Operational Restructuring

at Harley Davidson

Group No. -06

Sahil A-51
 INTRODUCTION
 History
 The problems of plenty
 A Bike, A Culture, A Legend
 Restructuring The Operations
 Suppliers Relationship
Management
 Use of IT in Supply Management
 MRO Management
 Logistics Management
 The Problems Of Plenty

 Success had not come easily to H-D.In early 1980s the

company almost went bankrupt an account of severe
competition from Japanese motor cycle brands such as
Honda, Suzuki and Kawasaki.
 In 1990s, demand for the motor cycles increased to such
an extent that it was becoming difficult for H-D to fulfill
it.
 Customers were forced to wait for long.
 The huge gap between supply and demand resulted in a
flourishing black market for H-D motorcycles each
vehicle selling for a much higher price than listed.
A Bike, A Culture, A Legend
 Harley Davidson Inc. was started in small motor shed by
William Harley and Arthur Davidson.
 The success of the motorcycle soon attracted many
manufactures into the business.In 1913, it had as many as
150 competitors to H-D.
 H-D built upon first mover advantage by selling
motorcycles to US millitary and police depts. during 1910.
Q1 Briefly examine H-D’s evolution into the undisputed market
leader in the US motorcycle industry by the 1950s. Analyze the
factors that led the company to the brink of bankruptcy in early 1980s.
Critically examine the strategies implemented by H-D to regain its market
share and comment on their effectiveness

 H-D succeed in leaving behind most of its

competitor due to great depression of the 1930.
 H-D built upon first mover advantage by selling
motorcycles to the US military and police
departments.
 Which became symbol of a counter culture in
the US.
 H-D’s popularity and sales grew rapidly in late
1950s and 1960s as it launched new range of
super bike.
 It gave birth to biker culture.
 It became a fashion and lifestyle statement in
the last 1950 and 1960.
Mistakes Committed
 To meet the expansion cost, the company increased the price of
its vehicles which made many customers unhappy.
 Quality of H.D. motorcycle began declining as American
Machine And Foundry Company(AMF) kept pressing the
company to increase sales volume. As AMF wanted to make the
most of the booming demand for motorcycles in the market.
 Thus against 14,000 units in 1969 they had to produce 75,403
vehicles in 1975.
 Quality scarified for the quantity.

Problem intensified when Japanese companies entered in to the

market with high quality and low price.

By 1980 H.D. was on the brink of bankruptcy.

RECOVERY

 H.D. succeeded in persuading the US government to

impose a new increased tariff (from4.4% to 49.4%) on
large on Japanese motorcycles in 1983.
 H-D kept close relationship with its customers by
building personal relation with them.
 Cut down the production to focus on the quality aspects
as required.
 H-D improvised the management principles adopted
from the Japanese companies(such as JIT production and
increased employee freedom) to improve its operations.
 Also adopted new marketing strategies.
Q2. Explain the rationale for H-D’s decision to focus on restructuring its
supplier /supply management strategies. Also critically examine the
company’s approach to reduce costs and increase productivity in terms of
supplier relationships, MRO purchasing and distribution.

In the mid 1990 H-D restructured its operation related

to the supply chain to focus on three elements

 Cycle time management : Period required to

complete one cycle of an operation.
 Relationship management
 Sustainability
Involvement of purchasing in design

 H-D’s engineering division handled design and testing

related activities almost entirely on its own without any
support from other divisions such as
production/purchasing.
 Engineers themselves dealt with suppliers, handled
logistical needs and managed routine personnel functions.
 Since the engineers were not experienced often they used
to select wrong suppliers.
 H-D decided to integrate purchasing with design.
 H-D felt that it was important for the purchasing
executives to be involved in the product development
process.
 H-D’s purchasing division performed two different
functions :
 Operational Purchasing (for day to day manufacturing).
 Development purchasing (related to new product
design and development).
 As a result the engineering division began
regarding the cost aspects as high priority while
designing new products.
MRO and Distribution

