Tesla, Inc. (formerly Tesla Motors, Inc.) applies operations management (OM) practices that address the objectives in the 10 strategic decision areas for optimal productivity in the automotive and energy solutions business. These 10 strategic decision areas require operations managers to maintain best practices to ensure streamlining, operational effectiveness, and high productivity in the organization. In this business analysis case, Tesla’s global expansion plans depend on the success of these practices in optimizing productivity and overall performance. Also, the company’s technological innovation goals support and depend on OM performance. For example, the productivity of Tesla’s automobile manufacturing depends on operations management effectiveness, such as in inventory management and supply chain management. Operations management procedures depend on Tesla’s vision statement and mission statement, which define much of the company’s strategies and tactics. Operations management prowess contributes to high productivity and the growth of the automotive business.
As a popular manufacturer of electric vehicles, Tesla keeps improving its practices for operational competence against competing automakers, such as Toyota, General Motors, Ford, Honda, Volkswagen, BMW, and Nissan. Tesla uses operations management (OM) best practices to maximize productivity while minimizing costs, based on the 10 strategic decision areas. This optimal operational condition contributes to the ability to sell automotive and energy products competitively, despite the challenges linked to competition illustrated in the Five Forces analysis of Tesla, Inc.
Tesla’s Operations Management, 10 Decision Areas
1. Design of Goods and Services. In this strategic decision area, operations managers focus on how the organization’s products influence costs, quality objectives, and resources. In this company analysis case, Tesla addresses these concerns through concurrent innovation, which involves simultaneous innovation in various parts of the automotive, battery, and solar panel business. For example, to ensure productivity in manufacturing advanced electric vehicles, the company continuously innovates its products and supply chain systems. This decision area of operations management links to Tesla’s generic competitive strategy and intensive growth strategies, which emphasize product differentiation and product development as approaches to grow the global business. As a result of strategic focus on the automotive market, Tesla’s operations management emphasizes innovation in manufacturing and the optimization of organizational capacity for innovating electric vehicles and car parts.
2. Quality Management. Satisfying customers’ quality expectations is the main objective in this strategic decision area of operations management. Tesla addresses this strategic objective through regular quality checks, quality improvement initiatives, and research on the automotive/transportation and energy solutions market. In addition, the company continues to enhance its products and processes to satisfy high standards for quality and productivity. For example, Tesla’s operations managers regularly conduct quality reviews of, and implement enhancements to manufacturing processes. Moreover, in response to quality issues with suppliers of automobile parts, Elon Musk shifted the company toward manufacturing more of its own vehicle parts instead of sourcing from parts manufacturers. This shift increases managerial workload but improves quality control and overall product quality. Such control is among the strengths shown in the SWOT analysis of Tesla, Inc.
3. Process and Capacity Design. This operations management decision area focuses on business processes, along with related investments, resources, and standards. Tesla integrates automation for this concern. For example, the company automates manufacturing processes combined with human intervention. This condition helps Tesla achieve high productivity through operational efficiency in the automotive and energy solutions business. Also, Tesla’s organizational structure (business structure) influences and is influenced by this area of operations management. For instance, some parts of the corporate structure depend on relevant process and capacity requirements in the business.
4. Location Strategy. Logistics and nearness to markets, resources, and suppliers are considered in this strategic decision area of operations management. In terms of resources, Tesla’s operations managers utilize its global reach. For example, suppliers in the United States, Europe, and Asia provide some of the basic components for the company’s electric automobiles and other products. Tesla’s marketing mix or 4P also involves company-owned stores and galleries in malls and other key locations to maximize sales personnel productivity and access to the target market. This operations management approach involves high-density areas for displays and sales transactions, considering the company’s relatively high prices and specialization in electric vehicles and energy products.
5. Layout Design and Strategy. In this strategic decision area, operations management is concerned with achieving optimal flow of resources and information. In Tesla’s case, layouts are designed to maximize capacity utilization of facilities, especially buildings used for manufacturing electric vehicles. Also, the company employs advanced computing and networking technologies for internal communications. These approaches increase productivity in Tesla’s operations. The company also minimizes distances among intermediary processes in its manufacturing operations. An example of such minimization is the Nevada Gigafactory, which helps reduce production costs along with vertical integration.
6. Job Design and Human Resources. Adequacy of effective human resources is the objective in this strategic decision area of operations management. Tesla satisfies this objective through a competitive compensation strategy to attract effective and competent workers. This approach is especially important in the market, where many companies compete for high-quality workers. Tesla’s organizational culture (company culture) focuses on innovation and problem-solving and contributes to the definition of this OM decision area. Also, the company’s operations management ensures effectiveness and high productivity of personnel through regular training, as well as leadership development programs. For example, leadership development is used to fulfill Tesla’s leadership needs to grow its automotive business.
7. Supply Chain Management. In this strategic decision area, operations managers focus on adequate supply and an effective and efficient supply chain. Tesla has a global supply chain aimed at supporting its manufacturing processes. For example, the high productivity of the company’s manufacturing plants in the U.S. benefits from timely shipment of materials from overseas. Tesla’s corporate social responsibility, governance, and corporate citizenship ideals are applied in this OM area, in considering the effects of the business on suppliers and associated communities. As an automaker that prioritizes manufacturing in the United States, Tesla’s operations management automates major areas of the supply chain, while constantly looking for strategic partners in the U.S. market.
8. Inventory Management. Inventory decisions, costs, and support for production are considered in this strategic decision area. At Tesla, inventory decisions are based on operations management principles that emphasize quality. For example, managers require that inventory holding does not affect the quality of materials used for the company’s electric vehicles. On the other hand, for high productivity and minimized inventory costs, Tesla’s operations management approach involves just-in-time inventory for some materials. Some materials for automobile production are used as soon as they arrive at the company’s manufacturing facilities. Automation is also applied, partly in response to the trends shown in the PESTLE analysis (PESTEL analysis) of Tesla, Inc. This approach helps minimize the company’s inventory costs.
9. Scheduling. This strategic decision area focuses on short-term and intermediate schedules for resource utilization. Operations managers at Tesla address these concerns through market-based scheduling, combined with automated processes for maximum efficiency. In market-based scheduling, the company monitors actual market demand and uses the resulting data as a basis for scheduling automobile production. On the other hand, Tesla’s operations management supports scheduling activities with automation to minimize errors and delays, thereby enhancing productivity.
10. Maintenance. Adequacy of resources and production capacity are the objectives in this strategic decision area of operations management. Tesla ensures resource adequacy through regular inventory monitoring that readily responds to shifts in market demand. The company addresses the objective of adequate production capacity through a small but significant degree of redundant processes and production resources. For example, Tesla maintains excess production capacity in some of its facilities. Such redundancy allows the company to rapidly increase its production in response to spikes in market demand for energy products. These operations management approaches create resilience and responsiveness in Tesla’s productivity.
Productivity Metrics at Tesla
Tesla uses metrics of productivity based on the production of automobiles, batteries, and solar panels. The company also uses productivity criteria for its services and corporate office operations management. In managing the multinational vehicle and energy business, these criteria and metrics are used to evaluate performance and strategic effectiveness. The following are some of these metrics used to determine Tesla’s productivity:
- Powertrain units per day (Automotive production facility productivity)
- Automobiles per day (Tesla car production facility productivity)
- Inquiries addressed per day (Customer service productivity)
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