Operations Management: A Case Study of Tesla Inc.

This case study examines the operations management strategies employed by Tesla Inc., a leading electric vehicle manufacturer. It explores key aspects such as capacity management, inventory management, supply chain management, and the application of lean principles. The study also analyzes Tesla's commitment to corporate social responsibility and its efforts to mitigate environmental impact. Through a detailed analysis of Tesla's operational practices, the study provides insights into the challenges and opportunities faced by companies in the automotive industry.

OPERATIONS MANAGEMENT

CONTENTS
INTRODUCTION................................................................................................................................2
TESLA INC. OVERVIEW.....................................................................................................................3
CUSTOMERS AND EXPECTATIONS...................................................................................................4
OBJECTIVES OF OPERATIONS MANAGEMENT.................................................................................5
ADOPTED OPERATIONAL METHODS AND STRATEGIES...................................................................6
CAPACITY MANAGEMENT............................................................................................................6
INVENTORY MANAGEMENT........................................................................................................7
SUPPLY CHAIN MANAGEMENT....................................................................................................8
THEORY OF CONSTRAINTS...........................................................................................................9
LEAN SYNCHRONISATION............................................................................................................9
OPERATIONS AND CORPORATE SOCIAL RESPONSIBILITY..............................................................13
RECOMMENDATIONS....................................................................................................................16
CONCLUSION.................................................................................................................................17
REFERENCES...................................................................................................................................18
1

LIST OF FIGURES
Figure 1: Tesla Stores and Supercharger Stations in the UK...........................................................7
Figure 2: River-Rock Analogy.........................................................................................................11
Figure 3: Corporate Social Responsibility......................................................................................14
Figure 5: Risk Management in CSR................................................................................................15
2

INTRODUCTION
Operations management is a management area that deals with the designing and supervision
of the production process in any organization. Since every company in the market produce
either service or products for their customers, it is essential for them to minimise the
investment in the production in order to maintain their profit margin. With time, operations
management has witnessed several changes in how the company implements it; technological
advancement has changed the entire process (Holweg, et al. 2018). The following assignment
will provide a descriptive information regarding the aspects of operations management and
how organizations like Tesla Inc. adopts operational methods and strategies to ensure that
customers are getting exactly what they require.
3

TESLA INC. OVERVIEW
Tesla Inc. is well-known for its leap in the electric automobile industry and its motive i.e. ‘to rely
on sustainable energy resources as soon as possible’. Founded in the year 2003 in Palo Alto, CA,
the vision of the company remained the same. They gained the attention of the world after
competing and beating several supercars and companies like Mercedes, Ford etc. with an
electric car (Kalinauckas, 2018). Currently, the company rely on three segments, automotive,
storage segments and energy generation (CNN Money, 2018).
The automotive segment involves designing, manufacturing and selling of electric cars like
Models S; energy generation involves distributing sustainable electricity made by solar cells to
their customers; and storage segment involves designing and producing efficient batteries such
as Power-Wall that has the potential to replace traditional investors (CNN Money, 2018). Apart
from this, the company also provide vehicle service centres and supercharging stations. After
building the reputation in the automobile market, Tesla is focusing on mass-producing the
electric car ‘Model-3’, which indeed will require proper implementation of the operation’s
management (Tesla, 2018). Since it world’s 1st mass-produced electric vehicles, the company is
currently facing several issues while managing the operation and synchronising with the time
(Tesla, 2010). Focussing on the automobile segment, the following assignment will deal with
the operation management methods applied by the company.
4

