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Inventory Management and Operation at Tesla

Analysis and Operational Aspects of the Manufacture Of “Tesla”

Executive Summary

The business model implemented by tesla is that of creating vehicles that are distinction. Examples of the raw materials used by Tesla Inc., include; Bauxite, steel, aluminum, leather, silicon, rubber and so on. The company is now a profit making and a high-volume company after its transformation. Regarding sourcing and quality assurance, the Senior Program Manager has the responsibility to manage quality review and assessment, including documentation and records as well. The company has employed a Quality Surveillance Plan (QSP), which is used to ensure that the products are of the best quality. Tesla uses an agile software development methodology as through this it can focus on smaller areas within a shorter time compared to its competitors. Concerning processes and technology, Tesla has managed to adopt innovative technologies which facilitate the improvement of the processes. For example, some models have been customized to fit some particular market segments such as China and Japan. Model X has also been enhanced to fit the needs of the market.

The company focuses on raising the hourly wages in a bid to attract skilled talent to the company. The company has formulated ten strategic decisions for ideal productivity in all the segments of the business, and this constitutes Tesla’s operation management (OM). The strategies employed help in increasing the productivity by using operational efficiency. The ten strategic decision areas revolve around the efficient management of operations, to ensure the increase in productivity and efficiency. Inventory management is a significant challenge that is being faced by many automakers, and Tesla is not an exception to this. The firm markets its products by strategic positioning itself along major highways, and in the locations that people frequently visiting. Another strategy is by using amateur video advertisements, which increase the popularity of the brand. The sales and distribution strategies are centered on new ways of conducting sales, rather than traditional techniques. This helps in increasing sales, which translate to revenue after sales.

Business Model

There is a growing market for fully electric vehicles, and the reason behind this is that of new regulation on vehicle emissions and safety, shifting customer needs, technological matters, and expectations. The business model that has been adopted by Tesla is the reason the company has been successful during its short time it has been in operation (Bohnsack, Pinkse, & Kolk, 2017). The company’s CEO and founder  Elon Musk launched Tesla, the mission behind it was to accelerating the advancement of sustainable transport by bringing electric cars into the automobile industry in the fastest time possible. This mission has been at the core of the business model of the company.

The approach that Tesla took to get its first vehicle in the market was unique because it did not focus on building a vehicle that was relatively affordable after mass producing it rather it focused on creating a distinction car. Tesla established as a company, therefore, it was impossible for them to mass market its first car because they did not enjoy economies of scale in addition to having one technology (Bohnsack, Pinkse, & Kolk, 2017). The first product the company was to manufacture was limted to be expensive all factors considered, and for this reason, they decided to build a sports car as it had a better chance of competing with its alternatives that used gasoline.">Tesla’s business model was then reinforced as soon as it established its brand. The company focused on direct sales instead of using franchised dealerships. It has been able to do this by creating an international network of showrooms that are owned only by Tesla and galleries around the globe and mostly in big cities. The company has combined many service centers with sales centers and also has rangers who can service one’s vehicle while in the comfort of a person’s home (Günther, Kannegiesser, & Autenrieb, 2015). Tesla has also created supercharger stations where people who own Tesla vehicles can charge their cars for free for around 30 minutes. The reason behind building these stations is to rapidly increase the rate of adoption of electric cars. Tesla aims to add other supercharger stations to the existing network across Europe, Asia, and the United States.

Raw Materials

Massari & Ruberti (2013) defines raw materials as essential items in their semi-processed, modified or natural state, which are utilized as input to the processes of production. This process is conducted for following transformation or modification into finished products. Some of the raw materials include aluminum and steel. For example, Tesla Model 3 chassis and body will be entirely made of steel. Steel is more advantaged as compared to aluminum. It’s because steel has lower costs of production equipment, lower costs of repair, reduced employee training requirements, and more saving of costs. In contrast to this, Tesla Model S usually made with Bauxite, and the chassis and body of the model are built by using aluminum. Aluminum is acquired from bauxite. High-strength boron steel is sparingly used in the aluminum’s reinforcement at vital points of safety. Furthermore, steel and copper are used to make the engine’s stationery piece, including the stator as well.

