Operations Managementg


The automobile industry is an industry characterized by distinct operational and supply chain models. This paper compares the operations and supply chains of three companies in the automotive industry. The paper examines how different approaches reflect the different strategies of each company. It considers whether performance validates these choices. It discusses whether the strategies need to evolve in response to changing factors such as consumer needs and environmental needs.

The analysis shows that operational and supply chain practices should always be changed to adapt to new market trends and consumer needs.

The value of this research is proving how operations and supply chain are intertwined. This study also reveals how different operations and supply chain models work as a competitive advantage among the leading market players in the automotive industry.

Research review



Players in any industry must come up with strategies to run effectively and efficiently. Organizational strategy can therefore be defined as a plan that guides a business how to allocate its resources to support its outputs and business activities. An organizational strategy is a roadmap that guides it through its operations to develop its competitive advantages and ultimately achieve its financial goals (de Sousa Jabbour, et al, 2018).

In the lay man’s language, a strategy can be compared to a map or guide that shows someone the way through a hiking route. Without the road map one would lose their way and probably never get back on course and end up starving to death. Just as the road map is important to a traveler, an organizational strategy is key for its successful journey towards its objectives. The APICS ties together strategy to the organizational strategic plan. APICS defines strategic plan as those actions laid out to support the goals, objectives and mission of the organization (Jacobs et al., 2011).

Supply chain

The Supply Chain Council was formed in 1995 as a consortium of big consulting firms and commercial companies to properly carve out a clear definition and set standards of the supply chain (Soosay et al., 2008). By the mid-1990 the supply chain was a new in the corporate world. The supply chain council came up with the supply chain operations reference model (SCOR) as a guide for organizations (Soosay et al., 2008). The SCOR model provides a standard guideline to be used by industries to benchmark their supply chain operations. The SCOR model defined four supply chain functions namely: plan, source, make and deliver but in the 2013 version 11.0 of the SCOR model, return was added. The SCOR model version 12.0 of 2017 also incorporates more metrics, practices and benchmarks aimed at improving supply chain management activities (Soosay et al., 2008).

The supply chain is so important to an organization to the extent that it determines its survival or ruin and it is thus a vital topic of study (Tzu, et al., 1971). Supply chain is in the simplest terms defined as synchronizing or balancing supply with demand. Supply chain management conjoins the activities of getting raw materials, sourcing other business inputs, putting them together into products and ensuring their successful delivery to the final end user (Soosay et al., 2008). Supply chain management also goes to the extent of defining how to get back products from customers in case they needed replacement, repair or for disposal.

The APICS dictionary incorporates cash flow in its definition which states that supply chain management is the network used to deliver services and products from raw materials to end users through a strategic flow of information, cash and physical distribution (“APICS Dictionary | ASCM”, 2021). This definition is more conclusive than most since without having means to collect cash from customers in time, pay suppliers and creditors efficiently, you won’t be in business for long.


Operations refers to those business activities that recur on a daily basis to increase its value and earn profits (Bovet, D., & Martha, J., 2000). Those activities should be optimized to generate enough revenue to cover expenses, remunerate the owners and earn the business profit. Operations therefore keep evolving with time to ensure that the business is at par with current activities ensuring that it is continuously competitive in today’s evolving business environments. For instance, the Maui sugar company had to close its operations in 2016 only because the Hawaiian sugar industry continued to do their operations the same way for decades (La Croix, S., & Mak, J., 2021). Their operations ceased as they became outdated and were thus no longer competitive.


In any industry the link between strategy, operations and supply chain management aims at matching demand and supply by coming up with a transformation process and in the most efficient way (Tate, W. L., et al.,  2010). The three simply build a bridge to close the gap between raw material suppliers and product end users.

