Consistently making headline news, the automotive company Tesla is radically altering the industry’s supply chain landscape. While Tesla has been quick to announce its ambitious goals, its supply chain constantly falls short of these aspirations.
Nonetheless, it has popularised electric and hybrid electric cars. Subsequently, many established organisations are making forays into the manufacture of electric and hybrid vehicles. Like Tesla, these companies are also introducing artificial intelligence in their vehicles. Far ahead with its high-tech software, Tesla cars receive updates over the air in the same way that an Apple device automatically implements updates.
Even with all this technology at its disposal, the automaker is renowned for missing deadlines and delivering vehicles with flaws. Tesla still has to make a profit since its inception.
Experts believe that the problem lies with the supply chain and, of course, the company’s finances. While Tesla’s successes are disrupting the auto manufacturing industry, its failings highlight the importance of a stable supply chain.
Tesla and the supply chain
Last autumn, Tesla was facing serious supplier issues. As a result, it was unable to meet its production goals in the third quarter of 2017 for its Model 3 automobile. As such, the automaker was forced to redesign a vital component in the vehicle.
Tesla CEO Elon Musk tried to allay investors by assuring them that it would manufacture 5,000 Model 3s each week by the end of the second quarter in 2018.
The company continues to face procurement issues for two critical issues:
- It does not have adequate funding
- The company’s supply chain is still developing, and Tesla has struggled to create relationships with suppliers, unlike the well-established auto manufacturers
Tesla depends on single source suppliers. As a result, if there are delays from the supplier’s end, it has a negative impact on production. Furthermore, the company does not maintain long-term contracts with suppliers which also hampers procurement. The company is looking to upscale its production, but due to funding woes, it is unwilling to pay upfront costs until the vehicles sell. However, suppliers are not ready to wait that long for payment, causing a further problem in the supply chain.
Once Tesla manages to untangle these issues in its supply chain, it will become a force to reckon with in the auto manufacturing sector. At the moment, however, it is still hampered by these relatively basic issues.
Its own enemy
Tesla’s supply chain issues offer clear examples of how an automaker’s success can be inhibited by its own procurement practices. An automaker’s relationship with its suppliers is critical to its success, and procurement professionals in the industry should use Tesla’s struggle as an example. The most crucial takeaway for any organisations is to always ensure an effective and efficient supply chain so that your production and progression is never constrained.
Steve has over 28 years of success as CPO, MD and Procurement BPO leader in a range of industries. Steve is COO at Odesma, responsible for Odesma’s delivery capability & infrastructure.