JS's Profile

I agree with what you have mentioned about automation becoming the driving factor in companies choosing low cost production centers. With that said, if automation does become the new normal- it might make sense to build factories closer to your markets.

Currently, alot of isolationist policies are directed towards providing local industry with a competitive edge. However with increase in globalization, it is inevitable that production centers will eventually run to the lowest cost country- and that would not be dictated by labor, but by automation. As automation begin to replace manual labor, the question of labor costs will begin to become obsolete [1]. However, if automation does become the new normal, then I would even go further to argue that the next factor that will play a big role will be logistic costs. Hence, I would also argue that production in the next few years will move closer towards the market it is servicing in order to reduce logistic costs. Maybe, it might not be a bad idea after all to build that factory in the U.S.

[1] https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/where-machines-could-replace-humans-and-where-they-cant-yet

In response to your question about sourcing innovations, I have a deep belief that in order to best align; these innovations need to come from within. There is a great HBR article that calls on these “Intrapreneurs” who are more equipped to hack the current system [1]. Their repetitive usage of the existing system gives them the insight they need in order to create creative solutions. Often times, these individuals will also have knowledge beyond the product, but also how it is used in the company’s system. Extensive knowledge is crucial in ensuring wide adoption of the product. With that said, it is the company’s job to not only encourage such behavior but also remove obstacles and barriers towards innovation from within.

[1] https://hbr.org/2016/06/what-it-takes-to-innovate-within-a-corporate-bureaucracy

In response to your question, I think Tesla has centered their strategy of insourcing vs. outsourcing around two main themes: (1) Logistic costs and (2) Control over the value chain. In this case, Tesla might just be able to beat to anticipate the larger changes in economic trends.

In the past isolationist policies have forced global manufacturers to set up shop in different parts of the world in order to not only meet regulatory needs, but also chase low cost centers for production. However with such a strategy, large amount of costs would be wasted in shipping parts back and forth around the world as the product gets assembled. This has been acceptable in the past, but as global wages start to shift towards parity and shipping/logistic costs increase, this might not be the case anymore [1]. This is especially true in the automotive and aerospace industries where multiple tiers of suppliers usually make up the final product.

In the past multiple parties working on a single product also increased the seamlessness of the final product and the customer’s experience. By controlling a larger part of the value chain, Tesla will be able to make changes to it’s product much quicker than any other manufacturer. This will also allow them to iterate through products much faster- where we see a product lifecycle for a typical car ranging from 5-10 years, a Tesla might go through a much faster product cycle (ie. 3-5 years). These changes will also allow Tesla to control it’s Intellectual Property better within manufacturing and also cater to a better buying experience for the customer (in replacing distributors).

Therefore, in radically changing this industry and creating a closed system, Tesla’s control over the value chain may provide them with a stronger foundation in order to accelerate innovation and deliver it to their customers.

[1] https://medium.com/self-driving-cars/the-automotive-supply-chain-explained-d4e74250106f

I agree with the writer that Lithium Ion mining can pose significant environmental impact- especially when pumping back water that is contaminated with toxic chemicals into the ground after evaporating the Lithium/ rare earth metals [1]. In order to assess accurately the extent of environmental damage, it might be in Tesla’s interest to perform a lifecycle analysis for Lithium usage and taking a step back for each of it’s cars. In the meantime, Tesla can push a new agenda to their suppliers in utilizing more environmentally safe standards within their mining practices. I also think this is something that is very feasible as technology to create contaminated water is not new, and as financially it is not as intensive as performing other environmental practices.

[1] https://u.osu.edu/2367group3/environmental-concerns/effects-of-mining-lithium/

Food security and scarcity will become a major topic in the next decade as land and resources become more limited. With that said however, it might be very interesting to separate between the types of produce that command different prices and value to the consumer. We know that urban farming is restricted by high capex, while space is generally limited. Growing low value products may now be suitable compared to letting farmers grow them in natural settings. However, high value produce such as certain fruits and vegetables (ie. kale, asparagus, mushrooms, sweet melons) might make more sense on a value per space metric. In attempting to tackle this massive problem, it might be interesting to solve a problem for a specific produce first before tackling the even larger problems faced by the mass market.

Although a digital strategy like this one Olam is utilizing for smallholder farmers might improve data collection, I fear that benefits for Olam might outweigh benefits for the farmer. I think Olam’s digitization efforts will without a doubt foster better predictive models and faster reaction times to changes in supply from their producers. However, it might not have the desired impact to raise the efficiency of the system as a whole. I would argue that farmers in rural areas face other more significant problems such as access to financing, warehousing & logistics, and sales & payment mechanisms which may have a much larger impact on the livelihood of the farmers. Problems in agriculture remain mostly inherent in the logistical aspects of the supply chain. Although digitization will give Olam a competitive advantage in pricing and allocation of resources in it’s role as a global trading powerhouse, I question whether it would be enough to push forward the boundary of the agricultural supply chain.