AUTHORS: Srujit Biradawada & Friends (Aarti, Lucy, Laura, Sumer, Vincent & Joyce)
Staffing and Operating the various modes of logistics
- Supplier <~> Tesla :
- In order to properly manufacture a car, there are more than 10,000 components need to be assembled. If a single component is delayed or damaged, the entire manufacturing line will be suspended. So, building up a global supply chain is the key factor for car companies to success. However, each country’s tax policies would also give a huge impact on car companies’ decisions about when and where they should get their supplies. Taking Tesla model 3 as an example, in more than 10,000 components needed to manufacture the car, 50% of the components come from US/Canada, and 25% of the components come from Mexico, the final 25% come from the rest of the world. Tesla did this is simply because of the requirement of the North America Free Trade Agreement (NAFTA). Under the requirement of NAFTA, a minimum of 55% of components must be manufactured in Canada, the U.S. or Mexico in order to be considered a NAFTA vehicle (Lambert, 2017). If it is a NAFTA vehicle, the cars sold in Canada, the U.S. and Mexico will be tax-exempt. Thus, meeting this criterion is very important for Tesla to sell cars in the U.S.
- However, as the world’s largest electric vehicle manufacturer, sourcing more than 75% of components in North America for electric cars is simply impossible. Europe has the best braking discs, Japan has the battery technology, car CPU chip should be imported from Taiwan. In order to solve these problems, tesla started to sign exclusive contracts with other firms to create U.S. subsidiaries to meet the NAFTA requirements. The Tesla Gigafactory is an excellent example, on July 31, 2014, Tesla signed an agreement with the Japanese giant Panasonic to construct the world’s largest battery factory known as Gigafactory. According to the agreement, Tesla will provide, prepare and manage land, buildings, and utilities. Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in the associated equipment, machinery, and other manufacturing tools based on their mutual approval (Tesla, 2014).
- Signing contracts with suppliers and making sure they can manufacture their components in North America is the core thing to do between Tesla and its suppliers. After the 75% criteria were met precisely, Tesla would notify its suppliers when to begin mass production. According to Tesla Q4 2019 financial report, Tesla has asked its Taiwanese suppliers to prepare for mass production of the Model Y component in early 2020. It means the mass production will begin six months before the intended date. Its suppliers are rushing out to make preparations (Lambert, 2019).
- Tesla <~> Tesla (warehouses for parts)
- Since all Tesla batteries are manufactured in Gigafactory, shipping them to the California Fremont factory assembly line on time is critical. Elon Musk has rumored to construct a railway to connect the Fremont factory and Gigafactory. However, considering the time length and construction cost, it is not manageable for Tesla to do in the short term. Tesla has announced its semi-truck in 2017, it expects to begin production in 2020, Tesla might use their truck to ship batteries. In the current period. Tesla is only using third party shipping firms to move battery packs between Gigafactory and Fremont factory.
- Tesla <~> Customers (distribution network)
- After Tesla survived from the production hell by operating production line 24/7, it soon suffered delivery hell (O’Kane, 2018). Tens of thousands of cars were sitting outside of the Tesla factory, and all of them are waiting to be delivered. If tesla cannot deliver them on time, they may not only upset their customers which will create a bad brand image, but it will also hurt their cash flow from the financial side. In order to solve this issue, Tesla has taken a series of solutions.
- First of all, Tesla founded a new delivery organization by hiring world-class supply chain experts to support its insane workloads of delivery. Earlier 2018, Tesla hired Kate Pearson, former Vice President Strategy, Operations, and Digital Acceleration at Wal-Mart, to lead its new delivery operations as Director of Field Delivery Operations (Lambert, 2018). She quickly restructured the delivery department and separated it from the sales department. Then, she hired and promoted a series of delivery experts including,
- Rodney Broyles, former Sr. Director Field Sales, and Operations, Strategic Growth Office at Best Buy,
- Brett Zriny, previously District General Manager for Tesla,
- Bridget Teeter, previously General Manager for West US and Texas for Tesla,
- Justin Harden, Former Apple operation manager, now in charge of deliveries in the southwest,
- Mark Mason, former Amazon area manager, and Air Force One operation director, now in charge of tesla deliveries in Texas and Mexico (Lambert, 2018)
- After the team has been gathered, Tesla has come with many inventive car deliveries method which we have never seen before. The Instant Driving Away program (5-minutes buying and delivering program) was introduced in late 2018. Tesla is targeting to enable the buying and delivering process within 5 minutes. Inventory cars are available for purchase with various payment methods including cash, leasing, or Tesla Financing.
- At the same time, Tesla introduced the door to door service called Tesla direct. After a customer’s vehicle is ready for sale, instead of waiting for customers to pick it up, Tesla will send the car to the customer’s appointed home or office (Lambert, 2018). Since cars will be immediately shipped from the factory to the customer’s appointed destination, plastic car wraps are no longer needed. It saved more time and costs for Tesla to delivery its cars.