Other raw materials combined into the model S include rare earth metals and elements such as neodymium magnets, which is mostly used in car speakers (Massari & Ruberti, 2013).  Leather is also used and is acquired from animal skin such as cows. Moreover, silicon is used to make the car’s glass windows and other parts, while carbon fiber is used to make external additions, and to make the design of the interior appealing. Copper wire is utilized to make various electronic components. Model S’ underbody is created from ultra-high-strength titanium, which is used because of its ability to ensure that the battery is not pierced by any roadside forces. To produce Tesla car’s tires, rubber is used, and it’s derived from rubber trees. regardless the fact that 70% of today’s rubber in the United States is synthetic and extracted from petrochemicals, Tesla has managed to ensure that most of the rubber it uses is natural (Pressman, 2016).

Supply Chain Management

The collective imagination of the automotive industry has been captured by Tesla in numerous ways since its launch in 2008 including how it sells and builds its electric cars. The products manufactured by the company have novelty, and the intrigue is because of the company’s founder who is considered one of the greatest entrepreneurs of this generation as he has his private space travel company known as SpaceX as well as being the co-founder of PayPal. The manufacturing decision that the company has taken has been surprising to mainstream automakers. The company’s vehicles were initially built by Lotus in the United Kingdom then they were flown to the United States to its customers (O’Marah, 2016). Tesla later acquired the NUMMI factory that in Fremont, California that Toyota and General motors had shuttered recently. Tesla has since built battery packs after it have invested billions at a Gigafactory in Nevada which is supposed to be localized battery production after moving the manufacturing from Asia. An assembly center was opened in Tilburg, Netherlands, which was supposed to assemble the Model S manufactured by Tesla for their customers in Europe.

Tesla is transforming from a loss-making company to one that is a high volume and profit-making company. The company will have to look like other Original Equipment Manufacturers (OEMs) which include managing logistics and supply chain. By 2018 the company focuses to build around 500,000 units on an annual basis, and this is projected to double by 2020 (O’Marah, 2016). This volume is expected to rise because of the mass market of the lower priced Model 3. The company is currently producing its products in California with the capacity of the plant in the area being 100,000 units. Tesla has also shipped products digitally such that its operating system is automatically updated over the cloud. The company has manufactured vehicles with new capabilities to sell to existing customers (O’Marah, 2016). Tesla not only sells information features such as GPS enhancement, entertainment, features or gauges it is also involved in selling physical add-ons like braking and speed. In some ways, Tesla sells a giant smart phone.

Sourcing Quality Assurance

Tesla does not source their components or raw materials locally from where they are operating from unless the country authorizes the company to adhere to the set minimum local component norm of sourcing. This means that if Tesla would source of such materials wherever they consider fit, provided there are no guidelines. Quality assurance is the technique of preventing defects or mistakes in products which are manufactured and mitigating risks during the delivery of services or solutions to clients (Tesla Laboratories, 2010). Tesla’s plan of quality control makes sure that all the clients gets products and services of high quality. The Senior Program Manager has been authorized with the task to ensure that all quality assurance issues are handled. Examples of such factors are; the Quality Control Plan’s oversight, daily direction, implementation and so on.

Internally, the Senior Program Manager has the responsibility to manage quality review documentation, coupled with all program records of quality. More specifically, he ensures the successful finishing of the requirements assigned, that all the plans are finished without the wastage of resources, effective management of the company’s employees, labor and efforts, and that the deliverables meet all requirements in the contract (Tesla Laboratories, 2010). The systems employed by Tesla also help in quality assurance. For example, the Quality Management System (QMS) helps in providing a model for performing daily basis operations, giving measurements of performance against standards and requirements, meeting the contract’s requirements, and ensuring that customers are fully satisfied. One of the most critical parts of Tesla’s QMS is the internal Quality Surveillance Plan (QSP). This is because it makes sure that the company’s measurement of contract performance and system of surveillance is coupled directly to NAVY surveillance of performance of the SEAPORT-E contract, (Tesla Laboratories, 2010). quality assurance is maintained as the company has enhanced a culture of impeccable customer service, decision making fact base, empowerment of workers, process improvement, efficient and time delivery of services and products of high quality.