CUSTOMERS AND EXPECTATIONS
Tesla Inc. operates in over 28 countries with a wide range of potential customers; in the past,
the company has sold luxuries and expansive electric vehicles (EV) such as Roadster; however,
after the initiation of the mass production of Model-3, their target segment has widened. With
the increased prices of non-sustainable fuels, consumers are exploring new areas that can
provide them at a lower cost per mile. According to a study, 50.6% of buyers are between 45-64
years old and 83.9% are males; additionally, previous models target buyers with an average
income of above $ 100,000. However, with the launch of Model 3, target customers are with an
average income of $50,000- $90,000 (Zucchi, 2018).
As customers are becoming more aware of the environmental change and limited fossil fuels,
the market of EV have a chance to bloom. However, with traditional cars in the market,
customers have several expectations, of which the major is meeting the qualities of traditional
cars. Traditional cars provide space and design at considerably low investment cost, moreover,
it is a proven and tested product. On the other hand, EV has yet to prove its efficiency of the
average customer segment (Zucchi, 2018).
Expectations of customers include:
 Recharging stations must be accessible at all times and in all region of the country
 Recharging time must be as short as refuelling time
 Vehicle service centre must be accessible and affordable
 The price range of EV must match the traditional car’s price range (LeBeau, 2017)
 Car’s design must be able to compete with other luxuries cars
 Speed and mileage of car must be close or better than traditional cars
5

OBJECTIVES OF OPERATIONS MANAGEMENT
While mass-producing the EV, and fulfilling the expectations of the consumer, there are several
factors that have to be considered by the company in order to gain profit and fulfil its vision.
Objectives of Tesla Inc. can be filtered down as follows:
 The initial issue regarding mass production is the establishing a production factory
capable of relying on self-produced energy
 Designing and upgrading the EV as per the requirement of customers (TESLA MOTORS,
2018)
 Fulfilling the requirement of efficient batteries for the vehicles, this can be outsourced
or internally build
 Finding and hiring talented staffs, capable of working under pressure; meeting deadlines
of delivery
 EV’s efficiency must match traditional cars
 Lastly, establishing supercharging stations nationwide, with the capability of charging in
minimum time (TESLA MOTORS, 2018)
6