Description of the automobile industry

The automobile industry is a very complex sector since thousands of parts are required to be delivered for the manufacturing process and to also deliver the products on a global scale. The automobile industry is the largest single manufacturing sector in the United States (Liu, W., & Yeung, H. W. C., 2008). That is in terms of products, industry value, value addition and the number of employees it has. A research carried out by Cohen, M. A., et al., 2006 indicated that one in every six American businesses depend on the manufacture, distribution, servicing or use of motor vehicles.

A study conducted by the International Monetary Fund concluded that owing to the speed by which horse carriages and buggies disappeared in the 1900’s, all gasoline and diesel-driven vehicles could be out of the roads by 2040 (Cherif, R., et al., 2021). That is proof enough how fast change can happen. It is therefore vitally important that the automobile industry implements changes in their operations and supply chain to remain competitive.

Traditional characteristics of the automobile industry

The automobile industry organization is based upon a pattern first adopted by General Motors in the 1920s (Langlois, R. N., & Robertson, P. L., 1989). The model included a central organization responsible for overall planning and policy making. Smaller operating divisions reported directly to the executive committee in the central organization but each of them responsible for their own internal management and operations. In most cases, the operating divisions competed amongst themselves. The Ford Motor company followed the GM pattern after World War 2 owing to the changing times in the industry (Langlois, R. N., & Robertson, P. L., 1989).

Larger context of industry

The automobile industry today has grown immensely and has become largely standardized. Today, before a new car model is released to the market, the first thing is to conduct a market survey (Liu, W., & Yeung, H. W. C., 2008). There are big risks involved in the industry if the right supply chain management is not applied. For instance, in the late 1950’s, the market research conducted by the Ford Motor Company indicated a high demand for a high price range car. Unfortunately, when Ford released Edsel, both the economy and public taste had drastically changed (Bonsall, T. E., 2002). This is because it took at least five years between market research and the design stage. After the market study, the following step is usually stylists, engineers and company executives deciding on the basic design of the new vehicle. Finally a mock-up of the car is produced from which modifications and refinements are made (Bonsall, T. E., 2002).

Owing to the competitiveness and globalization of the automotive industry, manufacturers have been forced to develop new operations and supply chain models to shorten the period between market research and production. This has been implemented by GM by incorporating marketing managers, vehicle engineers and designers into one team to effectively reduce the market study and production period to only three years (Morgan, J. M., & Liker, J. K., 2020). Automakers today have gone to the extent of directly involving component manufactures in the design stage to avoid time lost in redesigning components. Today, automotive manufacturers have gone to the extent of giving component makers full responsibility of the engineering and design of the parts they supply (Morgan, J. M., & Liker, J. K., 2020).

Industry-specific operations and supply chain issues

As the automobile industry grew, large producers decentralized their manufacturing operations into regional assembly factories. This paved way for the central plant to ship parts and components to the assembly plants. This effected substantial saving in transportation costs and therefore ensuring smooth operations. The Ford Company developed this operation and supply chain system in 1911 (Rich, N., & Hines, P., 1997).

This model was altered by Japanese firms in the 1980s and 1990s who built new factories across the world instead of stockpiling parts in assembly plants or shipping all the components from the central factory (Rich, N., & Hines, P., 1997). Automakers outsourced non-critical parts like seats to independent suppliers who made the pieces at smaller facilities close to the assembly plants. The small parts were then assembled to larger components by the suppliers and delivered to assembly plants systematically as and when needed.

Today motor assembly lines have shifted to automatic control systems, computer-guided robots and more automatic equipment making operations efficient than ever before. The first automatic transfer machined were incorporated by Austin Motors in Britain in 1950 (Church, R. A., 1995). Ford Motor company followed suit in 1951 with the first large scale automatic engine installation plant (Church, R. A., 1995). This change in operations in the automobile industry has led to a smooth evolution of the supply chain.

