Master Supply Chain like Elon Musk at Tesla

Hey Procurement Legend, this is our regular Friday deep dive focusing on Elon Musk and the approach Tesla takes to manage its suppliers.

Every Friday, I dive as deeply as possible with a heavily researched topic to help you improve at Procurement.

I’m a big believer in James Clear’s idea of 1% better each day which compounds your improvement to 37% yearly. Of course, it can work the other way.

Enjoy

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Okay, I’ll admit it, I’m a bit of a Tesla Fanboy. I don’t have one yet. I ended up having a contract gig in place 4 months later than planned, and my Tesla deposit went to living costs. I’m still gutted about it, but I hope to get a Model Y or a Cybertruck soon.

And I like Elon Musk. There’s my bias out in the world. But I don’t necessarily like him for the reasons most people do…such as being a real-life Iron Man.

No, I like him because of his incredible approach to Supply Chain Management. Seriously, the book that Ashlee Vance wrote on Elon, including the insights he shared with her in that book, is incredible.

And I just saw a book on Elon by Walter Isaacson, who has created some legendary books such as Steve Jobs and the Innovators, which sit proudly on my bookcase here.

These books are much better than another CIPS course. Just read that book and buy it here on Kindle to use highlights and digital notation.

I bought this in paperback, but I’m getting it again on Kindle to make the process of making my digital note-taking system come to light.

Anyway, this has been an incredible reminder to distil my notes from that book and bring them to you soon.

For now, let’s use the Tesla Impact Statement of 2022. One of my favourite reads every year, with a few shots often taken at the incumbents or an agenda that Musk doesn’t like.

In short, I genuinely believe that Elon’s approach to Supply Chain across his portfolio of companies will serve as a case study for future procurement and supply chain pros. So, I want to be the first person to talk about this.

Elon, if you see this - let’s collab (or anyone that works at one of his companies).

The Tesla approach to a vertically integrated supply chain, whereby Tesla brings in materials and they make as much in-house as humanly possible, is a nod back in time to Henry Ford.

This was out of necessity as no OEM would take Tesla seriously when it was a tiny upstart trying to ruffle the feathers of Ford and General Motors. These manufacturers would not supply Tesla with the parts. Much in the same vein that Space X didn’t want to buy rockets off the shelf because of their cost, and Elon could see that the commodities were far lower in price and could be used to build a more sustainable space exploration vehicle, Tesla was born out of a need to design and make its own parts because no one else would help them.

Now, this need to design and make so much of this car is one of Tesla’s greatest assets giving them control over so much of their entire process from design to marketing to digital sales.

As a reminder, Electric Vehicles (EVs) are one-half of Tesla as a company. Tesla is predominantly an Energy Company that provides Solar and Battery tech to consumers and companies.

Here are some insights from the Impact Report that you should consider regarding your suppliers.

Tesla’s supply chain approach starts with maintaining strong policies and management systems. Tesla aligns with industry best practices and has a five-step approach to supply chain management.

Sounds mundane on paper and nothing far-fetched.

Tesla maintains robust policies and management systems to ensure their supply chain operations align with its sustainability goals and legal requirements. The point here is that they are using their policy and tech solutions to get data, and then they use that data to ensure everything they do is on track to meet their goals. Too many teams collect data and let it rot. Only collect data if you’re doing something useful with it.

We’re always seeing conversations about the limited value of procurement within organisations that inevitably lead to the “I want a seat at the table” for procurement conversation. Whilst I hate that conversation when posed like that, it’s obvious that if you see your supply chain as a strategic lever and invest in it from the top down, incredible things such as alignment happen.

Tesla engages with over 800 suppliers in responsible sourcing and has increased visibility into 12 materials used in their batteries, which helps them identify potential issues and areas for improvement.

This isn’t easy. And it would be possible without a holistic approach to supply chain management throughout the entirety of the business. Tesla has a dedicated web page to supply chain - this is rare. I don’t. I’ve seen it done in this way with any other company. It’s clear that the supply chain is everything to Tesla and throughout Elon’s companies.

Tesla collects and investigates data related to environmental and social risks in its supply chain. This helps the company identify potential issues and areas for improvement.

They have seen a 3X increase in direct supplier audits and have completed three greenhouse gas (GHG) hotspot analyses to cover their cathode chemistries. Supplier audits are underutilised and serve as a good opportunity to further the relationship while looking for hidden rot.

Not to mention they designed and created their own supply chain technology. As a proponent of tech for supply chain and procurement, I love this. Yes, you can buy something out there, which is the ideal method for 99% of companies. But, if you are in that 1% like Tesla is, and you’ve got those incredible brains within that company, you should certainly give this a go.

Once potential risks are identified, Tesla implements measures to mitigate these risks.

These measures focus on areas of the supply chain that the company has identified as priorities.

Their approach is proactive around risk and never reactive. A risk emergence could break the JIT elements of their supply chain, which we saw cause chaos during the pandemic for many other companies.

Tesla collects and investigates supply chain environmental and social risk data and implements risk mitigation measures in priority engagement areas.

This approach is consistent with the OECD’s recommendations for risk-based due diligence in the supply chain. Interestingly, and based on my article earlier this week, it’s clear that Elon does not permit or utilise the “ESG” branding at Tesla despite undoubtedly undertaking ESG reviews.

Given the potential politicisation of ESG with his profile - I’d say that is a smart move.

Tesla collaborates with industry initiatives to improve supply chain sustainability. This can involve sharing best practices, participating in industry-wide efforts to reduce environmental impact, and other forms of collaboration (I mean, he did open source the Tesla patents, which many people seemingly like to forget).

Tesla also pilots a worldwide Battery Passport, which could be a system to track and manage the lifecycle of batteries, from production to end-of-life. The circular economy is something the EV manufacturers are all over, and I’ve had recent conversations with people in procurement where they are implementing this within their business.

There is more of this level of collaboration happening in the EV space. Tesla is directly involved in Tier 1-3 of its supply chain (that’s all the way down to the raw materials). It even collaborates/manages its tier 2 suppliers to ensure that it gets what it needs when it needs them despite the direct contract relationship being with its tier 1 suppliers.

I’ve seen poor collaboration too often with Tier 1 suppliers. I’ve had to fix those messes when I was a consultant. And working with several organisations in different sectors, none of them came close to ever being able to manage tier 2 and below suppliers.

I genuinely find this incredible, and this could be a big risk mitigation play for you for anything you considered so important that you cannot or do not want to have any disruption with.

How many companies report on their supply chain?

Very few. Tesla discloses information about its supply chain management efforts in its Impact Report yearly.

This includes data on the company’s environmental impact, social impact, and other relevant information. Transparency and disclosure are critical parts of Tesla’s supply chain approach.

I mean, that’s how I’m bringing you these insights today.

If you can reach the point within your business where you can share your progress to a better and cleaner world, I’d say you might be winning in your sustainability efforts. So set that as your goal and encourage your organisation to adopt this working method. If you’re going public with your supply chain, then you know you’ll get the investment you need to make it work.

I know some of you will despise Elon. I believe he’s leading humanity into a better future. His breadth of interest and expertise is staggering.

As procurement pros, we must break the shackles of staying in our lane.

We need to think less about what came before and more about how we can do something new here.

Procurement is shackled to precedence.

The Tesla way is anything but this.