Managing the supply chain of Harely Davidson
Harley Davidson is one of the oldest and one of the iconic motorcycle manufacturing companies of this era. Harley Davidson has a niche market, it manufactures motorcycles for customers who love cursing highways. Harley Davidson is the last surviving motorcycle company since the great depression. It was in the year 1901, Milwaukee when William Harley and his childhood friend Arthur Davison started to work towards making motor-cycles and in the year 1903 with the help of Arthur’s brother Walter Davidson they successfully developed single cylinder motorcycle. In 1910 the designed their famous “Bar and Shield” logo. It became the largest manufacturer of motorcycles globally in 1920. The company went through many major changes like design of cycles, working ways and manufacturing. The company rose to become a leader and a brand name recognized globally with domination in heavy weight motorcycles.
In 1970’s Harley Davidson dominated the market of heavy weight motorcycles. The company’s corporate partner AMF wanted to take advantage of this situation and thus increased the production rate of cycles. Corporate parent AMF only focused mostly on short term return hence quantity and not quality at the time, due to which there was drop in sales and the company’s reputation was shattered with little chance of recovering. H-D then soon went public, but the chairman himself regained the company with a new local management in place it made a new start. But the management had tough task at hand to gain back the lost reputation, with financial problems at one hand and stiff competition from new Japanese motorcycle manufacturers on the other the company had to take huge risks. H-D made many changes inside and outside the system. It employed the Just In Time (JIT) manufacturing with higher number inventory turns and entered the supply chain managing mode of manufacturing which proved efficient and the quality of their product reached new heights. H-D introduced Statistical Operators Control (SOC) to improve quality control. They also initiated a system to involve their employees to reduce the communication gap. Optimized their supplier base and benchmarked them, started side business, educated their suppliers were some of the steps that H-D took in order to put them back on track and went head on to face the competition.
The major challenges that Harley had to face in order to gain back their market share:
Quality of product
Scheduling & Inventory management
Optimizing supplier base
STEPS TAKEN TO ENCOUNTER CHALLENGES
Harley Davidson made many changes in both internal and external environment they are as follows:
Higher Inventory turns
Supply Chain Management system
Just In Time Manufacturing (J.I.T.)
Statistical Operator Control (S.O.C.)
Optimizing supplier base
Flexibility in business
Being a world class customer and supplier
QUALITY OF PRODUCT
Quality of a product plays a vital role in making or breaking of a business. When AMF decided to mass manufacture motorcycles without taking the quality into consideration just because they were in the top spot during the period, cost them much more than the market share. The company went public because there was very little chance of recovering. The Fig. 1 shows how quality of product can ruin the business.
Fig. 1 Consequences of poor quality *1
Competition is one of society’s most powerful forces for making things better in many fields of human endeavour.
Harley Davidson was once dominating the American motorcycle industry in fact it had a monopoly. Due to Harley manufactured heavyweight motorcycles it had a niche market with very little competition. But due to quality problems the Japanese motorcycle manufacturers gained advantage. And also Japanese had newer technology and product to offer which gave them edge over Harley.
SCHEDULING AND INVENTORY MANAGEMENT
A company with large amounts of buffer stocks shows lack of improper management.
Emphasis on scheduling for component or product manufacturing was not given by Harley Davidson. This led to over stocking of its Inventory of both finished and unfinished goods. Managing of the supply chain was not given the priority. Because of this there was around $ 24 million worth of Inventory in their warehouse with only 4.5 inventory turns per year. This bolted up cash and reduced productivity.
With over stocking arise quality problems, lower profits, higher holding cost, security cost, stock may become obsolete, and more money on renting, utilities and insurance.
STEPS TAKEN TO ENCOUNTER CHALLENGES
HIGHER INVENTORY TURNS
The first step taken by Harley Davidson was to clear its inventory. The company decided to increase the inventory turns gradually with firm realistic scheduling. The company started with 12 turns per year and increased up to 28 turns per year Fig. 2. Rate of production increased with few safety stock and also the value of inventory dropped to $4million.
Inventory turns ratio = Cost of Goods Sold/Average or Current Period Inventory
Fig. 2 Harley Davidson’s inventory turns
Benefits due to higher inventory turns:
Higher rate of production
Lead time reduced
Set up time reduced
Batch time reduced
More cash flow
Higher product quality
SUCCESSFUL INVENTORY MANAGEMENT
Successful inventory management involves balancing the costs of inventory with the benefits of inventory. Fig. 3
Management should also take into consideration:
Maintaining a wide assortment of stock - but not spreading the rapidly moving ones too thin
Increasing inventory turnover - but not sacrificing the service level
Keeping stock low - but not sacrificing service or performance.