Product Development

Tesla can deliver great new functionality on their product rapidly because it uses Agile which is a software development methodology. There are different kinds of Agile such as Extreme Programming, Scrum, and Lean. The company focuses on working on smaller batches of development referred to as sprints which often take between two to four weeks as opposed to working on new releases which come out after a couple of years. Tesla releases each sprint on its own with very small feature releases which include security (Eppinger, & Ulrich, 2015). The company uses this as an advantage with the focus of pushing innovation when other automobile manufacturers are pre-announcing vehicles that will be available after a couple of years. The company announces new features which are delivered within a month in comparison to their competitors who take a couple of years to do the same thing. Tesla makes use of agile development to deliver new features to the vehicles it has already sold over the cloud, and very few automobile companies do this. Tesla Agile development is redefining the way automakers are competing, and this will be beneficial to the consumer because safer and better cars will be produced.

Processes and Technology

Through innovation, Tesla have gained the ability to use technological processes to facilitate the improvement of the processes (Mangram, 2012). For example, Tesla has used technology to customize Model S for some markets such as China and Japan. For China, the firm has modified the back seat to have more comfort since most of the targeted clients do not drive, as they have employed drivers. On the other hand, in Japan, Tesla has rolled out the right-hand drive. The main reason behind some companies are unable to implement new technologies is because of the lack of funds. Most of these companies have innovative technologies in their laboratories, but they cannot stay applicable since they can’t implement them. Fortunately for Tesla, they have enough revenue to adopt innovative technologies, therefore placing them on a higher base.

The company has also invested in developing solar energy, which is also referred to as Tesla solar paneled roofs or Powerball batteries. This has resulted in the acceleration of the embracing of renewable energy. To prove its emphasis on adopting the technology, the company acquired SolarCity (Cox, 2017). Tesla has also used technological processes to increase the comfort and flexibility of driving. More specifically, the company has raised the speed limit for Traffic-Aware Cruise Control and Autosteer when a person drives off and on the highway. The safety capabilities of Model X are enhanced by Side Collision Warning. This feature only works when Model X is being driven speeds between at 30 mph to 85 mph (Cox, 2017).

Human Resources

Tesla has a Gigafactory whose under construction, and it’s expected to cost around $5 billion, and it will be located in Reno. Tesla is expected to employ around 6,500 people, and the focus currently is how to fill the new positions that will be available to skilled employees. The hourly wages for individuals that will be working in the company will be raised to $25 by the talent acquisition team, and this will require innovative thinking to get the right people for the right jobs (Mak, Rong, & Shen, 2016). There is a significant lack of talent in America, and this skill gap needs to be approached from a strategic HR perspective.

Before recruiting new employees for the Gigafactory Tesla, HR management will need to see the skill gap addressed as this will impact the long-term business viability. Raising the hourly wages will not solve this issue in the long term; it will only be a short-term solution as more skilled workers will be attracted to apply for the various positions (Mak, Rong, & Shen, 2016). Tesla is ready to pay a premium to win talent because there is a rising demand for skilled workers. Developing a winning recruiting strategy will only be the one that will help Tesla get an advantage over its competitors.

Operation and Manufacturing

The operations management (OM) practices of Tesla Motors, Inc. focus on the objectives of the ten strategic decisions for ideal productivity in every segment of the firm. The operations managers are required by the ten strategic areas of decision to ensure that the best practices are maintained, to make sure that the business achieves high productivity, effectiveness and streamlining. The success of Tesla is rely on the ten strategic decision areas, as it facilitates efficacy and an improvement in performance as well. Its operations management decision areas include; design of services and goods, management of quality, capacity and process design, the strategy of location, layout strategy and design, human resources and job design, management of supply chain, management of inventory, scheduling, and maintenance (Thompson, 2017).

Figure 1; An image showing new unit inventory (Bailey, 2017).

The company utilizes productivity measures which are based on the production of the automobile. On the other hand, it uses productivity techniques for the management of its corporate office operations (Thompson, 2017). There exist several measures used to determin of the company’s productivity. The measures include; inquiries addressed on a daily basis, automobile per day and Powertrain units per day. Concerning quality management, the operations manager of Tesla Motors Company continuously conducts quality assessments of the manufacturing processes, in addition to focusing on enhancements in the process. It is also worth to note that the methods of manufacturing had been integrated with human intervention. This strategy aids the company to increase its productivity by means of operational efficiency (Thompson, 2017).