ADOPTED OPERATIONAL METHODS AND STRATEGIES
In order to meet the objectives and stay in the competitive market, Tesla requires to adopt
different operational methods and strategies to create high demand and fulfil those demand on
time. following are some factors that are used by the company for effective operational control.
CAPACITY MANAGEMENT
It refers to balancing the demand and capacity of the raw and finished material in order to save
space, resources and capital. Access to materials will result in extra storage for Tesla, whereas,
lower availability of material may slow down the production process. These can further be
classified in following sub-groups (Slack, et al. 2013):
SERVICE CAPACITY MANAGEMENT
Figure 1: Tesla Stores and Supercharger Stations in the UK
[Source: Tesla, 2018]
Apart from car manufacturing and selling, Tesla have responsibilities of providing services
associated with the product, which includes supercharging stations, vehicles service centre. To
enhance customer satisfaction, Tesla provides free charging facility to Tesla customers. Station
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installation must match the requirement of customers since it is essential for customers to
charge cars after purchasing (Tesla, 2018).
COMPONENT CAPACITY MANAGEMENT
This refers to balancing and maintaining the quality of components used while making a
product (Slack, et al. 2013). With more than 160 specialist robots and having control over
numerous suppliers, the company ensures that the component quality and demand is balanced
at all time.
BUSINESS CAPACITY MANAGEMENT
This refers to utilizing the IT resources and technologies with a future point of view, i.e.
technologies while production must enhance and support current and future production. Thus,
the production factory must be sustainable; ‘Gigafactory’, mass production factory of Tesla is
designed to produce 500,000 Tesla cars until 2020, while totally depending on the sustainable
source of energy (Henshall, 2018).
CAPACITY MANAGEMENT REPORTING
This involves all the essential data regarding the exchanges of products/services and transaction
of capital; this helps Tesla Inc. to monitor and control excess unnecessary expenses. For
instance, instead of outsourcing power batteries for the cars, the company is mass producing
them with the help of Panasonic, this gives them control over the expenses and quality.
INVENTORY MANAGEMENT
It refers to an accumulation of different material during the production of the product, such as
raw components, semi-finished and finished products. Managing and Storing such components
is referred to inventory management (Slack, et al. 2013). Majority of components while forming
a car is outsourced, and are assembled in the Gigafactory. Tesla provides EV-cars on demand,
thus purchase and store products based on the requirements, which saves them significant
capital and resources; however, this also means that they require significant time for producing
cars, thus customers have to wait. Simplifying the production line process and working in a
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double shift with reduced temporary staffs is the current technique used by the Tesla for
inventory management.
Gigafactory is built to produce over 500,000 cars every year, thus the company has built the
production system to handle future needs and reduce the capital required for extra space.
Gigafactory consists of several distributed machines spread across the production lines rather
than a singular unit, this increases the processing (Henshall, 2018).
SUPPLY CHAIN MANAGEMENT
Supply chain refers to the entire process of providing products to the desired customers;
handling this process is termed as supply chain management. For a product and service based
company like Tesla, it is essential for them to cut down additional costs spend while supplying
products. Thus, unlike other car manufacturers, Tesla used an innovative approach, by
analysing the market, they realised online booking is the upcoming trend through which their
customers can order their products. At the same time, Tesla stores were opened in crowd areas
to attract and educate customers regarding the need of EV. This step eliminated the third party
for delivering products and directly saved significant amount during supply chain (Slack, et al.
2013).
Effective supply chain management used by Tesla benefits them in several ways such as their
inventory management is simplified, high-efficiency rates are achieved since there is a large
demand of Model-3, the profit also increases. With smooth supply chain flow, Gigafactory is
used at the optimum potential that enhances the cooperation level from suppliers. Further, it
also reduces the overhead expenses and helps in predicting the market demand. Additionally,
with a smooth flow in the supply chain, products are delivered on time that increases brand
value and customer satisfaction. This is necessary for Tesla to enhance their supply chain since
it includes a waiting period of minimum 6 months after booking a Tesla model (Tesla, 2018).
THEORY OF CONSTRAINTS
This theory involves determining the weakest link in the process and focusing on its
improvement or elimination. It is implemented in Tesla through a five-step process that is:
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 Identification of system constraints refers to identifying the weakest link of the process,
which may be either physical or any policy/decisions. For instance, Tesla found that their
weakest link is producing effective battery packs for their cars in limited time.
 The decision of exploiting the constraints refers to eliminating the unchangeable factor
or reducing its weaknesses without expending much capital (Slack, et al. 2013).
 Subordinating everything to the constraints, refers to the adjusting the non-constraint
elements to maximise the effectiveness, later, evaluation is done to check the weak link.
 Elevate the constraint refers to eliminating the weak link from the process; this is used
only if the above two steps result in failure and require major changes in the process.
 Once the weakness in controlled or eliminated, the entire process is repeated to find
another weak link.
As Tesla is the 1st mass-producer of EV, there are several challenges regarding the effectiveness