- The process did not stop here, Tesla CEO Elon Musk personally invited current Tesla owners to come help “educate” new tesla buyers during an intense week (Lambert, 2018). According to the Tesla delivery process, there are three steps need to be done. A Tesla employee will allow buyers to have a quick look at the build quality of the car. Then, they will give the buyer all the needed paperwork to make the purchase and hand over the vehicle registration. Finally, there is a short orientation presentation to help the buyer get used to using the car. During the rush hour, Tesla employees will still need to do the first two steps. The third step, which is the longest, could be easily handled by current owners (Lambert, 2018).
- In November 2018, Tesla acquired a truck company to shorten the delivery time. At the end of 2018, the 7,500 dollars federal tax credit will no longer be available. Thus, Tesla put all available cars on sale including showroom cars. These sales further deepened the delivery problem (Lambert, 2018). According to Elon Musk, Tesla is going to ship east with trucks instead of rails, which is shorten the transit time by weeks. Since there is a huge shortage of truck drivers in North America, Elon Musk expressed that he has secured contracts with major haulers to avoid trucking shortage (Lambert, 2018).
- Next, Tesla starts selling and delivering its cars out of its Gigafactory. No matter what Tesla does, it will always take time for tesla to deliver cars. The team has come up with another interesting idea. If the customers are willing to come to the factory to pick up their car, they can schedule a tour in Tesla’s world-renowned factory. Since Tesla’s Gigafactory is one of the world’s largest buildings, getting a chance to see inside is very appealing to many Tesla buyers (Lambert, 2018). By inviting customers to go pick up the car themselves, the shipping costs will also be reduced.
- Last but not least, Tesla launched delivery events for their inventory cars. Since there is a production limit by the Tesla factory, it is normal for a customer to wait for months to get their customized car. Through holding this event, potential Tesla buyers and current Tesla buyers can directly see all inventory cars in the Tesla factory. If a car matches a customer’s configuration or a customer selected a car they like, they can immediately decide to take delivery early instead of waiting for a long time (Lambert, 2018).
After Sale Logistics
Tesla has made several inventive processes for after-sale services. First of all, Tesla dropped its annual servicing for as needed. Since there is a big difference between gasoline cars and EV cars, Tesla only suggests users change air conditioning filters and brake fluids as needed. Then, Tesla over the air software constantly updates itself to make minimum service center visits. Thirdly, Tesla software can remotely diagnose 90% of the issues, and the Tesla team will know exactly what needed to be repaired. Fourth, Tesla smart alert system will communicate with the owner what needs to be done. It will walk through customers to fix a simple issue or make an appointment with the Tesla team (Tesla, 2020).
According to Tesla, 80% of repairs can be done outside of Tesla Center. So, Tesla also created its own Mobile Service. If a Tesla is needed to be fixed by a technician, the Tesla team will assign a technician based on the users’ time availability. The technician will bring all the needed car components with him and come to a user-appointed place to fix their car for free. If the issue cannot be fixed by a mobile technician, then Tesla has serviced its centers and Tesla authorized service centers across the U.S., customers can easily make appointments with one of the nearby centers to get their car fixed (Tesla, 2020).
Recommendations
In terms of continuous improvement, there are several things that Tesla should do to improve its logistics efficiency. Between Tesla and its suppliers, Tesla should implicate master scheduling theory to reduce its suppliers’ pressure. Tesla is famous for both missing due dates and pushing things way ahead of schedule. It will take a significant amount of time for its suppliers to catch up speed with Tesla. The recent Panasonic and Tesla battery production issue could demonstrate Tesla’s relationship with its suppliers (Lambert, 2019). In order to solve this issue, Tesla should give more time and flexibility for its suppliers to fulfill its requests. Since Tesla is a fast-growing company, Tesla should also consider a multi-sourcing strategy to diversify its supplier portfolio. Thus, if one of their suppliers cannot meet its demand, others can quickly fulfill the gap. Besides, since Tesla is opening the new Gigafactory in China and Germany, invest and cultivate local suppliers is also core for Tesla’s future success. It can significantly reduce Tesla’s shipping costs, and fully integrate these suppliers into Tesla’s R&D processes.
For Tesla’s own supply chain management, construct a hyperloop tunnel between Gigafactory and Fremont factory is an easier way than construct a railway to connect these two factories. Since Elon Musk has the Boring Company, construct an underground tunnel is relatively easy for Tesla and it doesn’t need to acquire a huge amount of land from locals. Additionally, the tunnel would significantly boost up the battery transition time since the underground won’t experience traffic jams. For future Gigafactory, Tesla has already decided to put the battery and car assembly line, so there won’t be many issues in future Gigafactory development.
If Tesla wants to boost up its delivery time, it might think about collaborating with local dealerships. Since there were many customers already traded in Tesla with other brand cars, local dealerships are already selling used Tesla cars. Besides, customers have traded in their vehicles for Tesla as well. If Tesla wants to grow fast, it must (and it will) produce extra cars to store as inventory. In the modern fast-paced world, not all customers are willing to wait for weeks or months to customize their own car. Thus, working with local dealerships can not only help Tesla get rid of used cars, but they can also help Tesla store and sell additional inventory cars.