Tesla's Golden Egg

By Frank Rovella
Elon Musk is about to lay a golden egg in the Nevada desert with the world’s largest battery manufacturing facility. The $5 billion Tesla Motors battery factory, which is currently under construction will be the largest of its type in the world. All last summer states in contention for the facility were falling over themselves in an effort to be selected for the plant. Nevada, the winner of the competition offered Tesla over $1 billion in incentives.

Everyone knows that electric cars are gaining in popularity and practicality, especially if you consider some of the advances that Tesla has been able to achieve. The new Tesla plant makes sense for this growing company and the industry as a whole. However, unless some serious advancements are made in battery and vehicle performance and cost the market for electric cars will always be a niche. So it begs the questions is there a need for a factory so large and is there that big of a market to be had for electric cars, today the answer to both is no.
But this isn’t just a battery factory for electric cars, Musk also owns SolarCity Corp., which is a full-service solar power provider. Currently operating in 15 states and growing, SolarCity is a single source for the entire solar package, from design and permitting to installation and repair.

Why Batteries Matter
Alternative power generating applications (green energy) such as wind and solar has always been held back by the lack of a practical method for power storage. The inability to get power when you need it has always been the biggest drawback. The wind doesn't blow the sun doesn't shine, real fodder for a blues song, but if you’re trying to calculate ROI the feasibility just isn't there. In the early days, developers were counting on battery technology to catch up. The federal government and many states have helped keep the industry afloat with very generous energy credits and incentives. But practically speaking compared to the large scale power generation of an NG fired power station, without taxpayer-subsidized incentives the green energy industry would look much different. Add to this the recent drop in natural gas prices due to massive domestic increases in the extraction and being competitive would seem a vain effort.
For practical purposes solar and wind power are best suited for on-site use, and from the beginning, the scenario of on-site power generation has been the industry dream. There are three factors that will ultimately allow this to become a reality.

1. The continuation of federal and state incentives
No matter how cheaply power can be created through existing methods, being green is a key political issue, so don’t expect energy credits to go anywhere. As it stands today, without credits and incentives there is no form of alternative energy that can be competitive with baseload power.

2. Cheaper solar panels that last longer
As the innovation continues, and the economy of scale kicks in, cost and panel degradation have been steadily decreasing as output per square foot has been steadily increasing. This is a trend that shows no signs of abatement. 

3. Cheaper higher capacity batteries
This is the golden egg. Tesla has clearly exhibited increases in battery performance, they recently announced that they achieved a 300-mile range per charge in their cars. In addition, for Musk to get $5 billion worth of backing from companies like Panasonic means that they are onto something.

Many major utilities sponsor green energy projects and see the type of on-site power generation that Musk is offering as a benefit that would lift some of the burdens of increased demand. This is a good assumption if you don’t factor in storage capacity, which until now hasn't been a serious concern.

What may be about to happen will unfold outside of utility regulation. Typically, without the ability to store the energy being harvested, it had to be sold back to the utility. Expensive systems meant that even with generous incentives, small scale generation was more of a hobby and only practical in remote locations.
Elon Musk’s companies are in a position to change that scenario. Imagine a cheap and easy to install a solar array for a residential application with a measurable ROI. Collect the energy during the day and use it at night. Companies such as SolarCity could install and maintain systems just like any other service industry, and doing it for less than utility costs. For the solar and wind industry, this is the scenario that they have been waiting 30 years for. For utilities, this is a scenario that will change over 100 years of dominance.

The overriding factor that will be the true test of the viability of green energy technologies and lead to its widespread adoption is in the use of energy credits and incentives. If systems can be developed that provide savings on their own without the help of Uncle Sam, then people like Musk will make billions, and the way we think about power generation will change forever.

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The New Lean Imperative

HYPER EFFICIENT METHODOLOGIES FOR A  HYPER COMPETITIVE WORLD: HOW THE EU IS COPING

By Frank Rovella
Over the past 20 years, the tenets of Lean Manufacturing have gone from nice to have, to must-have, to an SOP. Nations across the western world have implemented Lean Manufacturing with great success, so much so that without it, being competitive has become virtually impossible.  If you were around in the early days, before Lean became a household word, you'd remember how difficult it was to implement. Toyota had to practically crush the US auto industry before anyone took it seriously.

