Hello Munro & Associates team,
[Greeting and intro omitted]
Near-Zero Inventory
At Shanghai they literally
do not even have a supply warehouse for materials and parts inventory, according to a few videos Tesla released in 2021 (links at end of this email). As far as I know, this is unprecedented in any major manufacturing plant anywhere in the world.
Additionally, in the videos, I have noticed a conspicuous absence of almost any lineside inventory; hardly any shelving, carts, pallet queues, kanban bins or any other typical lineside storage can be seen. It seems they barely even use forklifts.
Semi trucks show up to the site, unload supplies on the side of the factory directly adjacent to the production line, and within probably an hour at most, the materials/components are on vehicles. They said at the time of the interview that they were processing nearly 2,000 shipping containers per day in the 97 loading docks. This works out to approximately 20 containers per bay each day, for an average cycle time of merely 70 minutes or so. Plus, they also localized the majority of their supply chain to nearby Chinese suppliers. In effect, this too reduces Tesla's inventory in their overall value chain because fewer parts and materials are in transit at any given moment.
Additionally, I'm astonished by the implications this all has on the level of
quality control throughout the entire value chain that must have been achieved in order to enable having inventory buffers this low in the first place. Inventory exists fundamentally to accommodate variation by allowing the show to go on while an operation is deviating from an ideal state of continuous one-piece flow. If Tesla is producing thousands of cars per week from Shanghai with such low inventory, then this is strong evidence that they have drastically reduced variation and thus have increased first-pass quality to a level unheard of in the industry. I think the biggest factors driving this are:
- Using gigacastings for better dimensional precision for the structure (monolithic pieces means no tolerance stackup issues)
- New technique of building up most of the chassis on its own and then marrying with the body-in-white vertically
- Ergonomic improvements to the general assembly line, such as the Supertub and using a feederline for buildup of the whole dashboard assembly
- Extensive robotic automation
- Having employees who genuinely care about the company succeeding in their mission, such that they do the right thing even when no one is watching or telling them to do so
Massive Direct Cost Savings
Inventory reduction on this scale saves big money for Tesla.
- Less capital required for work-in-progress
- This increases overall return on capital, because the company earns nothing extra from this investment since inventory is non-value-added to the customer.
- An ideal production line would, by magic, instantaneously transform raw materials to a completed widget in the customer's possession.
- The upfront costs of the storage
- Land
- Building design and construction
- Storage equipment: Bins, Drawers, Shelving, Racks, Pallets, Labels & Scanners, etc.
- Transit equipment: Trucks, Forklifts, AGVs, etc.
- Recurring warehouse operating and maintenance costs
- Property tax
- HVAC
- Lighting
- Building maintenance
- Janitorial services
- Extra transportation of materials
- Moving items to and from storage locations is non-value added to the customer
- Ongoing forklifts/truck/AGVs operating and maintenance expenses plus compensation for operators
- More opportunity for a vehicle breakdown to disrupt production flow, introducing opportunity costs, overtime labor costs, expedited shipping costs, etc.
- Safety costs (forklifts and trucks are one of the most common causes of severe industrial injuries, and even when no one is getting hurt, they still have to spend time and mental energy focusing on avoiding nearby vehicles)
- Risk to the materials themselves
- Damage in transit
- Damage while stored (fire, leaking pipe or roof, earthquake, etc.)
- Expiration (for materials like chemicals)
- Theft
- Accidental loss from misplacement
Design-Build Cycle Acceleration
Besides the fact that reducing inventory is obviously a fundamental goal of industrial engineering because it directly helps with lean just-in-time manufacturing, the advantage is compounded by the way Tesla uses extremely agile rapid-change design engineering practices. The shorter lag time from design modification to new parts arriving on the production line means pace of innovation is less often going to be constrained by this factor.
Reducing inventory also improves the areal and volumetric density of value-added steps within the building, which also improves the rate of innovation. Obviously, inventory takes up space on the factory floor. Having worked at the enormous Boeing campus in Everett, I saw how distance can be a big impediment to having tight feedback loops. For instance, the delivery flightline is a 20 minute walk from the factory or 5-10 minutes by tricycle. And most of the design engineers work in buildings that are 10-20 minutes of walking away from the factory and adjacent production facilities. Having the shortest possible distance between production steps facilitates communication, visual controls like Andons, and more productive gemba walks. In an interview from earlier this year, Tom Zhu, the president of Tesla China, said he spends at least an hour every single morning doing a full walk of the production line. The less distance he has to walk, the more information value he's getting out of each minute of walking. Also, psychology and time constraints dictate that in general, most people will not walk more than about 100 meters to solve a problem face to face rather than ignoring it or making a phone call. So, the density of people per 100 meter radius has a big impact on how fast ideas will spread, or be sparked by random conversations. Overall, simply having less junk in the way speeds up innovation.
Video References
These videos contain a lot more juicy manufacturing info than just inventory reduction stuff, but they clearly show the inventory system Tesla is using.
Inside Giga Shanghai new video w/ english subtitles
[English-Subtitled] Tesla Gigafactory Shanghai Exclusive Media Tour interview Part 1
and
Part 2
and
Part 3
Inside Gigafactory Shanghai - a Guided Tour of Tesla's most productive Factory
Selected Screenshots
^ Supertub - Slide 42 of
2019 Impact Report
^ Insertion and mating of completed dashboard assembly from feederline
^ Marriage of body-in-white and chassis/partially completed interior assembly, facilitated by elevators and AGVs
arstechnica.com
