A Crisis Catalyst

A Crisis Catalyst

Yet again, Tesla proves that a simple but agile strategy shift can turn a crisis on its head – leading to a winning move not foreseen when the going was easy

For agile organisations, a crisis is at times a catalyst for change. As automobile manufacturers from Daimler Benz, BMW to Ford, GM or Toyota, hit with semiconductor shortages and global supply chain disruptions, had to pull the handbrakes on assembly lines, US electric automaker, Tesla emerged a winner. The company accelerated to a milestone US$11.9 billion in revenue in the recently concluded quarter, including US$1.1 billion in profit. The key takeaway from this is that Tesla not only reconfigured the supply chain game, but it also literally rewrote the codes in critical chips used in its vehicles, insourced the production of those vital components, and drove out of the crisis as a victor.

Simple but different

Tesla’s maverick founder, Elon Musk, described the strategy with his signature simplicity that marks the underlying idea behind every innovation from his numerous ventures, saying:“We were able to substitute alternative chips, and then write the firmware in a matter of weeks… it’s not just a matter of swapping out a chip; you also have to rewrite the software.”

Tesla relies on chips to power everything from its airbags to the modules that control the vehicles’ seatbelts. The company’s engineering teams worked hard and smart at designing, developing, and validating 19 new variants of controllers in response to the ongoing semiconductor shortage.

Lowe, the American retail company specialising in home improvement, also executed a remarkable strategy to ride out the supply chain disruption that is threatening global economic recovery. It runs nearly 2,000 home improvement stores in North America. They delivered new omnichannel customer services: kerbside pick-up as well as store-locker pick-up – and 60% of online orders were fulfilled through stores six times faster than their previous service-level-agreement.

The Lowe team also re-engineered their hub-and-spoke distribution model to allow for capabilities such as next-day delivery of appliance orders through fulfilment centres, which is faster and more efficient than its brick-and-mortar store network. New technologies underpinned most of the new capabilities such as improved end-to-end inventory visibility and geo-fencing in stores to recognise when customers arrive to pick up online orders.

Rethinking the supply chain

Analyst firm, Gartner in a report on how companies are pivoting their supply chain strategies writes, “some high-tech and apparel retailers are leveraging micro-hubs for faster fulfilment to large population centres. Placing stock in smaller storage spaces, closer to the final point of consumption, allows for greater delivery speed. Risk of slow-moving and obsolete (SLOB) inventory is offset by more sophisticated demand sensing and inventory planning capabilities.”

As the pandemic accelerated digital transformation, the supply chain disruption has made organisations adopt data-driven-decision making as a strategic imperative for creating competitive advantage. Schneider Electric has developed a supply chain data platform as part of its end-to-end control tower transformation, which integrates its internal data with data from partner ecosystems. Multiple echelons of key suppliers, 3PLs and vendors, along with all factories and distribution centres, share their data in near-real-time. This way, Schneider Electric gets full visibility of the end-to-end supply chain, allowing the company to be more agile.

Some companies are leveraging their industry leadership to create an ecosystem of suppliers that prioritizes deliveries to them. Tesla, for instance, is seen as the future of automobiles, and its suppliers are keen to favour it at times of scarcity. Despite Tesla’s smaller scale compared to GM and Ford, suppliers see Tesla as a strategic customer, and therefore more likely to work towards reducing bottlenecks.

Without violating contractual obligations, sales leaders should stratify customers that require fulfilment.  Even a simple ranking of critical, high, medium, and low helps the supply chain and delivery team focus inventory and attention strategically.  Sellers will appreciate this work as they will be able to reduce the uncertainty within customer communications.

Think quick, think next

Morgan Stanley credits Tesla’s sophistication and innovation and the ability to do this at speed. Having created its own AI chips to power its self-driving efforts, it is not only au fait with chip manufacturing but is also a competitor to its own suppliers. “Tesla’s ability to further in-source technology keeps suppliers on their toes,” the analysts said.

Data-driven-decision process has become a priority for automobile companies which have been hit hard during this supply chain crisis. However, the bigger challenge is that the industry itself is in the midst of a huge transformation – from internal combustion engines to electric vehicles (EVs).  Automakers and suppliers are preparing for a future portfolio rich with EVs. And while global sales of EVs are forecast to total 13 million units in 2025 (up from 2.7 million units in 2020), the internal-combustion engine is not going away.

For decades to come, auto manufacturers will have to manage a supply chain that supports production of vehicles powered by internal combustion and batteries, at a combined global scale of about 95 million units a year. It won’t be easy to manage this transition as EV supply chain is significantly different from their traditional internal combustion supply chains. For some time to come, manufacturers will have to straddle both worlds, it will demand agility of the highest order to keep the wheels running. Watch this space.

A Crisis Catalyst

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