“Tackling Supply Chain Challenges of Tesla Model 3” and “Polaris Industries Inc”- Sample Answer

Tesla, one of the pioneers of the electric car industry, has no indicator in the new Tesla Model 3. For the Model 3, prototype versions are currently being tested and various photos are published. The most interesting of these photos are those that show the interior design of the vehicle.

The famous entrepreneur and visionary investor explained to Musk that Model 3 will not have a classic speedometer and HUD (Heads-Up Display – virtual hologram display on the windshield) system, because he argues that the drivers who will use the new vehicle will be comfortable enough not to need a dashboard.

Although Musk relies heavily on the autonomous driving technology of the new car, there are two points that will affect the practicality of this vehicle. The first is that some users will never trust autonomous driving enough to get used to it. Second, even if fully autonomous driving systems have become perfect, the governments of no developed countries in the world have yet to have a permanent regulation on cars that can drive on the streets. Although firm wasn’t experienced about serial and fast production, they got many pre-demands. In other words, In the face of increasing demand, there is a huge risk that the manufacturing capacity of the Model 3 could be increased by about 40,000% within a few months. It may make sense to make a promise to the consumer if you are sure that your production and Supply Chain is sufficient. Musk has made bold statements about the future and has delivered some earlier. Rather than blaming Supply Chain employees, he personally took the decision to select the system integration subcontractor behind the latest delays. Tesla formulated a different strategy by entering production before building a reliable distribution infrastructure. According to case study, firm created a “build and let them come” philosophy which technology can solve the historical challenges of manufacturing by making big risky bet. The company’s data-driven approach to supply chain management is the wave of the future, although high-profile stumbles have occurred.

Tesla produced an affordable car with the Model 3 (in US and European standards). With a price of 35 thousand dollars, with its interior and exterior design, fully electric and equipped with the latest technology, this car was launched. It is obvious that not only technology-based but also supply chain-based applications of brands such as Volkswagen, Ford and Mercedes are an important element of their market success.

One of the most important indicators of the success of the supply chain of the automotive sector is that the inputs obtained from the suppliers are assembled very quickly at the factory and the inputs are not kept in stock. No matter how much you develop in your technology and product, if you cannot create an effective fiction about the supply chain, your chances of success in the market are very low.

Q4) Any car company and Tesla

Nowadays ,someone who order a new Model S or Model X, can get the vehicle over than 5months instead of 2 months due to increasing demand. This is what Tesla said officially. Everyone was expecting a drop in demand for the Model S / X with the launch of the Model 3. Model 3 production was produced in a way that could not even come close to the demand. Despite all these negativities,With the Tesla Model 3, as the name of the company started to be mentioned more and more visible, the order for the old models continued to increase. In order not to run out of batteries, a reduction in production speed can indeed be made.Therefore , large car  company must give utmost importance to battery supply chain . Indeed, there is a general shortage of battery supply in the world, but it was already clear that this would happen as the electric car revolution spread. All the giants are in the race to bring their new electric vehicles to the market. If the supply chain is limited even by the oldest, largest and most advanced Tesla, a new vehicle company has to take serious actions.

It can be provided ‘semi-automatic’ until automation bottlenecks are solved by converting some of the Model S / X bands to the Model 3 band. In the coming days, we can see a noticeable acceleration in the production of Model 3.Creating more effective automation systems can be backbone of serial and fast production for large car companies. Hiring more employees who have strong technical background and experiences in automotive sector will be key point in order to compete with Tesla.

Federal Tax Refund Incentive End: Some countries have an electric car incentive. The US Government is paying a $ 7,500 tax to its customers for the first 200,000 electric cars of each car brand. But if companies that produce new electric vehicles change the location of their warehouse and supply chain management centers, they will be exempt from tax and thus increase their profit rates.

Makeup / Renewal: Many of the key features of Tesla Model S and model 3 are similar to each other. In terms of appearance, there was not much innovation in the Model S except for the ‘nose make-up’ made in mid-2016. In short, Tesla needs to be renewed inside / outside but especially inside. The battery design, the vehicle body, the exterior design are getting old, and it’s time to innovate. Even though it will be very difficult for Tesla to attempt something like this, large companies should implement innovations by using technology’s opportunities. Instead of reducing production due to high demand, option packages can be changed and margins can be increased with a small increase and demand can be balanced.This works for Tesla, who draws attention with its negative financial statements. However, Tesla has to speed up the production of Model 3and Tesla’s weak points should be evaluated logically ,subtly and technically by other rooted firms.

Due to the risks, disruptions and delays encountered, electric vehicle production can have unexpected changes in the supply chain flow and can turn into full-fledged supply chain errors. These errors can have various consequences, but if client side is affected by the errors, the consequences will be more heavy. One of the main supply chain breaks , that don’t reach client, is production downtime. The business should have the flexibility to tolerate these postures. This flexibility can usually be achieved by keeping sufficient quantities of stock. Businesses hold stocks in order to create a shield and assurance in the world of uncertainty. In order to achieve the goal of customer service management, the company holding some extra material called “security stock” will ensure that the service it offers is not affected by any situation that goes wrong.

If firm’s production and supply chain aren’t strong, don’t overpromise to clients

Instead of blaming suppliers ,companies should take ownership for Supply Chain failures.

