Week 10 Production Process with Tesla Case PDF

1 WEEK 10 PRODUCTION PROCESS IN GLOBAL SCM – CASE OF TESLA Approaches to product process Approaches to fullfillment of orders 5Vs Mass customization TESLA case study  2 Approaches to pro...

1 WEEK 10 PRODUCTION PROCESS IN GLOBAL SCM – CASE OF TESLA Approaches to product process Approaches to fullfillment of orders 5Vs Mass customization TESLA case study  2 Approaches to product process – how to produce? Continuous Process A process that operates on a basis of continuous flow without interruption Difficult to differentiate the product Low cost becomes the “order winner” in very price-sensitive markets. Highly standardized, automated, operate at capacity, and minimal inventories and high volume of production E.g., an oil refinery consists of miles of pipes, tanks, and distillation columns through which crude oil is pumped and refined into gasoline, diesel, oil, lubricants, and many other products.  3 Approaches to product process – how to produce? Assembly Line Linear sequence of operations. The product moves from one step to the next in a sequential manner usually by a conveyor system. Difficult to make changes in the product itself or the volume of flow, resulting in inflexibility of operations. e.g, It takes several weeks to change an automobile assembly line to a new model. It generally requires large amounts of capital investment and must have high volume to justify the investment. E.g., A modern plant makes semiconductor wafers costs over $2 billion in initial investment, and an automobile assembly plant costs about $1 billion. It makes discrete products such as automobiles, refrigerators, computers, printers, and a vast array of mass-produced consumer products.  4 Approaches to product process – how to produce? Batch process Manufacturing in batches or lots (the quantity in a single production run) that flow (travel) as a unit (set) from one work center to another * A work center is a group of similar machines or processes. Each of these products can have a different flow path, and some products actually skip certain work centers making the flow jumbled and intermittent. It often uses general-purpose equipment that is not specialized to make just one particular product. Labor is more skilled and flexible in its ability to make different products.  5 Approaches to product process – how to produce? Bracket A requires work in all four work centers Bracket B requires cutting, bending, and painting Bracket C requires cutting, drilling, and painting Each of these products can have a different flow path, and some products actually skip certain work centers. As a result, the flow is jumbled and intermittent  6 Approaches to product process – how to produce? Job Shop A special case of the batch process The product is made in batches, usually in small lot sizes, but the product must be made to customized order. A job shop uses general-purpose equipment and has a jumbled flow. It has high flexibility for product mix and volume of production, but the costs are generally higher since the volume and standardization are low. Many types of made-to-order products are manufactured with job shop (e.g., plastic parts, machine components, sheet metal parts, custom signs, artificial limbs, etc.) https://www.aerospacemanufacturinganddesign.com/article/growing-pdq/  7 Approaches to product process – how to produce? Project Used for unique or creative single products. Materials and labor are brought to the project site and the project itself is stationary. Difficult planning and scheduling problems are common so difficult to automate. Labor must be highly skilled with the unique nature of the product or service being made. Projects are used when the customer desires customization and uniqueness. Examples Construction of buildings, buildings, roads, and dams, and production of large aircraft, concerts  8 Approaches to order fulfillment – when to produce Make-to-Stock (MTS) Goods are made and stored before customer orders are received based on the anticipated consumer demand MTS process has a standard product line specified by the producer, not by the customer. This is building products for inventory and the jobs in process are not identified for any particular customer. Advantage Faster fulfillment of customer demand / low cost of production Disadvantage Inventory holding costs / slower to respond to changes in customer preferences  9 Approaches to order fulfillment – when to produce Performance Measures Service level (orders filled when requested) Inventory replenishment time Inventory turnover Capacity utilization Time to fill back order Shrinkage rate Forecast Customer orders Customer Product order Finished goods Product Production inventory  10 Approaches to order fulfillment – when to produce MTS means ‘the push strategy’ It involves building products and stockpiling products in advance of actual customer orders based on the forecast of anticipated customer demand. This strategy thus, ‘pushes’ the product to the end user or customer through sales promotions and other incentives. This strategy relies heavily on the long term forecast of customer demand, it does not reflect the actual input from the marketplace and therefore can be error prone. Push means make all we can just in case make to stock (MTS) It often fails to meet changing demand patterns of customers in volatile business environments and subsequently tends to build up unwanted inventory.  11 Approaches to order fulfillment – when to produce Make-to-Order (MTO) Start production after customer orders As each order is made to the customer’s specification, each job in the process is associated with a particular customer No finished goods inventory Advantage Higher flexibility to customize order / no finished goods inventory costs Disadvantage Intermittent production (i.e., lumpy demand pattern), slower response to customer demand with a large volume  12 Approaches to order fulfillment – when to produce MTO Performance Measures Lead time - the lengths of time it takes to design, make, and deliver the product Orders completed on time (%) Customer request date Promise date Customer Customer order Product Production  13 Approaches to order fulfillment – when to produce MTO means a pull strategy A demand driven strategy that determines the production, distribution, and service delivery schedules based on the actual customer demand. Pull means make what is needed when we need it make to order (MTO) This strategy makes and distributes what is “pulled” from the end user or customer at the rate of his or her true demand requirements. This strategy can better adapt to changes in customer tastes, preferences, and expectations without producing and distributing what is not wanted by the customer.  