Tesla’s Bottlenecking Problem
When a company undergoes any project, constraints always appear. Whether or not the company knew of these constraints ahead of time, something will limit the performance and restriction of a company’s output. A common constraint for companies is a bottlenecking problem, which hurts a company’s ability to meet demand for its product. Often times a manufacturing process is moving smoothly, but there are steps that cannot be started until other steps are completed. Sometimes these steps are holding the process up and can lead to a bottleneck. Many companies have struggled with this problem, including car manufacturer Tesla.
Tesla has often struggled to manage their capacity, it would appear as if Tesla has not properly calculated their required maximum capacity. Tesla’s Model 3 is continuing to experience delays. This is all from the same company that had planned to ship Model S in 2011, but the product was not completed until mid-2012. During that same time frame, Tesla had set sights on shipping out 5,000 cars, but they merely shipped out 3,100.
Six years later, Tesla is still having the same problems with their manufacturing process. This time, they have created a bottleneck due to the lack of production of their bandoliers, “rows of lithium-ion cells glued on either side of a cooling tube” (Ars Technica). This process is extremely complicated and time consuming to do by hand and the worker often make errors. Because of this, Tesla started to automate this process in order to speed up the process and alleviate the bottleneck. Tesla has stated that they have had issues with speeding up the manufacturing process of their batteries. Elon Musk said it is because they are “overconfident” in their ability to make batteries (Business Insider). Because these batteries are such an integral part of the product and they are behind schedule on their production, this battery issue was creating a bottleneck. Once this bottleneck is alleviated they are able to speed up production and continue with the rest of their manufacturing process.
It was previously common knowledge that the current Model 3 was undergoing delays. Prior to last week, customer were not aware that Tesla’s other two products, Model S and Model X were also undergoing delays. Tesla has stated high demand as an issue and a problem with their product line. Tesla stated how they needed to increase production time and efficiency and reduce problems such as bottlenecks in their processes.
The main problem with a bottleneck occurs when a date is promised to the customer. This leads to the customer expecting a product by a certain time and if they are disappointed they may not use your company in the future. Tesla has been given a pass from the customer every time they have made a mistake. This is because their products are revolutionary and the whole world is highly intrigued. However, for a company that is so far ahead of the curve on many things, they are very far behind the curve on some of their process management, which often leads to constraints and problems with their projects.
https://www.digitaltrends.com/cars/teslas-model-3-rings-in-mixed-reviews/
http://bgr.com/2018/02/22/tesla-delays-model-s-model-x-strong-demand/
Telsla has a problem of overconfidence; even though they are uncapable of meeting the demand it seems that they do not want to find the bottleneck because they believe that their process is fine. So the first thing to do, as a manager, is get rid of this overconfidence an visualize the whole process to see where is the bottleneck. In order to do that they can use many tools, like a value stream map. The bottleneck is obviously a long term one, because they are uncapable of meeting the demand ofently; not just temporary. They problem was once deteceted in the manufacturing process; lack of production of their bandoliers. But now, their overconfidence about creating batteries is making them uncapable of detecting and fixing the bottleneck. The batteries are integral part of the product and they are behind schedule on the production, so they are facing a long wait time defect.
In order to make these batteries we need not just engineers that make them better and improve them, but also workers that create them. So, as a first start, Tesla should focus on control systems and people (engineers) obverving this process to see why they are uncapable of beeing on schedule. Onces they do so, they can find a way to fix the problem, but, if they do not identify the bottleneck there is no way that they are gonna fix the problem, improve, and meet the demand.
https://gravityflow.io/the-most-common-workflow-bottlenecks-and-how-to-fix-them/
I agree with Zach that while Tesla has had supply chain issues in the past, customers have always been understanding because Tesla makes really cool, revolutionary products. However, the whole point of Tesla’s new car is to mass produce it for an average consumer. Mass production cannot be successful if there are too many bottlenecks and the product is not delivered on time. For customers who are buying the new Tesla as an actual car, rather than the more expensive model that is not for everyday use, a long wait will cause problems in their daily lives if they don’t have the car they were planning on. Frustrated customers will move on to different cars. Tesla should have figured out its supply issues before it promised to mass market a car.
I agree with Jordan that it is imperative that Elon Musk and Tesla begin to adjust and fix their supply chain to match their demand and promises to the market. As a young company in an industry with old veterans, it is important that Tesla maintains the trust and confidence of their customers if they want to continue to take over market share. If they lose the faith of the public and consumers, Tesla will never be able to establish themselves as a successful automobile manufacturer.
I think Tesla needs to reevaluate their production capabilities. If they are not 100% confident in the expected release date of a model they need to be upfront with their customers about what is causing the delay and how they plan to fix it. The bottleneck occurring from the battery probably took time to figure out. As you mentioned, Tesla automated the process, but this itself, correctly automating a previously handmade process, also creates a bottleneck. I think companies such as Tesla should prepare for the high probability that they may incur a bottleneck and allow some slack time in their expected release dates.As you stated, due to the cutting-edge technology that goes into their car, Tesla has been able to get away with constantly underproducing or pushing back dates. Having high demand is a good thing for a business. I would rather Tesla take their time, with or without a bottleneck, and produce a quality car rather than mass produce a subpar product. For such a new company, Tesla is handling the issues that come with industry quite well. We all would like companies to release products on their expected dates, but that’s not how the real world usually works. We should use Tesla bottleneck as a learning experience. Sometimes a delayed release date is worth the wait.