Inventory Management

Tesla has on different occasions had challenges with inventory management as it has had a significant number of new vehicles that are unsold. There have been stories of battery shortfalls and car fires for Model S, and this has resulted in delays in production. The company has a growing list of inventory of unsold vehicles and batteries that do not work properly, and they are sold at a discounted price. Because of the high inventory, Tesla dialed back in production because they did not want to increase inventory on the already huge of existing inventory. In the past year, the inventory of completed but unsold units has increased by more than 3,900 units even though the country is demand driven and this translates to around $880 million in accumulated inventory (Bailey, 2017). The figure below shows the delay in production and the decrease in stock as a result of the challenges.

Figure 2; Reduction of Inventory (Mak, Rong, & Shen, 2016).

Marketing Strategy

One of Tesla Motors’ marketing strategy is that it is located strategically along major highways. Furthermore, it provides Destination charging and creates partnerships with destinations that people usually visit (Schultz, 2017). Some of these places include; shopping malls, resorts, restaurants, and owners of Tesla charge the Model-S cars at these places. Currently, business owners aim at attracting Tesla drivers to their business by partnering with the Destination Charging Network. People who are not Tesla’s customers witness the advantages that the company’s clients get and as such, potential clients are created. Some of the potential clients then turn into loyal customers, who continue to market the products by using them. The strategy also works to the company’s advantage because the sites used are visited by a significant amount of people, which translates to the fact that the marketing strategy reached many people at once. This approach of using frequently visited places is better than using those that are less visited because the message reaches a broader audience.  Furthermore, Tesla reaches its clients by using online sales, company-owned stores, and test drives and so on.

Another strategy is using amateur video advertisements, where a 10-year-old suggested one of the videos (Schultz, 2017). Ten finalist videos were uploaded on YouTube, and the winner was promised a trip to one of the planned Tesla launch events. This marketing strategy was beneficial as it helped the company to save the marketing funds it could have otherwise used in purchasing primetime commercials in TV or paying for advertising agencies. The winner was later on announced and the gift awarded as promised. This increased people’s awareness concerning the company’s products, thus, increasing the sales as well. Overall, the two strategies worked efficiently as the number of sales increased, which then expedited the increase in revenue as well.

Sales and Distribution

Rather than positioning the dealerships in sparsely populated areas like traditional dealerships used to do, Tesla aims at positioning the stores in areas that are heavily populated, and where many people have access to the area. Some of these areas include city centers and malls, where potential customers are told about the electric cars from Tesla. Their primary focus before making any sales is to educate the potential customers about the technological aspects of the electric vehicles (Fehrenbacher, 2016). This is beneficial as customers purchase the products after getting adequate information concerning the technologies, and noting the advantages of the electric cars over other types of vehicles.

Tesla Motors Inc. customizes their products to the specifications of the customers, before making any sales. This strategy has enabled it to increase its sales because people are used to the traditional dealers whose primary focus is in the inventory. The table below shows the increase in sales as from the first quarter of 2015, to the third quarter 2016.

Figure 3; Increase in sales (Mangram, 2012).

The aim of these conventional dealers is to ensure that cars are sold as fast as possible. In contrast, Tesla delivers customers’ cars after several months, to ensure that the customers choose their favorable features such as the accessories, paint and so on. In contrast to the traditional sellers whose customers’ main focus is to buy cars at the lowest price, Tesla’s clients are interested to know about the technologies employed. In particular, Tesla representatives spend several hours with clients to educate them on electric car incentives accorded by the government, the charging destinations for Tesla cars, and what they will spend in paying for electricity as opposed to gas (Fehrenbacher, 2016). This helps the customers to make decisions about whether they should buy the cars or not. The company also sells its products online, where customers do not have to meet with the dealers. Regarding the distribution network, the brick-and-mortar stores are used as a channel for the promotion of electric vehicles. Some of the company’s physical stores are used as showrooms. This is because, in some states, it is unlawful for car companies to sell their cars using its stores.


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