted the company to be one step ahead of its revivals

RECOMMENDATION

Shortcomings of reliability in supply chain management is seen by how Tesla tries to

reduces risks, storing too less inventory and making clients to wait for a long time to be served.

This is due to lack of research on the relationship between consumer’s demands with sales

strategy applied. To solve this challenges Tesla can keep the exact quantity of inventory and

carry out a research on sales strategy to match customer demands with sales models undertaken.

Moreover, as customers keep waiting; many clients will have paid some charges, amount which

many could not have parted ways with if they were supposed to pay instantly (Kalaitzi,

Matopoulos and Clegg 2019, p.260)

When Tesla uses little capital to keep inventory, Tesla can use the collected for other

things to keep the business developing. When Tesla uses little capital to keep inventory, Tesla

can use the collected for other things to keep the business developing. In 2013, through good

inventory management Tesla was able to $30miilion dollars after minimising cost incurred in

logistics

The main challenges of relationship management in chain supply especially in automotive

industry nibs that the old players do not adapt quickly to new innovative technologies .The auto

industry has been disrupted by Innovativeness of Tesla which has made electric vehicles famous

worldwide. Although Tesla has achieved success in penetrating the automobile market still does
 Supply Chain Management of Tesla 10

not get enough funding and has small pool of suppliers. These problems are due to poor

relationship between the old shareholders and suppliers tat Teslas found in the auto industry.

Ignored for Tesla to overcome these challenges of insufficient funds, little cash pool and few

suppliers it should ensure shareholders are glued to its main mission of providing electric cars in

an environment where more people are becoming more concern about the air pollution by

exhaust gases released from gasoline cars (Kalaitzi, Matopoulos and Clegg 2019, p.26).

Tesla is faced with either to choose efficiency over responsiveness of chain supply.

Efficiency in supply chain can be achieved if the main objective is on reducing costs and no

money is being directed to activities which do not improve quality of product being

manufactured. Mangers in auto industry have hard time in deciding between ignoring efficiency

for responsiveness and vice versa. Tesla is busy looking for ways to reduce costs incurred in

designing or production stages and still achieves expected standards of quality (Zhao al., 2016

p.1713). This makes more sense to cars that are not expensive but still brings some gains. To

implement any changes in designing stages it can a lot of time because it’s very hard to alter the

manufacturing operations within a short time due to big machines installed .Each business is

unique on its own way therefore it can decide to focus on responsiveness or efficiency. So Tesla,

Inc prefers efficiency to responsiveness.

Elon musk determination to link newly developed electronics with materials used to make

the interior parts of the electric car has passed a lot difficulties to many of his engineers. This has

affected the resilience in supply chain .Many critics of the company are not impressed by the

technology applied ii n making components of model 3 .It made up of many steels with not

enough aluminum (Lysons and Farrington 2006, p.135).This increases the net weight of the car

beyond the recommended limit .Also under scrutiny are the kind of the welds used on chassis of
 Supply Chain Management of Tesla 11

the car and other parts because they are not uniform and fangs are not in the expected size. Tesla

has to reduce the usage of too many robots during the car making basic stages which need an

expert .By doing this the company will deliver on its production targets.

For the social responsibility Tesla found itself under scrutiny in May 2016 in which one

person died due to from car crash involving Model S .Tesla had both de3fend itself to prevent

bad public image Esbenshade (2009 p.6) Besides this, Tesla has faced critics due faulty found in

the door handles f its models s and too much panel gaps between bodies. Addition to this, Tesla

faced accusation of hiding the correct numbers of injuries in the work places by its employees to

external auditors. These cases affected Tula commitment to respect human rights in its business

endeavors. As a big business Teslas must come up with a safety department well funded to be

dealing with this kind of cases whenever they occur .By doing this the company will have a

positive press and public image.

Excessive application of technology has results in capital wastage due redundancy. A lot

of programming was used to computerize robots in the assembly stage which delayed

manufacturing time limits because robots used a lot of time to complete a single tasks than the

planned time. This resulted in customers being made to wait for delivery of better orders .This

consumed a lot of money belonging to the company and time which could been in interested in

other areas. This increase in delays reduced customers and shareholders confidence in the

company to deliver on this its promises. Tesla, Inc, had problems in delivering quality electronic

systems in its luxury cars this reduced sales profit margins.

The main short term goal of Tesla, In, in supply chain management policy is to reduce

running costs and provided quality products while for the long term goals it aims to improve its

growth and profit margins. It should focus its energy in increasing the number of its model 3 to
 Supply Chain Management of Tesla 12

meet the growing demands of electric vehicles since it past the acceptance stage by the

customers.
 Supply Chain Management of Tesla 13

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