The supply chain in the automotive industry has faced many drawbacks in the past owing to lack of efficient technology. However, today with all the automation and technology there is, the supply chain still faces problems brought about by modern challenges. The supply of raw materials like rubber, microchips, aluminum and thermoplastic resin has become unreliable making the prices extremely volatile (Morgan, J. M., & Liker, J. K., 2020). Some of these problems have particular become rampant in the recent past owing to the global Covid-19 pandemic. The pandemic has by large affected global trade and transport negatively. This material shortage in the industry has led to extended lead times and sudden cost surges affecting the overall operation and supply chain of the auto industry.


In the automobile industry, the leading players are BMW, Mercedes-Benz, and Tesla. These leading players have been on the front line in the manufacture of electric vehicles which are more efficient and reduce carbon emission to the environment.



Tesla Motors is an American company founded in 2003. It manufacturers electric vehicles, solar panels and batteries (Musonera, E., & Cagle, C., 2019). In 2008 Tesla released its first completely electric car which achieved a 245 mile range on a single charge. The Roadster also proved to be way ahead of normal gasoline-powered cars as it accelerated to 60 miles per hour in less than four seconds. In 2015, Tesla’s Model S was the world’s best-selling electric vehicle (Musonera, E., & Cagle, C., 2019).

Market share, sales, profits, etc. 

The demand of electric vehicles has been on an upward trend in the recent past. Tesla motors has a huge share of the US market with their vehicles Model X and Model S being at the helm of electric vehicles. The Model S and Model X had a sales share of 29% and 16% respectively in the first half of 2017 (McCarthy, et al., (2017). However, on a global market, Tesla is beaten by the Chinese car manufacturer Build Your Dreams (BYD) (McCarthy, et al., (2017). In the vehicle manufacture market in general, for both gasoline and electric vehicles, Tesla only has a total of 2% of the total market share as of 2016 (McCarthy, et al., (2017). However as the world gets more environmentally conscious, tesla’s market share is projected to hit 22% by 2030 (McCarthy, et al., (2017).

Tesla’s revenues rose from $8.77bn in 2020 to $13.6bn in the third quarter or 2021 with a profit of $1.6bn which emanated from sales of 241,391 cars (Lander, L., et al., 2021). Tesla indicated that this was their best net and gross profit ever. China has remained to be the main export hub if Tesla’s vehicles especially with the roll out of a cheaper lithium iron phosphate battery. The battery reduced costs and also addressed shortages making the cars more appealing to consumers.


Tesla’s strategy has simply been to follow the normal operations of the motor vehicle manufacturing industry but enter the market with an expensive, high-end vehicle to attract the high-price market. As the company grows, and with sufficient consumer acceptance, Tesla is moving to more competitive markets with lower prices (MAOHENG, W., 2018).

Tesla motors has a simple three-step strategy. The electric car technology and battery for every new model developed will be paid for by proceeds of sales of the previous model. Their first vehicle was the Tesla Roadster followed by Tesla Model S, Tesla Model X and Tesla Model 3. The initial step was manufacturing a low volume of the Tesla Roadster at a high price, The Model S was the second step with mid volume and mid-price and finally the third generation model with high volume and at a low price (MAOHENG, W., 2018).

Operations differentiation

Tesla motors operations are quite non-conventional as compared to other motor vehicle manufacturers. They apply vertically integration in their business model across their operations and supply chain. For instance, they don’t involve dealers in selling their vehicles and apart from vehicle production, Tesla also makes solar panels and batteries for power storage. (Ahmad, S., & Khan, M., 2019).  Tesla’s gigafactory specializes in manufacturing Lithium-ion batteries for its electric vehicles. This in-house production reduces cost and also creates many employment opportunities locally. It is therefore true to say that Tesla’s operational differentiation revolves around building a green energy ecosystem with reduction of reliance on suppliers by vertical integration (Chen, Y., & Perez, Y., 2018).

Supply chain differentiation

The supply chain of Tesla motors entails engineering and design, manufacturing, sales and distribution, car servicing and charging booths (Chen, Y., & Perez, Y., 2018). Tesla integrates automated manufacturing with little human intervention (Chen, Y., & Perez, Y., 2018). This automaton ensures that operations and productivity are efficient within its factory.

