Without Supplier Innovation Tesla would have Built another Camry
I’ve never been into cars, my current ride (a 2004 Fiat Panda) will attest to that, but I am into Tesla. New business models, new tech, gutsy growth predictions, disrupting an archaic industry, moving away from petroleum and doing it all so quickly, that’s what I’m into.
So it’s fair to say that my interest was piqued when I saw the following post from the Procurement Leaders crew highlighting a quote that Peter Carlsson (Tesla’s former CPO) made at the World Procurement Congress yesterday.
This post got me thinking. What kind of car would Tesla have built if they maintained traditional auto industry supplier relationships? A Camry, perhaps a Jeep?
Well thankfully they didn’t. Tesla made an electric powered beast that goes from 0–100 km/h in 2.8 seconds, a full second faster than the soon to be released 2017 Porsche 911 Carrera. The Tesla is cheaper to run than gasoline powered cars, achieved the highest safety score ever recorded and is not reliant on the petroleum industry. Did someone say groundbreaking?
How do you achieve all this?
I’d argue that Tesla’s real innovation isn’t its electric car, but rather the business processes it implemented to deliver that car. If you want to build something different , you’ve got to go about it in a different way.
Interestingly, Tesla has never run a TV advertisement. While major car makers continue, as they have for decades, to hand over fortunes for their next Super Bowl campaign, Tesla is finding unique innovative ways to generate buzz around its products.
Moving away from traditional industry practices, the company elected to to do away with vast dealerships networks located in industrial parks and instead opt for small showrooms on major downtown streets, meaning thousands of people see their vehicle every hour.
It’s working too, demand for the company’s new Model 3 has been astounding. The company took 325,000 orders in a week on the new model. A recent Quartz article had this to say on the matter.
“There simply may be no example of a new car attracting as much interest in more than a century of automotive history.”
Yeah But What About Procurement?
From purchasing cars online, to not holding any inventory (each Tesla car is built to order), the processes that differentiate Tesla from the rest of the industry are many, but today we’re looking at procurement and more specifically supplier relationships.
Let’s consider two statements made in a ‘North American Suppliers’ Choice Study’ run by Deloitte and Automotive News. The study details responses of suppliers in the auto industry and their relationships and interaction with car makers.
Statement by supplier on Tesla.
“Tesla is extremely aggressive, but takes a position that they are the innovator and will drive technology to the supply base,”
Statement by supplier on Ford.
“Excessive amounts of paperwork for product development. Working around in Ford computer system for purchasing, and logistics was extremely confusing,
Not surprisingly, Tesla scored extremely high in the areas of Trust, Openness and Ease of Working in the survey. Ford didn’t do so well. The vast difference in these statements exemplifies the differences between between the disruptive business model of Tesla and the traditional model employed by Ford.
Tesla understand that its suppliers are vital to it operations and its ability to bring new innovative products to the market. The organisation has gone so far as develop the Tesla Motors Supplier Portal, a platform that allows the company and its suppliers to share key business and product information over a secure internet connection, allowing these critical relationships to flourish.
When you consider that more than half of the suppliers that responded to the Deloitte survey suggested they would “withhold their most innovative products from automakers that didn’t participate in collaborative relationships” you start to see the gravity of the situation.
William Forsythe IV, a principal at Deloitte further highlighted this fact by stating that
“Suppliers are managing their relationships with OEMs differently than in the past. They’re being selective about customers with whom they choose to do business.”
If suppliers hold the key to product innovation and growth in the automobile industry, who do you think is best positioned to take advantage of this situation? Ford, with its “excessive amounts of paperwork” and confusing internal systems or Tesla and its proactive approach and dedicated supplier innovation portal?
Isn’t it time you started looking at your suppliers as a strategic asset rather than a burden? To find out more about supplier collaboration download our detailed whitepaper on the topic.
