Tesla: Operations Management

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Operations’ Five Performance Objectives

Tesla’s five key performance objectives are quality, speed, sustainability, dependability, and cost. For a company that develops and manufactures high-performance products, conformance quality is the most important characteristic. It is defined by a clear specification of product functions and qualities. Tesla addresses this strategic objective through regular quality checks, improvement initiatives, enhancements to manufacturing processes, and market research.

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Speed is the second objective that determines the time for a resource to work through a process from start to finish. To achieve fast productivity, Tesla continuously improves its manufacturing processes and innovates its supply chain systems. The third objective is sustainability, which means the business’s capability of being maintained at length without interruption, weakening, or loss in power or quality. The three aspects of sustainability are environmental sustainability, economic sustainability, and social sustainability. Tesla focuses primarily on the environmental aspect, positioning itself as a clean energy company that manufactures environmentally friendly vehicles.

The fourth objective is dependability, which means that a company keeps its promises, adheres to the schedule, and ensures timely delivery of products. Tesla addresses this objective by producing high-quality electric vehicles that meet customers’ expectations, are safe to drive, and provide competition to gasoline cars. The fifth objective is the cost, which addresses the needs of customers that consider the price as one of the key purchasing criteria. In Tesla, operations managers use economies of scale to reduce production costs.

New Product Development

New product developments are required for businesses to constantly meet changing consumer needs. If a company does not introduce new products or update the existing ones, it may start to lose its customers. New developments allow businesses to distinguish themselves from their competitors, keep the profit margin, avoid price competition, and increase their market share. These developments can be classified into three main types: enhancement of existing products, development of new generation products, and creation of breakthrough products.

The incremental enhancement of existing products means that modifications are introduced to improve some aspects of product performance. They may include redesign, weight or cost reduction, and safety enhancements. The second type of developments is the creation of new generation products. It means that a company develops a completely new product or redesigns an existing one based on new technologies. For example, a company may start to produce wireless Bluetooth headphones instead of wired headphones, which requires the implementation of new technologies, allowing the company to expand its market share.

For Tesla, the development of new generation products is its main priority. It manufactures high-quality electric vehicles based on unique technologies and constantly innovates and redesigns its products to maintain its market advantage. The third type of new product development is the creation of breakthrough products. It means that a company launches a unique product or service that establishes its own market and meets customer needs that have not been previously recognized. Tesla entered the automobile market with a breakthrough product that created its own niche.

Porter’s Five Forces

Porter’s five forces model is used to analyze the company’s competitive environment. It claims that each industry is influenced by five basic forces: the threat of new entrants, the threat of substitutes, the bargaining power of suppliers and buyers, and industry rivalry. The threat of new entrants refers to new companies that intend to enter the market. In order to address this threat, Tesla needs to build effective barriers to protect and maintain its competitive advantage. The threat of substitutes is high if a company cannot differentiate itself by superior product performance. To face this force, Tesla needs to constantly improve its products, address changing customer needs, and maintain competitive prices.

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The third force is suppliers, who provide materials or labor. This force significantly influences companies that are unable to raise prices to accommodate the increases in production costs. If suppliers hold a dominant position, they can decrease the company’s power. In order to address this force, Tesla needs to build an efficient supply chain with multiple suppliers. The fourth force is buyers, who can exert power by choosing more cost-efficient alternatives, limiting the company’s ability to raise prices. Tesla is pressured by customers who search for lower prices and needs to expand its client base in order to address this force. The fifth force is industry rivalry that refers to competition between direct competitors. Tesla operates in a highly competitive market and tries to develop new products to gain an advantage.

Outsourcing

Outsourcing is the business practice of hiring another company to perform an activity that can be done internally. Large producers generally enter into outsourcing relationships with external suppliers that produce goods and services on more convenient terms than the company itself. Tesla uses outsourcing to supply some automobile parts while shifting towards manufacturing more of its own details.

The main advantage of outsourcing is that it allows the company to focus on its primary goals. Another advantage is the reduction of costs, including production costs and capital investments. External suppliers generally offer lower unit prices and allow the company to control supply chain costs. Outsourcing also helps to improve the quality of service and decrease risks. Tesla makes regular checks on its suppliers to ensure conformity with quality standards.

One of the main disadvantages of outsourcing is the loss of control. When a producer enters into a contractual relationship with an external supplier, it faces the risk of becoming dependent on it as well as increased supply chain risks. Extra costs are involved in managing suppliers; outsourcing reduces economies of scale and forces the company to share sensitive information with other parties. These reasons made Elon Mask shift the company towards manufacturing more of its own vehicle parts instead of outsourcing them. This shift has increased management workload but is predicted to improve quality control and overall product quality.

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BusinessEssay. 2022. "Tesla: Operations Management." November 7, 2022. https://business-essay.com/tesla-operations-management/.

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