Tesla ensures logistical nearness of its factories for to fulfill vertical integration. On the part of transportation, logistics has become a challenge in delivering its vehicles to customers (Chen, Y., & Perez, Y., 2018).

Tesla’s supply chain differentiation also extends to door-to-door delivery of vehicles to its customers which they call ‘tesla direct’ (Chen, Y., & Perez, Y., 2018). This unconventional way of delivering vehicles without involving third party dealers has however proven to be inefficient.

Tesla motors has reduced inventory costs by implementing the just in time philosophy. Tesla ensures that outbound inventory is kept at a minimum by producing vehicles as per the consumer’s demand thus reducing the need for storage space for finished products (Chen, Y., & Perez, Y., 2018). This ultimately reduces both costs and risks associated with huge inventory storage.

Information system is an integral aspect of Tesla’s supply chain as it’s the center of project management, procurement and production. Tesla’s vehicles also rely fully on computer software and electronics which they call ‘computer on wheels.’(Sathish, S., & Weenk, E.). This makes the vehicles fully autonomous and super intelligent with frequent online software updates.

Finally human resource make up one of Tesla’s core competence. Tesla’s main factories are at the center of Silicon Valley in California which is rich in intelligent and hardworking human resource. Tesla uses this advantage by sharing technology and workforce with big companies like Space X and Hyperloop. For instance, Tesla’s entertainment system was engineered by Space X engineers (Sathish, S., & Weenk, E.). This integration of innovation and intelligent human resource has put Tesla at the fore line in working with consumers and suppliers have a modern taste of the auto world.

Mercedes Benz


The origins of Mercedes Benz can be traced back to January 1888 when Carl Benz submitted a patent of the first ever gasoline powered car (Lemley, M. A., 2011). Mercedes is a German multi-national subsidy of Daimler AG especially known for production of its luxurious and high performance cars. Their infamous slogan ‘The Best or Nothing’ and their vehicles are today some of the most recognized in the world (Lemley, M. A., 2011).

Market share, sales, profits, etc.

Mercedes Benz generated a total revenue of $89.5bn globally in 2019, while the total market revenue was $2.2tn (Lander, L., et al., 2021).


In October 2019, Mercedes Benz rolled out a new strategy that will see to it that there is profitable growth targeting electric cars and software as well as production of luxury cars (Hildermeier, J., et al., 2019).

Mercedes Benz came up with six pillars of the strategy. The first being think and act like a luxury brand. The automotive maker has always been known for luxury vehicle manufacturing in all its products and customer interactions. Mercedes Benz coined their new luxury experience to be electric and software-oriented.

The second pillar was focusing on profitable growth by recalibrating and improving its marketing strategy. This strategy will focus on price, volume and distribution mix for all its products in the market segments it competes to ensure high profitability.

The third strategic pillar is expanding their customer base by increasing its sub-brands and accelerating their development with clear and targeted plans to unlock their potential.

The fourth pillar is to embrace customers aiming at recurring revenues. Mercedes Benz is committed to having the best customer relationship ensuring an almost 100% customer retention rate. Mercedes Benz will therefore focus on creating stronger loyalty, increased repeat customers and increased growth in recurrent revenues.

The fifth pillar is in the electric car and software production. Mercedes Benz has announced four new electric brands with the first one reaching the market in 2021. For the car software, Mercedes Benz announced that it will produce its own in house MB.OS car operating system and is scheduled to be released in 2024.

Finally lowering cost and improving their industrial share is the sixth strategy pillar of Mercedes Benz. Mercedes Benz aims at generating more cash and profits to accelerate the transition to electric vehicles. They aim at cutting fixed costs by 20% or more by 2025, reducing overall spending, lowering personnel cost and making capacity changes to ensure that they achieve these transformational strategies (Hildermeier, J., et al., 2019).