 H-D announced a new MRO purchasing

initiative, which was expected to save $51.8
million by end of 2003.
 Its distribution system was antiquated and
could not meet the demands of growing parts
and accessories business.
 They could not maintain the balance between
demand and supply.
Q3.Do you think integration of suppliers and the purchasing
division into design and manufacturing function would be beneficial
for a motorcycle company? What are the advantages and
disadvantages of such integration?
INTEGRATION OF PURCHASING DIVISION

 Purchasing executives were more capable to meeting the

design according to requirement.
 H.D. purchasing division performed two different function-
 Operation and
 Development
 A new position was created PURCHASING ENGINEER to
enable the company purchase quality supplies at optimal
price.
 Purchasing engineers worked with engineering executive
by providing them insights into cost issues right from the
initial stages of designing process.
 INTEGRATION OF SUPPLIERS
 In 1996 it launched a ‘Top 70 Supplier Program’ that was based on
premise that about 80% of its purchases came from a group of 70
suppliers.
 Having reduced the supplier base, H-D took care to ensure that it built
strong strategic relationships with remaining suppliers.
 H.D. establish product development center to foster closer interaction
between the purchasing people and suppliers from very beginning of
product development process.
 Reducing cost and improve quality.
 Set up SAC(supplier advisory committee).
 Created master suppliers agreement.
 Built relationship strategy, helped it procure better technology,
innovation of product and achieve the objective.
ADVANTAGES AND DISADVANTAGES
OF INTEGRATION
Advantages of Integration
 Reduce transportation costs
 Improve supply chain
coordination.
 Did not promot
competition among
suppliers by reverse
auction.
 Flexibility as suppliers
suggested the designs to
reduce cost
Disadvantages of
Integration
 Capacity balancing
issues.
 Potentially higher costs
due to low efficiencies
resulting from lack of
supplier competition.
 Decreased ability to
increase product variety.
Q4. Comment on the way H-D used technology to
support its supply chain management operations. Was
the company right in focusing on technology to
strengthen its supply chain management? Justify your
answer
Technology used by H.D. for supply chain
management operations-
Manugistics’ supply chain software.
Pro-E computer aided design and
manufacturing software.
Product data management software from
metaphase.
 These solutions enhanced the supply chain by helping in
product design, data transfer and data management at
both H-D’s and supplier’s levels.
Enabled H-D supplier to access new product designs
and drawings.
 As a result manufacturing costa were reduced since any
defects or changes in the product were identified at
design stage itself.
Harley-Davidson supplier network (H-dsn.com),
provided electronic data interchange services such as
planning schedules, shipment status, etc to suppliers
 H-D saw a decline of 90% in supplier phone calls to the
company after the launch of H-sn.com .
 Used Data mirror transformation server to transfer data such
as information on inventory levels .
 H-D deployed Marcam’s Advantis Software to increase
efficiency in managing inventory and MRO purchasing
which reduced cost from $1 billion to $70 million annually.
 Supply information link (SiL’k) provided suppliers access
to critical business transaction information at H-D such as
supply delivery performance, financial transactions and
quality performance.
Q5. Examine the benefits reaped by H-D by restructuring its operations.How far do you think
these benefits will help the company survive and succeed? Comment on the future imbalance
between its supply and demand.Suggest a few measures to help H-D tackle this problem.

H-D restructuring operation are

1.)Involvement of purchasing in design
Performed two different function-
 Operational purchasing
 Development purchasing
BENEFITS:-
-Cost reduce
-Reduced suppliers
2.)Supplier Relationship Management

 Product Development Center to foster closer

interaction between the purchasing people and supplier.
 Continuous Improvement Team conducted three
month training program for suppliers

BENEFITS:-
-Improvement in manufacturing skills.
-Maintaining relationships with suppliers.
IT tools used in supply chain by H-D

 Extranet:-H-d.net
 H-D supplier network(H-dsn.com)
 SiL’K(supply information Link)

BENEFITS:-
-Encouraged dealers to interact with the
company online that saved the cost.
-Helped supplier to review their own accounts.
 Imbalance between its supply and demand

 Distribution system was antiquated.

 H-D was still finding it difficult to balance its
supply-demand cycle.
 Market share fell from 50.2% in 2000 to 45% in
2003.
 Rivals took advantage of the situation and were
eating into the market.
THANK YOU