Challenges Tesla is Facing in Its Supply Chain Management
Tesla is a company that aims to create a zero-emission future by providing all-electric vehicles as well as “infinitely scalable clean energy generation and storage products”. Below lists a summary of the issues presented in the article written by Vibhuti Sharma (2018), “Tesla cuts number of standard color options in bid to simplify production”, which was published by the Globe and Mail on September 11, 2018:1. Tesla has decided to streamline production by reducing the color options on their Model 3 sedans after failing to meet production deadlines. Changes to pricing and available options are made to Tesla’s products to best reflect product value. The recent controversies surrounding Tesla’s CEO Elon Musk has caused investors to call for a runner-up to be appointed in his place due to a drop in share prices
Analysis of the Issues
Tesla is facing a problem with efficiency and effectiveness, a concept which falls under the contextual dimensions of organizations. Efficiency is defined as the “amount of resources used to achieve the organization’s goals [and]… is based on the quantity of raw materials, money, and employees necessary to produce a given level of output”. Since the company has failed to meet several production target deadlines, it shows that their processes are inefficient, which is what lead to the decision of reducing color options on the Model 3 to increase effectiveness. Effectiveness refers to how well an organization can achieve their goals. The concept of contextual dimension applies to this issue since Tesla has adjusted their strategy in order to meet their goals to better provide outcomes and value. Their approach to a new strategy of streamlining production shows that they are taking the steps to improve their processes.
Competitive advantage refers to how an organization differentiates themselves from other others in a marketplace and relates to the issue of changes in pricing and production decisions. It can be achieved by either differentiation, low-cost leadership, or focus strategies. Currently, Tesla maintains a competitive advantage by providing product differentiation in their vehicles. However, their Model 3 sedan is a lower cost alternative to their other models, meaning this model holds an advantage by using a focused low-cost leadership strategy. Though the decision to reduce color options this does not change their differentiation strategy, Tesla aims to maintain their competitive advantage by adjusting their approach to the production of Model 3 by reducing production burdens. The concept of competitive advantage is correctly being applied to this issue since Tesla reinforces their strategy to meet their goal of making the lower-cost Model 3 cars available to customers.
Along the same topic of organizational effectiveness and efficiency, managers must “carefully balance the needs and interests of various stakeholders in setting goals and striving for effectiveness” which is referred to as the stakeholder approach. The article discusses the controversial behaviors of Elon Musk which has led to the dissatisfaction of stakeholders of the company. Similarly, the fall in share prices which is indicative of Tesla’s inability to reach their goals has also added to their heightened worries over the company’s well-being. The dissatisfaction from stakeholders shows that Tesla is neglecting to satisfy their interests meaning the stakeholder approach is incorrectly being applied to this issue.
Other Relevant Concepts
Porter’s Five Forces Although not discussed in this particular article, another concept that could be relevant to Tesla is Porter’s Five Forces model. Specifically looking at the threat of new entrants, several organizations are beginning to see the opportunity to profit from producing fully-electric vehicles and have started to introduce their own versions of similar cars. Such companies include Nissan, BMW, Volkswagen, and Byton. The Model 3, which is “designed to broaden the company's customer base beyond the luxury segment” will be the least expensive model for Tesla and expands into a different customer segment in which competitors will have to match with a version of their own. So far, models such as the Nissan Leaf, BMW Mini E, and Volkswagen I.D. are in the works and will prove to be worthy competitors to the Model 3. In the coming years, the emergence of new electric vehicles may call for the company to formulate a new strategy in order to maintain a competitive advantage. Michael E. Porter has proposed that organizations are “more profitable and less vulnerable if they understand five forces in the industry environment”.
Miles and Snow’s Strategy Typology
Another Organization Theory concept that could apply to Tesla is Mile’s and Snow’s typology. The strategy that Tesla has adopted is the prospector strategy, which means they strive to “innovate, take risks, seek out new opportunities, and grow”. Tesla’s mission is to create a sustainable future that sees zero-emissions and they hope to achieve this through the use of innovative, cutting-edge technology to create products. An example of the use of the prospector strategy is the production of the Model 3. The company has taken a risk by creating this as their first mass-market vehicle in hope of expanding to a broader consumer base. So far, this decision has “put a strain on Tesla's finances”, but Musk is optimistic that profits will increase in the coming year.
