Policies, Processes, and Methods of Operations Management at Harley-Davidson Motor Company September, 2012 Introduction The role of operations management (OM) requires a great deal of responsibility. No matter the size or type of business, the technique and knowledge applied by an operations manager when planning, organizing, staffing, leading and controlling, can make or break a company (Heizer & Render, 2011). Harley-Davidson Motor Company is a prime example of a goods producing organization with a history of unstable performance and successful achievements all affected by OM role.
The following paper is an overview pertaining to policies, processes, and methods of OM at Harley-Davidson and acknowledgment of how todays’ OM decisions affect HD’s future as the number one motorcycle manufacturer. Background Harley-Davidson was founded in 1903 in Milwaukee, WI, by William Harley and brothers’ Walter, William, and Arthur Davidson. In 1929, 241 U. S. motorcycle manufacturers were in business but the Depression would find only Harley-Davidson and Indian remaining, until Indian closed its doors in 1953 (H-D History, 2012).
Harley-Davidson would spend the following decades in aggressive financial struggles, periods of lowly manufacturing, and relentless foreign competition. Today, Harley-Davidson is a worldly traded organization, a cherished icon, and testament to the survival of an American business. Who is HD? Harley-Davidson is known for manufacturing heavyweight motorcycles in custom, cruiser and touring models in the U. S. and now with assembly operations in India and Brazil.
HD’s domestic plants are; 1) York, PA, maker of Softail models, 2) Tomahawk, WI, for saddlebags and windshields, 3) Kansas City, MO, home of Sportster®, Dyna®, and VSRC™, and 4) Menomonee Falls, WI, an 849,000 square foot powertrain facility (Factory Tours, 2012).
Aside from small scale custom cycle shops in the U. S. , Harley’s primary competition manufactures overseas. The long-standing Japanese competitors of HD are Yamaha, Suzuki, and Honda. Supply Chain Characteristics Consumers intent on buying American-made can be assured Harley-Davidson still lives up to its patriotic reputation.
Even when cheaper parts are available offshore, HD’s Strategic Sourcing Program (SSP) requires use of domestic manufacturers and suppliers in most all cases, effectively preserving customer perception of HD as an American-made brand (Jesse, 2011). Manufacturing American-made motorcycles with American-made parts lends credit to a definitive supply chain characteristic of Harley-Davidson. Supply Chain Strategy A substantial percentage of Harley-Davidson’s motorcycles’ are internally produced but HD cannot survive without help from a few critical suppliers helping complete the overall production processes.
Of the 6 supply-chain strategies defined in Operations Management, Heizer and Render (2011) define the use of few suppliers as a strategy for establishing long term buyer / vendor relationships which ultimately yield reliability and cost savings over time. For Harley-Davidson, hiring limited-long-term-suppliers is a major contribution to improved manufacturing consistency in its present day motorcycles. Negotiation Strategies Due to shear diversity of parts and materials required in production of a motorcycle, one can presume Harley-Davidson might prefer a combination of three collective strategies when negotiating and selecting suppliers.
Cost-Based Pricing would likely be preferred when determining long term suppliers, Market-Based Pricing for optimum pricing of raw material commodities of frame construction and drivetrain components, and Competitive Bidding, primarily when pricing new HD projects. Suppliers must be familiarized with HD’s Concurrent Product and Process Delivery Methodology (CPPDM) and HD’s alignment with the Automotive Industry Action Group (AIAG) Production Part Approval Process (PPAP) to effectively validate and approve parts for use in production (Production Part Approval for Purchased Product, 2012).
Basically, all Tier 1 suppliers seeking a role in the production of HD motorcycles cannot get past the front door without successful completion of HD’s PPAP. Performance Improvement of the Supply Chain Not long ago HD’s supply-chain was an imbalance of separate departments not focusing on their core competencies. Engineers were hiring suppliers when they should have been designing and while production was jeopardized by suppliers unable to meet commercial demand. Not only were purchasing and inventory costs increased as result of inadequacies but operations went from 11% of revenue in 1990 to 17. % in 1993 (Klamath, 2008). Recognizing the downward spiral, Harley switched to an integrated purchasing program complete with knowledgeable buyers, e-procurement, and strengthened supplier relationships. As of 1990, HD reduced an excessive 3,000 MRO suppliers to a concentrated group of 3 and hired a critical group of OEM suppliers for 80% of its purchases (Kamath, 2008). Consciously eliminating suppliers has significantly improved cost, quality and timing. Maintaining Competitive Advantage
Harley-Davidson does not compete on cost because a Harley almost always costs more than a competitors model. Instead, HD’s competitive advantage based on value and differentiation. Described by Heizer and Render (2011), differentiation is a product or services’ ability to achieve above expected characteristics and elevate overall consumer value be it through convenience, features and / or service related. HD differentiates itself through concentration intense concentration on their only product, making motorcycles, while competitors have since diversified into other motorized products.
