What Tesla’s Elon Musk Can Teach You About Supply Chains

By: on September 23, 2019

Last year I drove a Tesla Model S for a long weekend. It was part perk and part condolences offered by the local Tesla showroom: I was a proud owner of a $1,000 spot in line for a Model 3—the same Model 3 that’s in the midst of an ever-extending production timeline. The showroom hoped my time with the Model S would keep me excited about owning my own Tesla.

It was a fun weekend, and I still want a Tesla—just not one of the first off an assembly line plagued at each step in the supply chain. The continued production delays of the Model 3 spooked me and I ended up selling my place in line.

So how can you overcome or prevent similar supply chain issues and still be a top player in your field? While Tesla has a whimsical and ambitious CEO giving it a leg up, there are lessons you can take into your own business that don’t involve a flair for the futuristic.

Tesla dog mode
Tesla’s “dog mode” (Source)

Oh, and, these lessons definitely aren’t just for auto manufacturers—any business with a supply chain strategy can benefit.

Vertical integration as a competitive edge

The lessons learned from Tesla aren’t all from their missteps. In fact, the company’s success despite these failures show that they have lots of good happening. Elon Musk decided against producing parts or assembly in China and Mexico, and instead has built Gigafactories mainly in California and Nevada. This reduces the cost of transportation and the labor required to move parts to the next facility.

What is vertical supply chain integration?

A vertical supply chain integration is where the business owns as much of each step in the supply chain as possible. For example, Starbucks owns/manages coffee farms, roasting plants, distribution assets, and the retail stores. Here’s a look at how Tesla has integrated its supply chain:

Tesla’s Vertical Integration Model

Services Charging stations, showrooms, on-site repairs
Software Operating system, self-driving programming, “infotainment” system
Hardware/production Batteries, AI chips, chassis, Gigafactories

Tesla has still struggled with consistent suppliers, but when your product has over 10,000 parts there’s an excessive number of moving parts. For less complex products, vertical integration could be the differentiating factor for your business. If there is a scarce part that you can secure in your supply chain that your competition cannot get, you win big.

What to do today

Diagram your entire supply chain (here’s a how-to for you) and evaluate which steps/assets/parts you can simplify or bring in house.

  • Could you reduce the number of parts used or suppliers to make your product?
  • Could you make your product in house?
  • Alternatively, are you ready to acquire one of the smaller businesses in your supply chain?

Each of these changes would move your business closer to vertical integration.

Invest or engineer to solve bottlenecks

With problems like logistics delays or supplier quality inconsistencies, you have the choice to either invest capital into a partner or engineer your own solution to solve it. Tesla tends to run low on capital, following a build-it-as-it’s-ordered supply chain, so they opt to engineer solutions. Musk’s propensity toward engineering is likely a factor in this decision, too.

How a Tesla is made with Musk’s robot army (Source)

What to do today

Perform a cost-benefit analysis of engineering an in-house solution versus paying for outside help. Include not just the financial return on investment (ROI) but also the benefits to your brand and reputation. Telsa might not be as “cool” if they chose to purchase short or long-term aid in production. And their cool factor is a huge competitive advantage.

Marry the physical and digital into your product

The trend toward Internet-connected toys, refrigerators, and now cars are making businesses think about both their physical product and the digital opportunities they can offer.

The digital offerings, such as new features sent to the product via company software pushes, allows for businesses to sell to existing customers. The strategy to sell the upfront hardware as inexpensive as possible to secure the customer and then profit from continuing to that customer is one taken on by Amazon and others.

The adorable, WiFi connected kids’ toy, Cozmo (Source)

What to do today

Incorporating a digital feature to your product will require finding suppliers for the needed parts. I recommend looking into partners now, even if giving your product an Internet connection isn’t on the short-term roadmap. It’s a safe bet that your customers will soon be expecting a digital offering in your product.

Share your vision to build your brand

There’s no doubt that the brand name Tesla helps secure the attention of car buyers. Now would Tesla have the brand name strength it does without their enigmatic leader? I will not conjecture here. But you can be sure that building your reputation and business name should be a key focus.

What to do today

Be active on social media, attend or sponsor industry events, keep that website updated and sharp. Sharing your clear vision and business goals are key as well. People want to know the “personality” of your business—so show them!

Tesla word cloud brand reputation
Brand attributes associated with Tesla (Source)

Take these lessons from the ups and downs of Tesla and use them to improve your supply chain processes. And when you’re ready to purchase a supply chain management solution keep us in mind. Our team of advice experts are ready to chat with you about your needs and help you narrow down the top best choices with you. Call them at (844) 680-2046 for a free consultation.

Even though I backed out of buying the Model 3 due to delivery delays, the Tesla product and brand will have me wanting one in the future. Maybe I’ll write a follow-up piece after my purchase. Follow me on Twitter @AnalystOlivia—I’d love to hear your thoughts and experiences!

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