There was quite an interesting earnings call yesterday from Tesla (the automaker, not the awesome rock band).
CEO Elon Musk vaguely disclosed some restructuring that the company would be doing in order to better progress towards its profitability goals. He specifically addressed an apparent problem with Tesla’s over-reliance on a bloated supply base.
Business Insider published the following quote from the call:
“The number of third-party contracting companies we’re using is out of control,” [Musk] said. “We’re going to scrub the barnacles on that front. We’ve got barnacles on barnacles. So there’s going to be a lot of barnacle removal.”
Oof. Calling suppliers “barnacles” publicly. In my 22 years in procurement, that’s a new one for even me!
Suppliers can provide an organization with expertise and productivity that it just doesn’t have and can’t efficiently develop in house. To speak so derisively of such resources could set the procurement world back centuries.
But, let’s consider: Are organizations starting to reign in the ever-increasing outsourcing that has become the norm over the past 20 years?
Well, in one unrelated development, Walmart built its own dairy processing plant to supply its own store-brand milks. This was a big blow for companies like previous supplier, Dean Foods, and all of the farms from which it purchased milk. For a giant in – and master of – their space, this vertical integration with an old-school industry was certainly surprising to me.
If there is one truism in business, it’s that companies play “follow the leader.” Will Tesla and Walmart lead the way towards more vertically integrated supply chains? Has the outsourcing pendulum swung away from the “get someone else to do everything except your core competency” mentality that has been the way things have been done for nearly a generation?
There could be an interesting shift of the tide on Procurement Beach soon. Stay tuned!