What Happened When Elon Musk Couldn't Ship a Car to His Buyer in Time
Musk called his problem 'delivery logistics hell.' What your company can do to avoid the same fate.
The successful shipment of finished goods to customers is many times the Achilles heel for any B2B or B2C company. Whether you're building pipelines, running a successful coffee brand or manufacturing electric cars, managing freight is never going to be the core competency of your or anyone else's fast-growing businesses.
This is why neither shareholders nor boards, nor analysts nor consumers wish to hear that the fortunes of your business rise and fall on the whims of the logistics you need to do those deliveries.
Flash back to Sunday, September 16: On that day, Elon Musk, the CEO of Tesla Motors, responded on Twitter to a customer's complaint about the delayed delivery of her new vehicle. His company, he wrote, was stuck in “delivery logistics hell.”
This being Elon Musk, the quote of course, made national news. Tesla after all is a high-profile technology company with a gregarious leader in Musk, who regularly uses hyperbole and makes outlandish claims in public forums.
However, in the context of the current logistics marketplace, Musk's tweet was not far from the truth. The issues around delivering finished cars that Tesla is dealing with are part and parcel of a significant problem plaguing businesses today -- finding drivers and equipment available to move goods.
At a macro level, the country’s supply chains are suffering from a period of very high demand and small supply. As reported by the Journal of Commerce, analysts from Gartner recently predicted that capacity will remain tight through 2018 and into 2019.
Exacerbating this predicament for Tesla is the fact that hauling finished vehicles is a specialty marketplace, with a relatively small number of carriers that can move those cars to market and get them into customers’ hands. Indeed, it's hard to find those specialty trucks, plus there are a limited number of drivers who can get behind that wheel.
Drivers must be specially certified for this type of driving and DOT-licensed. Ultimately, finding people who want to do that job has been an industrywide issue. As has been widely reported, driver shortages have been a greater problem in the past year than ever before, leading to tightened capacity for everyone.
And that buyer on Twitter waiting for her Tesla? She likely gained firsthand knowledge of the continued delays plaguing the “Intermodal” channel of logistics, which includes rail. As reported by the Intermodal Association of North America, right now is the peak season for train traffic carrying freight. Yet, having merchandise stuck in railyards is not uncommon this time of the year, as suppliers move goods to retailers building Q4 inventory.
Specific to Musk and Tesla, that company has recently ramped-up production of its Model 3, which has been greatly anticipated and has thousands of customers waiting on delivery of cars they reserved months or even years ago. Increases in volume significantly impact a company’s supply chain. And higher production means higher volumes and greater shipments to process, leaving executives in unfamiliar territory they are unaccustomed to managing.
What's happened at Tesla -- and at Walmart
Just two months ago, Tesla announced that Musk's self-proclaimed “production hell” had been put in the rear-view mirror, and the company had finally achieved its long sought-after goal of producing 5,000 cars per week.
However, that ramp-up in production levels has only served to exacerbate the post-production delivery issues. For young, fast-growing companies like Tesla, thinking about and managing the supply chain is typically very low or even last on the list of strategic decisions.
For B2C companies, in general, marketing and sales will always come first, as revenue growth is required to build momentum, garner public interest and attract investors. Logistics is usually not a high-profile function at any company, and acquiring that expertise internally is seen as an expense, rather than an investment with a significant return.
For this reason, the issue of inbound and outbound shipping capacity has bled into many small and medium- sized (SMB) manufacturers, especially in the retail sector, where increasingly larger retailers like Walmart are placing additional supply chain rules on vendors.
"On time, in full" (OTIF) is the latest regulation put in place by Walmart to require that freight, in the form of inventory deliveries, arrive during guaranteed delivery windows and that the shipment include all of the contracted goods. With large percentage penalties for incomplete and/or late deliveries looming, manufacturers are looking for ways to streamline and closely monitor both their inbound and outbound freight.
One solution that is increasingly common is using a third-party logistics (3PL) provider. A 3PL provides a variety of services that allow customers to achieve better service, on-time delivery, negotiated rates, custom reporting and more transparency for the supply chain.
The 3PL industry has been growing rapidly, with a few of the largest companies having gone public, and a significant increase in M&A activity happening in the sector as well. In addition to providing a one-stop solution to interact with the various modes of transportation necessary to deliver the finished products, 3PLs can help overcome driver shortages, provide visibility into inventory levels, offer business intelligence on key performance indicators critical to business initiatives and make companies more nimble and flexible in the face of changing market conditions.
Musk's challenges are quite similar to those of any entrepreneur experiencing hypergrowth and unexpected surges in customer demand. Here are some tips you can apply to your business to prepare for a growth in freight:
Understand the challenges that come with increases in volume.
Increases in volume significantly impact your company’s supply chain. Higher production means higher volumes and greater shipments processed. You can find yourself in unfamiliar territory that you may not be accustomed to managing.
Be knowledgeable about logistics or partner with a company that is.
Logistics is usually not a high-profile function at any company, and acquiring that expertise internally is positioned as an expense, rather than an investment with a significant return.
Find a partner that can identify ways to streamline and closely monitor outbound freight.
Because you likely face large percentage penalties for incomplete and/or late deliveries, you should always be looking for ways to streamline and closely monitor both your inbound and outbound freight.
Save time and budget with a partner that interacts with all modes of necessary transportation.
A 3PL can provide a variety of services that allows its customers to achieve better service, on-time delivery, negotiated rates, custom reporting and better transparency into the supply chain.