I agree with Briana that customers would rather have a quality car rather than a mass-produced car with faults in it. However, Tesla should compensate its customers who have been waiting for their cars for months or inform customers about significant delays in receiving their orders before they sign up for a car. Every article that I have read about Tesla states that Tesla is having problems with mass-producing its products. Therefore, I do not understand why Tesla wants to mass-produce cars and make them affordable for people. One reason why most people assign so much value to Tesla products is because its products are high-end and there is a certain exclusivity attached to them since not everyone can afford a Tesla product. In my opinion, Tesla should remain in this niche market of serving high-end customers and not move into mass production until it is completely sure that it will be able to produce cars based on customer orders.
http://www.businessinsider.com/tesla-model-3-production-battery-problems-troubling-2017-11
Tesla most definitely has an issue with managing capacity for their products. I agree that customers are more understanding of Tesla’s supply chain issues as their products are very unique. But these issues in managing capacity have gone on for too long. The company first must take a step back and see what the actual capacity the company can manage. The overconfidence of Tesla’s capacity has gone on for too long. Once the company has an idea of what a reasonable output is, Tesla should evaluate its process to fully understand its bottleneck. These batteries are an integral part of their production of cars and needs to be improved upon in order to prevent this from happening again. Once a plan for the bottleneck is created, the company needs to set a release date that it can meet. This is a critical part of this process, as customer’s expectations are on the line. If this continues to happen, the customers will start looking for other alternatives.
I agree with Lauren. I wonder what it would look like if say Toyota was facing similar problems. I doubt that any customer would give them as much slack as customers have been giving Tesla. As we saw in class, one way to alleviate bottlenecking is to change the production line. I think that if Tesla were able to either add more people working on their batteries or change the way production gets passed down the line, their bottlenecking issue would be improved if not eliminated.
Even though Tesla’s bottlenecks delay order arrivals and put stress on the consistency of the product, they fail to deter customers from filing into the waiting line. Tesla currently uses a highly labor intensive assembly line (but is moving towards becoming more automated) that is not balanced. With the high demand for the Model S and ease with which Tesla has been able to raise money, it is in their best interest to reengineer the processes in the supply chain. They might need to use more of a Drum-Buffer-Rope system in which the rate of workflow is determined by the bottleneck time. The production rate is completely based on the bottleneck so that there is never an excess buildup in front of the bottleneck, yet the bottleneck process never has to wait for work. Another alternative would be to devote resources towards decreasing the cycle time for the production of their bandoliers.
Tesla initiated the hunt for electric luxury cars. The brand image Elon Musk was aiming for immediately received serious attention from consumers as the price was not too unreasonable. However, Musk has yet to prove that he can mass produce his cars to reach the now dwindling consumer demand. In order to do so, Tesla is “confident” that they can reduce the time it takes to produce the battery. Still, this enhancement has yet to come to fruition. Other companies like Toyota and BMW have also accelerated their electric car program. The Wall Street Journal reports that the two foreign car companies are finalizing vehicles that will match Tesla’s cars but do so at a significantly less price and will be able to mass produce internationally. Stock analysis of Tesla indicate that the stock has depressed in the past due to its poor, unedited operations. Analysts continue to look poorly at the stock as other competitors ramp up their programs. It will be interesting to follow Tesla as the competition for high quality electric sports car heats up in the near future.
Issues such as the bottleneck you described would really concern me if I was someone looking to buy an electric car. Although the bottleneck issues they are currently facing are in their manufacturing processes, I would be very worried about them arising during other stages of Tesla ownership as well. For example, if I ran into an engine malfunction, as many cars do, it seems fair to say that the time it would take to repair the car would be significantly longer than with another car. Their parts, as evidenced by the batteries, are much scarcer, and presumably, more difficult to install. While not as traditional of a bottleneck as a holdup in an assembly line, the increased time it would take to order a Tesla part could be considered a bottleneck in the repair process. A Tesla owner wrote about his experience trying to get his car fixed: https://www.fool.com/investing/2017/03/07/repairing-my-tesla-model-s-has-been-an-utter-night.aspx. He ran into issues finding a licensed mechanic, waiting for parts, and waiting for a new battery. These issues will likely improve with time, but until then, customers will be frustrated by the multiple bottlenecks associated with buying a Tesla.
This example with Tesla’s bottleneck in the production of the batteries in their model 3 and then eventually with the model S and Model X, to me, is a bigger problem with the management of Tesla rather then the production of their products. It is clear that they are not producing enough of their products for the demand they have for their company, not just for each specific product. With innovating companies that produce expensive products, the cost of manufacturing is usually covered through debt, as many companies do not have the capital to support their innovation. Although Tesla is a multibillion dollar company, a Bloomberg.com article by David Welch discuss the dollar amount that a Tesla loan entitles. With one example of the debt that has accumulated for Tesla, Musk’s loans to Morgan Stanley grew to $624 million in march on 2017. Although Tesla has the capital to pay this back whenever they want, it is clear that there is a limit to the amount of product Tesla can produce, that the demand of the companies products will suffer from this lack of supply.
https://www.bloomberg.com/news/articles/2017-03-16/musk-borrows-more-from-tesla-underwriters-as-company-adds-debt