Obtaining lower prices by making volume purchases -- but not ending up with slow-moving inventory
Having an adequate inventory on hand - but not getting caught with obsolete items.
Fig. 3 Kanban system
SUPPLY CHAIN MANGEMENT
Supply chain management in simple terms is a scheduled flow of materials, products, information, finance between the consumer and supplier.
Supply chain managing system Harley Davidson considered following practices which fall under procurement, production, distribution:
Just In Time Manufacturing
Total Quality Management
Statistical Operator Control
Optimizing Supplier Base
Fig. 4 Supply chain
Just In Time Manufacturing
Harley Davidson earlier used to use Push system i.e. production in anticipation of demand, But when they introduced the J.I.T. system it got changed to a Pull system i.e. to respond to orders as they come. The benefits of using SCM but with good scheduling and reliable suppliers keeping all other factors constant are:
Low stock levels of materials, components and finished goods.
Lower levels of work in progress
Less time in product recheck and rework
Fewer problems with sudden change in market
In order to have good J.I.T. system we need to have a good Material Requirement Planning (M.R.P.) system. H-D on incorporating J.I.T. had very good results they are:
Inventory turns went up from 4.5 to 28/ year
Inventory was down by 75%
Cycles coming of the production line went up by 23%
Rework and waste down by 68%
Quality of product increased
TOTAL QUALITY MANAGEMENT
LEAN AND AGILE MANUFACTURING
“Lean manufacturing is a systematic approach to identifying and eliminating waste through continuous improvement by flowing the product at the demand of the customer.”
As automakers have significantly reduced their number of suppliers, it becomes imperative for automakers to choose suppliers who can meet their product development, production, and logistics requirements due to high supplier switching costs.
With J.I.T. in place H-D there is reduction in inventory, production cycle time and higher quality of the product as a result of lean manufacturing. Lean manufacturing results in around 200-500% increase in quality.
In Agile Manufacturing the term agile means fast, quick, responsive. Agile manufacturing Operations which that can be rapidly reconfigured to satisfy changing market demands generate profits with minimum change over time and interruptions.
Fig. 4 Total value metric
H-D incorporated the concept of lean an agile manufacturing in order meet the demands or sudden changes in consumer behaviour. It helped them to achieve total value of the product Fig. 4
TOTAL EMPLOYEE INVOLVEMENT
Proponents of TQM believe that if organizations will change their management systems to be more participative by involving employees in problem solving, decision making, and strategy formulation firms will improve their performance. However, managers who are used to a paternalistic and dictatorial mode of management will have difficulty in delegating responsibility down the line and, therefore, will fail to make TQM work.
Employee involvement helped H-D with issues of employees had within the organization and helped to achieve better quality products and efficiency.
STATISTICAL OPERATOR CONTROL
H-D introduced S.O.C. in order to reduce defects and improve the overall quality of their product. This was achieved by employing quality circles quality checks and data recording on the assembly line using statistical methods. This technique helped to improve the quality.
As the H-D’s market was aging it used another scheme to generate revenue i.e. by side business. It licensed its name and logo and started marketing their souvenirs. Benefit, H-D generated money and also a means of advertising. H-D conducted seminars on daily basis to educate their suppliers.
CUSTOMER SUPPLIER RELATIONSHIP
“Supplier development can be loosely defined as the process of working collaboratively with suppliers to improve or expand their capabilities.”
OPTIMIZING SUPPLIER BASE
KSG one of the suppliers of H-D supplied pistons, with advance scheduling by H-D, KSG supplied them with components on daily basis earlier they supplied from 2 month inventory. Another supplier named Ultra tool had a manufacturing cell only for H-D. H-D tried to gain as much as possible from their suppliers while keeping in mind the time, quality, and commitment.
BENCHMARKING SUPPLIERS AND BEING A WORLD CLASS CUSTOMER
To get good quality products at right time and cost H-D started to benchmark their suppliers. This way H-D as well as the supplier was able to be:
efficient in terms
Quality and time
To maintain a good customer supplier relation a 3rd party inspection system must be employed to sort out problems, discuss the issues, find the fault.
For a company to become a world class supplier it first had to learn to become a world class customer. To achieve that H-D had to efficient in every possible way so that supplier knows that they can supply you without any problems.
As we can see that H-D faced quite a few problems, but they managed to face and emerge as a global leader. But overall the main objective of any firm is to improve Return On Capital Employed (R.O.C.E.). They did it by achieving internal success, continuous improvement, making and adhering to commitments, adapting to the market, being competitive and being a world class customer and supplier.
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