Operations differentiation

Mercedes Benz has many operational management responsibilities just like other automakers in the industry. Mercedes changed its production operations in 2014 to reduce fixed costs, improve productivity and flexibility (Thomas, E. F., 2014). Mercedes aims at generally reducing capital investment for all their models. This has made the automaker to move from its manufacturing programs from its factories to a learning programmer that revolves around vehicle design and architecture (Thomas, E. F., 2014).

Another operational differentiation brought forth by Mercedes Benz is focusing on volume growth with a stable human resource to help increase its efficiency. This will be achieved by reducing the hours per vehicle production by 40% in the next ten years to help cut down overproduction (Thomas, E. F., 2014).

Supply chain differentiation

Mercedes Benz applies the traditional automotive manufacturers supply chain which revolves around having partnerships with other manufacturers. They also open branches in other countries to enable them expand their supply chain globally. The most distinct supply chain differentiation of Mercedes Benz is focusing on parts and raw materials that are environmentally friendly aiming at CO2 emission reduction (Biresselioglu, M. E., et al., 2018).



BMW a Germany multinational company was formed after the restructuring of the Rapp Motorenwerke an aircraft engine manufacturer in 1917. After the end of WW1, BMW was forced to stop aircraft engine manufacturing by terms spelt by the Versailles Armistice Treaty. BMW shifted to motorcycle manufacturing in 1923 and automobiles followed suit in 1928. BMW made their first four-wheeler in 1929 in a hired factory (Kiley, D., 2004).

Market share, sales, profits, etc.

In the 2020 financial year, China was the biggest market for BMW owing to 778,700 units sold to Chinese customers in that year. Those sales were more than twice than those it made in Germany. However, statistics in 2014 and 2019 financial years have shown that BMW sales dropped to 356,000 units from 400,000 units. In a span of 1 year, BMW’s MINI sales dropped by 33.2% in 2019 (Jia, Y., Richardson, J., & Gentry, R. J., 2021).

In the first half of 2020, BMW recorded higher profits than the 2019 financial year despite the global Covid-19 pandemic and semiconductor shortage. This was brought about by more customer demand in the first half of 2020. In the first half of 2021, BMW sales soared up by almost 40% from the previous year 962,575 units (Jia, Y., Richardson, J., & Gentry, R. J., 2021).


BMW’s strategy aims at ensuring effective digital after sale upgrades of their electric cars aiming at improving sales. They also look forward to a personalized marketing approach and offering customer-tailored products and services (Jia, Y., Richardson, J., & Gentry, R. J., 2021).

Operations differentiation

One of the most significant operational differentiation strategy used by BMW is making car parts that customers are emotionally attached and relative to. BMW has been able to position its products as both luxurious and prestigious. Customers therefore want to own a BMW for the prestige it comes with. This has ensured brand loyalty in the brand leading to growth in their customer base especially for consumers looking for status associated with BMW products (Jia, Y., Richardson, J., & Gentry, R. J., 2021).

Another operational difference of BMW is the usage of innovativeness and technology whilst manufacturing their vehicles. As early as the 1990’s, BMW has incorporated technology in its products leading to creation of more inventive vehicles today (Jia, Y., Richardson, J., & Gentry, R. J., 2021).

Finally another important operational differentiation strategy of BMW is the establishment of strong links between customers and the company (Jia, Y., Richardson, J., & Gentry, R. J., 2021).

Supply chain differentiation

BMW has a reputation of customizing their cars to suit customer needs. This program also allows customers to receive their orders within 12 days after it’s placed. This supply chain differentiation has been a great competitive advantage of BMW against its competitors (Salvador, F., et al., 2009).

Emerging operations and supply chain management issues in the automobile industry

General trends

The general trends of the automobile industry today are signified by fully autonomous vehicles, electrified, connected and gradual software updates (Salvador, F., et al., 2009).

Today the transition to carbon free mobility cannot be underscored and will soon be a global requirement. The electricity used to charge electric car batteries will be produced from renewable sources to ensure minimum CO2 emission.