Here we are in 2015, the word Lean is now rarely used because of its just business as usual. So what happens when you take a Lean enterprise, place it in a developing, unregulated economy with the same material resources as the western world, and labor costs that would make Montgomery Burns smile? Serious competition.

How companies in the EU have dealt with this rising tide of competition is simply to enhance systems and processes that are already in place. Many success stories have been highlighted through the Industrial Excellence Award (IEA).  Since 1995 European manufactures and suppliers have competed for the IEA, which awards companies that have proven their competitiveness through new and innovative means. The award is the vehicle for benchmarks that benefit the entire industry; additionally, the IEA is also highly prestigious and tells partners, customers, and colleagues that they are serious about being competitive.

After looking at some of the recipients, I found three main areas of innovation that distinguish winners of the IEA; they are:
1.    Maximize data flow across the entire supply chain
2.    Create value elsewhere in the supply chain
3.    Enhance manufacturing efficiency through communication and process flexibility

Maximize data flow across the entire supply chain
We have all heard it, partner with your customer, partner with your suppliers. For IEA winners, it means sharing data with customers and suppliers in real-time, as if they were an in-house entity. This allows for a seamless and fast reaction to any changes that may affect production or the product. The level of cooperation and data sharing required here is something that is difficult to impossible to achieve with off-shoring. Not many companies in the US or the EU would be comfortable sharing that level of data with a supplier in China, Brazil, or India. However, it is much easier to accept when you’re dealing with suppliers who have the same values and standards of quality and abide by the same laws of intellectual property. In the EU, this is now standard practice for engaged companies. The reward is a sense of ownership between stakeholders and the creation of something we don’t hear much anymore, trust, and loyalty.

Create value elsewhere in the supply chain
One can relate this aspect to any value stream except it goes beyond the shop walls. To succeed an organization must have the ability to look up and down the supply chain. The hard part is understanding the challenges that each member faces and the knowledge that your part of the chain is only a fraction of the total cost of the product. Again, this is the insight that most offshore providers simply will not have. However, if the entire chain has this understanding than the group can move as one.
Of the three areas, success in this requires an elevated level of innovation. The benefits are certainly tangible, the cost savings and decrease in the waste can make a big impact however; there are a number of intangibles that are harder to put into numbers. The most obvious is the benefits to partner relationships, especially with new customers.  Getting insightful suggestions drives home a company’s commitment to the long term. It also places them in a position of being more than just a provider of products and services. For employees working on this type of initiative, it allows them to work in areas outside of their usual sphere of influence, giving them a broader understanding of related industries and processes. That is a win-win now and down the road.

Enhance manufacturing efficiency through communication and process flexibility
In today’s far-flung supply chains, changes to product specifications usually equate to schedule delays, missed deadlines, or excessive waste. The ability to be responsive starts with the ability to be flexible.
Eliminating these issues begins with open lines of communication between suppliers up and down the supply chain.  Each stakeholder needs to be able to contact the person that makes the decision that will facilitate a change quickly. For example, recipients of raw materials should be able to easily change the requirements for a particular JIT delivery while manufacturing and assembly processes should be set up to easily accept requests for change.
Achieving this type of hyper-responsive environment requires a roadmap with clearly defined responsibilities and processes that are designed to allow for change while minimizing their impact. The commitment, that this entails, needs to reach into every part of the organization, from the front office to the loading dock. Every employee has to be a stakeholder. If all of the staff understands what their part is and why, you’ll build trust and dedication within your own walls, which will as a matter of course permeate to your suppliers.

The type of competitive success that the IEA focuses on can only be won by a broad commitment that is shared by entire industries. This means that the entire supply chain must be doing business in the same manner. Similar to selecting a supplier with an ISO cert, you would also have to choose partners with the ability, and the desire to hold up their end of the bargain. 

In the US, as in Europe, this must begin with larger manufacturing entities that have the resources and utilize larger supply chains. Just as in the early days of Lean, over time the benefits will slowly reach even the smallest shops. One could certainly draw similarities between today and 25 years ago.  I remember holding Kaizen events with people who didn't understand why we needed to turn everything upside down. In fact, we were turning them right side up, right now we need to polish the profile.

 

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