14 Approaches to order fulfillment Assemble-to-order (ATO) A hybrid of MTO and MTS The subassemblies are made-to-stock, but the final assembly is made-to-order. The ATO process builds subassemblies in advance of demand. When the customer order is received, the subassemblies are taken from inventory and assembled together to fill the customer order. The product must be designed in a modular fashion for ATO to be used. e.g., Subway Advantage Less finished goods inventory, faster fulfillment of customer order Disadvantage Work-in-process inventory  15 Process selection decisions Process Characteristics Matrix Make-to-Order/ Types Make-to-Stock Assemble-to-Order Automobile assembly Continuous Automobile assembly Laptop computers (e.g., Dell) & Oil refining Electronic components Assembly Line Cannery Fast food Machine shop Machine shop Batch Wine Restaurant & Glassware factory Hospital Job Shop Costume jewelry Custom jewelry Speculation homes Buildings Project Commercial paintings Movies Noncommissioned art Ships  16 Product & process strategy  17 Five Vs The victory model Michael Porter argues that a company can increase its competitive advantage by developing a value creating or value adding strategy. Such a strategy often builds on the company’s distinctive competencies, including its innovation capability. Supply chain principles can be viewed as an innovative way of doing business, the company may leverage supply chain excellence to improve its competitive advantage by having: The manipulation of the company’s production/purchasing/sales volume The adjustment of the company’s product/service velocity The control of the company’s product/service variability  18 Five Vs To elaborate, A company’s increased production volume creates economies of scale and thus reduces its product’s unit price, which in turn increases customer value due to a lower priced product for the customer. Also, if the company can shorten its customer response time by reducing its lead time, its customer service will be improved and therefore its customer value will be enhanced If the company diversifies its product lines and increases its customization options, it will give more choices to its customers and thus increase customer value However, The simultaneous increase in volume, velocity, and variability is nearly impossible due to the conflicting nature of volume, velocity, and variability.  19 Five Vs Because The company’s volume production takes more time and therefore reduces its velocity. Increased variability will undermine the company’s strategy of mass production and fast customer response due to the additional time needed for customization and differentiation. So, volume is inversely related to velocity, whereas variability is inversely related to volume & velocity. Variability can hurt visibility because diversified product/service offerings tend to make demand forecasts more difficult. A large amount of buffer inventory, can reduce visibility Increased velocity, such as faster production runs and quick deliveries, reduces the forecasting time horizon and thus increases visibility.  20 Five Vs Considering this complex dynamics involving volume, velocity, variability, and visibility, the company should factor all these into its strategic decision and development of the supply chain framework. Variability Volume Victory Value in the market Velocity Visibility  21 Five Vs Why not compete all dimensions (any other reasons)? Successful companies understand that they cannot effectively compete on all dimensions, as they cannot be all things to all people The companies that succeed are those that understand which dimensions to excel on and are able to focus their energies on those dimensions This does not mean that a company will have poor performance on the other dimensions. In fact, companies have to continually trade off one competitive dimension for another Process strategy is a dynamic rather than a static process. As such, strategies change over time and supply chains must adapt accordingly  22 Mass customization Mass customization A strategy to provide custom products in lot sizes of one in high volume Traditional mass production is built on economies of scale by means of a high-volume standardized product with few options, with the lower the average unit cost By contrast, mass customization depends on variabiltiy of scope—that is, a high variety of products from a single process. It also reduces the average unit cost due to production of several products by the same process Customization refers to making a different product for each customer.  23 Mass customization components 1. Modular production and assemble-to-order (ATO) Modular (subassemblies) production can provide a variety of options by using an assemble-to-order process. For example, Dell receives a computer order by phone or over the Internet, the company assembles standard modules or components rapidly to meet the customer’s order. The order is then shipped by overnight mail so that the customer receives it in as little as five days. This requires modular design, as well as modular production. Dell also uses the same process to make standard computers for stock and shipment to retail stores  24 Mass customization components 2. Fast changeover Production is digitally controlled and each order is uniquely identified by a bar code, or other identifier, that specifies the customer’s options. Nearly zero changeover time on equipment so that a lot size of one can be produced economically 3. Postponement of