Module 1 Discussion: Will alternative fuel vehicles affect the operational and supply chain

strategies of the automotive industry? Are there parallels in other industries where disruption
is/should be taking place?

Will production of alternative fuel vehicles (e.g. electric, natural gas, etc.) become a major focus
for automotive companies and, if so, how will these alternatives affect their operational and
supply chain strategies? Are there parallels that can be drawn from other industries where
disruption is/should be taking place?

The production of alternative fuel vehicles, including those that utilize electric, natural
gas, or other forms of alternative energy, has the potential to become a major focus for
automotive companies. A market exists for vehicles that function off of alternative fuel,
especially as major lobbying efforts for “green energy” (Holbrook, 2017) and discussions
regarding the finite amount of fossil fuels remaining (Senior, 2017) have increased in recent
years. Electric vehicles (EVs) are a specific example that has become the focus of many
companies, including automotive giants looking to gain advantages over the competition or
new start-ups seeking to carve out a niche in this multibillion-dollar industry.
Companies can consider two main paths when contemplating the manufacturing of EVs,
conversion or purpose design (Ward, 2017), both of which have implications on the operational
and supply chain strategies these companies must use. Conversion design essentially starts with
a vehicle that uses internal combustion for propulsion and substitutes the powertrain for
electric propulsion. This approach is best for existing corporations looking to enter the EV
market because it minimizes the cost of development and allows existing processes to be
adapted. This approach was used by established companies such as Ford and Toyota, while the
purpose design approach was implemented by new and emerging companies such as Tesla
(Klug, 2013). Purpose design allows for developers to design the EV from the beginning with the
electric powertrain as the primary focus, which permits greater innovation but also requires
greater research and development costs. These different approaches affect the operational and
supply chain strategies implemented by companies. Those using the conversion approach may
be able to get to market faster because of their global supply chain connections and existing
infrastructure, but may not attain the most innovation unless increased funds are allocated to
research and development. Companies implementing the purpose design approach may
struggle in the beginning to overcome barriers to entry in such a large industry, but they will
excel competitively if they utilize variety-based positioning in their respective niche; Tesla is the
perfect example of this.
Parallels exist in many different industries. One example involves how people enjoy
music. In the past, people enjoyed music by listening to a live band or through playing on vinyl.
In the early 2000s, the iPod was introduced, which revolutionized the way people listened to
music. People transitioned away from CD players and earlier devices such as 8-track players and
adopted this new technology over the next decade. The 2000s were dominated by portable
mp3 players. Apple emerged as a leader in the field, using a strategy similar to the purpose
design used in EV development to develop the iPod and iTunes, starting from the ground up.
 In the past several years, music streaming has become preferable to local storage of
mp3 files. The streaming service Spotify began with the purpose of being a music streaming
service, employing a strategy similar to purpose design. As other companies observed their
success, imitators soon emerged. One example is TIDAL, a music streaming company
introduced by music industry mogul, Jay Z. TIDAL has yet to gain the widespread adoption
Spotify has enjoyed. Apple even pitched their own streaming service, Apple Music. They
converted a portion of their existing product iTunes, that was used with the iPod, to form Apple
Music. The approach used by Apple can best be described as a strategy analogous to conversion
design. This was the best strategy for Apple, as they did not need to reinvent the wheel – they
had a product that worked and just needed to convert a portion of it to break into this new
market. This is analogous to what the automotive giants did when they utilized the conversion
design approach to just switch out the internal combustion powertrain for electric. The largest
competition for streaming music exists between Spotify and Apple music as of right now. The
company that comes out on top must ensure their operational strategy is superior to the other.

Klug, 2013 – accessed from Canvas

Ward, 2017 - https://automotivelogistics.media/intelligence/shifting-currents

Holbrook, 2017 - https://www.energymanagertoday.com/tech-giants-increase-lobbying-spend-

renewable-energy-0171218/

Senior, 2017 - http://www.carboncounted.co.uk/when-will-fossil-fuels-run-out.html