of batteries, performance test, designing of cars etc., which contains several weak links that
require consideration. Thus, Tesla implements the theory of constraints on a regular basis to
eliminate and control the weakling in the process (Slack, et al. 2013).
LEAN SYNCHRONISATION
This refers to providing products based on the requirement of customers in exact time,
necessity, and cost. Tesla continuously improvises its operational techniques according to the
requirement in order to attain maximum efficiency in terms of production and supply. Here the
waste is eliminated and values are added in the process, for instance, Tesla has reduced the
temporary staffs in the Gigafactory, thus eliminating the waste and started working in two
shifts, thus adding value to the process (Slack, et al. 2013).
JUST IN TIME
This involves determining the demand for products in the market and arranging the material for
storage accordingly. Tesla provides it cars on-demand, i.e. for purchasing customers require to
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book through online of nearest Tesla outlet before 6-9 months. This helps the company to
balance the storage of raw and finished materials (Slack, et al. 2013).
RIVER-ROCK ANALOGY
Figure 2: River-Rock Analogy
[Source: Harrison, 2013]
It explains the necessity of lean synchronisation in the process; according to this, there exist
several issues during the production process, such as lower supply quantity, downtime, rework,
large scrap while production, technical faults etc. These issues are hidden below the inventory
level and have the potential to affect it. As the inventory is reduced, these issues in the process
start affecting the entire production flow. Thus, it is essential to eliminate the waste from the
process and introduce valuable factors (Harrison, 2013).
TYPE OF WASTES
Inventory
Excess of inventory storage results in high capital and resource requirement and reduces the
space available for production; this reduces the production speed. By managing inventory at
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Tesla, they can ensure effective utilization of resources is done and products are delivered on
time.
Waiting
Tesla depends on several suppliers for the for car component, and Gigafactory works in 2 shifts
to maximise its production; however, delay of ray material from either supplier or sections of
staffs affects the entire process. This delay can be due to improper communication or any other
factor. To minimize this, most components are manufactured in the same premises to minimise
the waiting period (Slack, et al. 2013).
Motion
Increased movement in assembly line maximises the production of the cars, thus for the
effective assembly line, it is required that workers get all the necessary equipment with
minimum movement. With over 160 specialist robots installed in the Gigafactory, Tesla has
improved the efficiency of the production line and minimised the human interaction for
complex tasks.
Transportation
Transportation of products requires large capital and resource requirement, and this also
increases the chances of damage to products. thus it is required that the production factory
must be located near the supply centres. Tesla distributes their products based on the
requirements thus avoid any extra transportation and saves capital through this.
Overproduction
This waste occurs when the company manufactures more than a market requirement, which
not only results in a waste of capital but also occupies the inventory space and supply chain.
Tesla has eliminated this issue by providing products through on-demand basis (Slack, et al.
2013).
Inappropriate Processing
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Using complex machinery for the simplest job is another factor that acts as waste and reduces
the producing efficiency. Additionally, such machinery also requires large installation space;
specialist robots installed at Gigafactory are a part of well thought and planned structure,
placed by proper analysis to avoid such waste.
Defects
Tesla manufactures several components installed in the car under the same roof at Gigafactory;
while production items may get defected and end up in scraps which increases waste and result
in a loss in terms of capital. However, the company follows six sigma criteria on a strict basis
that minimizes the defect in the material per million (6sigma, 2018).
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OPERATIONS AND CORPORATE SOCIAL RESPONSIBILITY
The company that depicts its sense of care and responsibility towards its community, economic
growth, and environment considers corporate Social Responsibility (CSR) as self-made policies.
Tesla in many senses has implemented policies that are made for the betterment of its
stakeholders and wider community. Reducing waste, mitigating natural environmental losses
etc. are some factors that are considered to successfully implement CSR (Schwartz, 2017).
Figure 3: Corporate Social Responsibility
[Source: Castillo, 2015]
RISK MANAGEMENT APPLIED TO CSR
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In order to implement and improve the CSR practices done by Tesla, they require to
continuously analyse their actions and compare it with ethical practice policies. The company
already uses sustainable energy for the production and provides products that are
environmentally friendly. However, for EV, major concern today is its market price, due to
which customers are unable to buy Tesla's products on a larger basis. This factor is involved in
the CSR of Tesla since its single vision is to provide EV to masses as soon as possible. This risk
has to be reduced in order to maintain social responsibility; in this context, CSR risk
management of Tesla is described:
Figure 4: Risk Management in CSR
[Source: Author]
 The target area is selected to determine the wrong factors according to ethical
practices. For instance in the case of Tesla, though, the company provides an eco-
friendly alternative of transportation, however, its increased cost is a major factor that
acts as a barrier to its ethical practices (Reinlie, 2017).
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CSR RISK
MANAGEMENT
TARGET
SELECTION
SELF-
ASSESSMENT
CSR
CONSULTING
AUDIT
THIRD-PARTY
AUDIT
PROGRESS
MONITORING
REVIEW