options. Postponement is used to defer a portion of the production until the point of delivery. For example T-shirt shops can put a unique design on a customer’s T-shirt at the point of purchase. Postponement makes it possible to ship standard units anywhere in the world and customize them at the last minute  25 Mass customization components A company delays some supply chaina ctivities such as assembly, packaging, labeling, and painting until true customer demand is revealed, while building products in semi-finished forms (generic, grey pruoducts) based on the projection of their future demand. Once actual orders come in, these semi finished products will be customized immediately in production and distribution facilities close to customers and then distributed quickly to the customers. The reconfiguration of product and process design so as to allow postponement of final product customisation as far downstream as possible So the manufacturer produces a generic product,which can be modified at the later stages before the final transport to the customer.  26 Mass customization components Toyota , Citroën and Peugeot decided to adopt a different approach for the manufacture of a range of cars The Toyota Aygo , Peugeot 107 and Citroen C1 are be built in the Czech Republic All three are produced in the Standardized new, purpose built joint factory in the Czech Republic. modules All three share 92% of the same components. Peugeot/Citroën are responsible for sourcing and procurement and Toyota forproduction  27 Mass customization components The point at which we move from the base product to customised products is called the decoupling point. If you look to the case study on Dell, the decoupling point is the point in the production process where the core PC platforms are configured into final products demanded by customers. A postponement strategy is also a good agile strategy. To mitigate volatility in demand, agile supply chain is emerged. Two aspects to agility are 1) Speed of reaction and; 2) Ability to tailor operations to demands from individual customers Implies that agility puts service first even if that means costs are slightly higher  28 MTS  29 Case of TESLA Q) What are the major differences between the supply chains for electric vehicles and those for legacy carmakers? Get some implications  30 Case of TESLA - overview Tesla is the world's most valuable automotive company with an annual revenue of $81 billion and a market capitalization exceeding $800 billion. Tesla has also established partnerships with other companies to bolster its electric vehicle manufacturing and supply chain capabilities, as traditional industry powerhouses struggle to keep pace. Tesla has invested over $28 billion in capital over two decades to build production capacity, develop new technologies, and create a global electric vehicle supply chain. Despite skepticism from industry watchers, Tesla plans to spend nearly $150 billion to sell 20 million vehicles per year, with CEO Elon Musk expressing confidence in infinite demand for their vehicles.  31 Case of TESLA – line up Tesla's journey began with the production of the Roadster which was hand- crafted using standard tools in an assembly line (like a job shop) The development of the Model S sedan was supported by strategic partnerships with Daimler AG and Toyota, leading to the acquisition of the NUMMI plant for mass production. The Model X SUV, sharing components with the Model S, was introduced in 2015, further expanding Tesla's vehicle lineup. Subsequent models, including the mass-market Model 3 sedan and the compact SUV Model Y, demonstrated Tesla's commitment to accelerating the adoption of sustainable transport, contributing to significant sales milestones by 2021.  32 Case of TESLA – supply chain within the supply chain Traditional auto companies had shifted towards outsourcing component manufacturing over the previous decades, with tier-one suppliers playing a significant role in providing components to various automotive companies. The supply chain for electric vehicle batteries involved a complex global network, including mining raw materials, refining minerals, manufacturing battery cells, and assembling battery packs. Securing a stable supply of critical minerals and metals essential for battery production is crucial. Musk implemented an intensely vertically integrated supply chain at Tesla, - reminiscent of Fordism, controlling sales, service, and charging networks, and manufacturing key components like chips, seats, motors, electronics, and battery cells in-house.  33 Case of TESLA – supply chain within the supply chain Tesla secured direct supply deals with mining companies (such as BHP Group Limited, Ganfeng Lithium Co. Ltd., and Glencore plc for key minerals like nickel, lithium, and cobalt) The company aimed to acquire a significant portion of its essential minerals directly from mining companies, reducing dependency on external suppliers. Tesla also negotiated supply agreements with major electric vehicle battery manufacturers, enhancing control over its supply chain. Tesla recognized the limited number of suppliers, invested in developing and producing its proprietary battery cells to supplement its current supply chain, aiming for cost-effective scalability and greater volume security.  34 Case of TESLA – marketing and sales Traditional car industry in North America used dealership model; dealers managed showrooms, negotiated sales, and provided services, setting prices based on inventory levels and consumer demand. Tesla's direct-to-consumer model offered fixed prices on website with limited customization; 160 stores in US for viewing but orders placed online. Tesla relied on media coverage and word-of-mouth advertising with low costs, whereas legacy companies like GM and Ford spent billions on advertising in 2022, with dealers collectively spending $8.7 billion annually.  35 Case of TESLA – supply chain within the supply chain Q) What are the major differences between the supply chains for electric vehicles and those for legacy carmakers? Get some implications (you compare Apple’s supply chain and Tesla’s supply chain)