Development of self-drive or autonomous vehicles is also a growing trend in the industry today. This will reduce public mobility usage.

Connection as an emerging trend in the automotive industry is double edged, one with the communication between cars and two communication between the occupants and the outside world.

Finally gradual software updates will enhance hardware usage with the new updates. This will enable customization of the vehicle usage as well as ensure that vehicles react to changes in the traffic management infrastructure.

Impact of COVID-19

The Covid-19 global pandemic has not spared the automotive industry. Today, the automotive industry has become globally integrated and thus any global order disruption means a great blow to the industry. Exports of parts and raw materials have been affected and thus thoroughly affecting the production and supply chain of motor vehicles. Closure of assembly plants in the US for instance affected large scale manufacturing of vehicles (Hoeft, F., 2021).


In the automobile industry, a key question is whether operation and supply chain strategies need to change with changes in the automobile industry.

Internal and External Analysis (SWOT Analysis)

The SWOT analysis is a marketing analysis tool that evaluates the strengths, weaknesses, opportunities and threats of an organization. We will use SWOT analysis to analyze, compare and contrast how the strategies of Tesla, BMW and Mercedes Benz influence operational and supply chain decisions.

Tesla SWOT analysis

Strengths Weaknesses
Innovation owing to the fact that it is based in Silicon Valley

Tesla has strong control on production as it employs a vertical integration model

Tesla is new in the market and thus has limited market share

There is limited supply chain as everything is done in-house

Their products are quite expensive

Opportunities Threats
Manufacturing more reliable batteries for longer driving distances.

There is room for global business and supply chain expansion

Expanding charging capability to other countries.

Positive global image due to reliance on renewable energy

Some governments like Denmark are issuing subsidies to promote green energy usage

There is heavy competition as other market players produce electric vehicles

There is a lot of price volatility for the raw materials used

Dealership and regional regulations since Tesla’s models are new


Mercedes Benz SWOT analysis

Strengths Weaknesses
Strong brand position enabling it to easily expand into new markets

Financial stability through cost reduction in their business

Mercedes Benz has a remarkable track record in innovation

Its supply chain ensures that it has dedicated customer relationship and hence is known for customer satisfaction

Mercedes boasts a strong distribution network

It has an efficient and strong dealer relationship ensuring sales go through smoothly

High maintenance cost for their vehicles

Slow development due to its distribution network


Opportunities Threats
There is an upsurge of premium and luxury vehicles especially in developing countries.

Technological advancement with the advent of electric and autonomous vehicles

The automotive industry is growing providing an opportunity for expansion to other markets

Collaborating with other firms is an opportunity to grow

High competition from other market players such as BMW and Tesla

High cost of production and R&D due to expansion in new markets

Government policies such as reduction of carbon emission

Fluctuating prices of raw materials such as semiconductors and increasing prices of steel


BMW SWOT analysis

Strengths Weaknesses
High global presence

Competence in electric and autonomous cars

Customer retention

Increased financial crunches due to high debt levels

Expensive service and maintenance of their vehicles

Opportunities Threats
High demand for electric and autonomous vehicles

Increase in fuel prices presents an opportunity for electric vehicles

Increased vehicle production time.

High competition in the global automotive market

Unfavorable government regulations leading to increased costs

Reduced market share in the US market



This study shows that Tesla has different operations and supply chain models as compared to BMW and Mercedes Benz who rely on the traditional models of doing business. However, in furtherance to this study, we have reviewed the operational and supply chain differentiations of the three companies noting that each of them is changing to adapt to the new changes in the industry.

It is important to note that the three companies all have a common goal of ensuring that they increase market share, sales and hence profits. The three companies also have shifted gears towards the production of both electric cars and their respective software to suit their consumer needs. This differential reflexes in operations and the supply chain will give companies a competitive edge over their competitors.

It is true to say that operation and supply chain management is an integral part in the automobile industry and should keep evolving as technology and user preferences change.






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