 Second, self-assessment is done in which the company’s managers and leaders analysis
the factor that causes this unethical practice and how it can be controlled (Castillo,
2015).
 CSR consulting audit is approached that analysis all the aspects regarding the high cost
of car manufacturing and how it can be reduced; simultaneously they also analyse the
factors that affect the natural environment. For instance, the while manufacturing the
Tesla cars, batteries are a most expensive part that affects the buyer's decision making.
Additionally, waste while manufacturing batteries are a major concern for the natural
environment (Schwartz, 2017)
 The third party is approached, once CSR consulting audit reports are ready, this helps
the company to cross-check the issues that are mentioned before and provide them
with a wider angle to explore in order to reduce the concerned issue. Based on the
report that batteries are the major factor of Tesla and supplying it from other company
increases its cost; thus, the company decided to manufacture their own batteries
incorporation with Panasonic, so that wider segment can afford EV. Additionally, the
CSR rating of Tesla by CSR hub is 46 (CSR HUB, 2018).
 The top management monitors progress and implementations of recommendations are
explored.
 The review is done to determine any other factor that acts as a hurdle for the increased
cost, once determined, the process is repeated from the initial level.
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RECOMMENDATIONS
The automobile industry is a red ocean market and over the years, Tesla has managed to not
only enter the market but also established as a well-known brand worldwide. By establishing
Gigafactory and mass-producing electric vehicle, it has become the 1st company to do so. The
operational objective of Tesla is to provide a sustainable product to the masses as soon as
possible, thus has established a setup that will be capable of producing 500,000 EV per year
until 2020. By successfully fusing the technological assets and customer’s requirements, the
company has succeeded in establishing a sustainable production house that runs on solar and
wind energy (Henshall, 2018).
By implementing different operational management techniques that are mentioned above the
company has become a leading organization in the market in terms of the electric vehicle;
however, there are following aspects that can be considered to enhance their operational
management:
 The service capacity management can be enhanced by decreasing the charging time of
the cars; currently for 170 miles it requires 30 minutes; however, with battery replacing
technology, this time can be reduced to 2-3 minutes, as stated by a report of Tesla
(Tesla, 2018).
 The inventory management can be improved by conducting market research regarding
the requirement of products. getting clear values of product requirement will ease up
the inventory management and production process (Slack, et al. 2013)
 The company has already simplified the supply chain management by eliminating the
third party dealer; establishing Tesla stores in more public areas can enhance this.
 Tesla’s operations are already set up by considering the environmental condition; the
company is built on saving the environment by switching to sustainable energy. This can
be enhanced by collaborating on larger scales with other automobile organizations to
boost up the production of EV and form a new market for an automobile.
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CONCLUSION
Operations Management as mentioned above is one crucial aspect of organizations like Tesla
since its effectiveness determines the profit and position of the company in the market. From
analysing the techniques and methods of operations management used by Tesla there are
several conclusions that can be made. Initially, from its vision and objectives, it is clear that
Tesla is built based on reducing the consumption of non-sustainable source of energy by
providing environment-friendly alternatives to customers.
By analysing the operations, methods and strategies that are adopted while the production of
Tesla cars, it can be concluded that different management methods are implemented at its
‘Gigafactory’ to make the production sustainable. The company has succeeded in implementing
the use of sustainable management by powering the production area only through solar and
wind energy (Henshall, 2018). The supply chain management is improved comparatively from
other automobile industries by applying an on-demand feature that helps them in reducing the
cost of inventory storage.
Weak links and unproductive elements are determined, controlled or eliminated by
successfully applying ‘Theory of Constraints’ and ‘Lean Synchronisation’. Since Tesla sells a
product based on its eco-friendly features the company is successfully following the corporate
social responsibility policy. However, there are several aspects that require consideration and
can be improved that is discussed in the recommendation section.
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