Firms need minimum one Supply Chain guru for worst-case-scenarios

Tesla’s vicious cycle of not producing enough, delivering late and recalls aren’t sustainable for long term. Fixing supply chain issues urgently will turn to companies as huge profits, strong structure  and positive reputation.

Q4) Polaris outsource Logic

Polaris, one of the largest power sports companies in the world, embarked on a multi-stage supply chain transformation business, achieving successful results in the multi-stage supply chain, starting mainly from the corporate sales, inventory and operations planning model. Firm gave utmost significance to client driven solutions,reporting modules , purchase order management , outsource strategy, transportation management topics. Polaris realized that labor costs were high and opted to outsource the manufacturing of most components to save money. In America, the cost of manufacturing parts and sub-industry is quite expensive because the dollar is valuable, hence the labor cost is high.

The production of components can be outsourced to regions with low labor costs, such as some Asian countries. Cost  of layoffs and workers compensation are negative effects of outsourcing. The dismissal of 60 workers and the payment of $ 2000 per capita severance pay is an indication of this. The long-term benefits of the outsourcing strategy outweigh its short-term effects . Decrease in labor costs, exchange rate difference, weak currencies of underdeveloped countries, high unemployment rate in those countries will increase the profits of the company significantly. Especially China and India will be always source of cheap labor for all firms because of their ever-increasing massive populations. There is also a reduction in the cost of training experts, consultants, and managers. Manufacturing, unlike assembly, requires labor and time. Another benefit of outsourcing is to follow an expansionist policy by using advantage of weak country economies and their weak points. Polaris prefers in-weld final assembly as there is a need to maintain quality in terms of final product design and engineering. This helps to protect identity, positive reputation and brand awareness in products.

Q5A) Cost savings

Mexico offers the most logical option for outsourcing components. Labor cost in Mexico is lower than labor cost in America. After calculations, the labor cost in Mexico is lower than the labor cost in America. Although China has lowest production cost, its annual wage increase was calculated roughly 13.4% which makes is logical option in long term. In the future, it can be interpreted that the annual wage growth rate in China will exceed Mexico. Mexico is ideal country in terms of being so close to US .However, shipping cost is barriers for China. This creates advantages for Polaris to outsource component manufacturing. Managers must consider operating costs among these 3 countries and other external environmental factors when they decide which country to invest in. Polaris’ benefit from low operating costs by tackling economic difficulties and making good use of economies of scale brings great profits. Working with a sustainable number of employees will enable the firm to overcome the challenges posed by higher labor costs.

Many countries have a minimum wage, legal working hours, taxes and safety rules that an organization can pay to its employees. If Polaris invests in China, it will pay a 5% tariff on imports to America but investing in Mexico doesn’t contain any tariffs to pay.

Q6) Recommendation

Using the information provided in the total cost of ownership analysis, we considered exchange rates, labor rates and the possibilities of increase and decrease in the exchange rate. When it comes to changing the place of production, not only production cost and labor costs, but also transportation costs and exchange rates must be taken into account. Cultural differences, delivery times, safety rules, shipping time variability and consumer perceptions can affect the sale of the final product. There are intangible benefits of entering the Asian market, both in terms of marketing and meeting future demand. The skilled workforce available in China will bridge the gap between the current domestic economic downturn and the time to return on investment if Long-term savings, domestic demand and Asian demand increase as projected. From a quantitative perspective, serious actions can be taken by ensuring that Polaris quality is not compromised and product innovation is not impeded. Longer, difficult and expensive processes are emerging in the scenario of sourcing from China due to distance, shipping time, order delivery time and tariff for import. Polaris Companies also has some of the weaknesses in its management operations. Polaris must improve these areas for efficient services. The company is likely to utilize its cash more efficiently than as it is now, this is according to the currents asset ratios. Firm can invest more in technological innovations. The investment in technology is not part of the Company’s vision, due to its expansion to new locations; it must invest well in new technologies to ease the scaling up. In addition, the company has reduced research development techniques.

Transportation lead times: Both the long lead time and variability of production-related shipping time in China have a negative impact. Due to distance, shipping time, order delivery time, longer, difficult and expensive processes are emerging in the scenario of sourcing resources from China. The variation in shipping time was also higher when sourcing from China. The high shipping time variability caused delays in delivery dates, which means Polaris invested more in its safety inventory.

Culture: Every culture has different mentality ,tradition and knowledge. Naturally working  with Mexicans can be comfortable because of their feeling confident in western-style business. Culture differences sometimes rise the efficiency.

Time-zone and physical proximity: The time difference between Polaris headquarters in America and the city of Monterrey in Mexico is only 1 hour. In emergencies, the company can take serious action. Travel to China takes hours and requires a visa.

Future sales growth: Emerging markets can play an active role in sales growth, and management continues to expand into these markets.

Brand reputation: Firm worries that products can be perceived as being of lower quality if they were manufactured in either Mexico or China.

Employee perception: If Polaris fires American workers and continues to employ foreigners for permanent cheap labor, they face backlash and protest from the locals.Moving all their production outside of the United States can cause loss of reputation and reduced productivity.

Talent pool: Polaris might think America will suffer limited trade workforce loss in the future. Polaris, on the contrary, should realize that Mexico and China have a large number of skilled commercial workforces and should improve the skills of employees through in-house training. Plan, Source, Make, Deliver and Return processes can be implemented.