Aside from an all-encompassing brand and culture, Harley-Davidson creates value by implementing exceptional product quality, unique product features, and high quality service or elements people are willing to pay more for. Global Business Strategy Harley-Davidson has answered a call to global competitiveness by stretching its reach to Brazil, Asia, India and Australia. Although full production is not overseas yet, HD competitively markets highly demanded American-made units through CKD or completely-knocked-down assembly plants.
The CKD assembly facilities located in Brazil and India allow HD to avoid high import tariffs and lower prices on motorcycles by 20-25 per cent therefore effectively going up against foreign competition (Miller, 2012). As for China, Japan, and Australia, each region still imports HD motorcycles via CBU (completely-built-unit) dealerships. The Asia Pacific market. Asia has become a primary region of focus for numerous global-minded companies. In 2001, the HD Asia Pacific headquarters opened in Singapore, securing Harley’s commitment to growing its Asian market. In 2010 alone, the Asia Pacific region accounted for 9. % of total sales making it critical for all functions of development and support including sales, marketing, and dealer development to be represented in its new headquarters (Harley-Davidson Motor Company, 2011). Projected numbers now indicate nearly half of Harley-Davidson’s sales will be from international markets. In 2010, international sales accounted for 35. 5 percent of total unit volume with a projection of 40% by 2014 (Harley-Davidson Motor Company, 2011). Based upon current figures, it is safe to predict HD’s strategic plans for globalization will be essential to the Company’s continued growth and competitiveness.
Production Process – Restructured Like most automotive manufacturers, Harley-Davidson’s production process has been assembly line-based and / or repetitive production focused for decades. With modern advancements in process technology and implementation of new labor agreements, HD is presently making changes along all production processes. Starting in Kansas City, HD’s restructuring of production processes will generate $15 million in savings by 2013, increase flexibility of seasonal production, and create the capability of adding customer preferences along the assembly process including customizations (HD-News, 2011).
HD’s end result will be a more process focused strategy and ability to compete better globally. Customer Interaction When comes to production, customer interaction can often complicate things, simply because trying to meet customer demand can change a process or way of doing business. In today’s competitive environment, however, being more customer-centric is essential in gathering valuable customer input. In HD’s case, information gathered, may even be applied to the motorcycles it produces? For example, in 1993, Harley Owners Group (HOG) became a platform for obtaining customer feedback while SAP (Simple.
Advanced. Powerful. ) Community Network is used more recently for pulling data from HD’s CRM program containing hundreds of customer touch points (Clark, 2011). On the surface, a HOG gathering may appear as a party for fellow Harley riders but inside is a 20 year tradition of building brand while learning what customers want. Technologies Used in Production If Harley-Davidson failed to invest in modern advances of production they find themselves incapable of keeping up with present day demand and productivity.
Fortunately, HD continues to reinvest in technology having significant impact on efficiency and production. HD recently installed 100 Automated Guided Vehicles (AGVs) in York, PA, a plant normally designed for producing only Softail, to a plant now capable of adding Trike and Touring models through basic reconfiguration of assembly within days (Barrett, 2011). HD’s restructuring plan, while costly and time consuming, will put Harley-Davidson on the forefront of equipment and technology solidifying its production capability. Commitment to Quality and Excellence
Building two-wheel machines creates an inherently greater risk to consumers, more so than the common automobile, making the need for quality assurance critical in every motorcycle it produces. Harley-Davidson is ISO 9001 certified and therefore requires the same of it suppliers of original equipment (OE) parts, production replacement parts, and any parts related to final products (Supplier Quality Systems Requirements, 2012). With ISO 9000 being the only internationally recognized quality standard, Harley-Davidson’s certification demonstrates a commitment to quality for both domestic and global consumers.
Measuring Quality Just as Harley-Davidson meets ISO 9000 standards and requires the same of its suppliers, the same goes for measuring quality. According to Harley-Davidson’s Advanced Product Quality Planning process (APQP) a Process Flow Diagram or Flowchart is the foundation of quality measurement and Process Control Plans (which must meet AIAG requirements) become the output of APQP (Guidelines for Successful PPAP Submissions, 2012). With Total Quality Management (TQM) becoming a standard commitment by most organizations the consumer of high end products such as Harley-Davidson otorcycles can feel safer riding off the lot. Inventory Methods Assembling a motorcycle from the ground-up requires many independently demanded components, making a Material Requirement Planning (MRP) environment the ideal inventory method at Harley-Davidson. Sharing a likeness to Kanban, HD’s MRP consists of two processes; 1) Push MRP, based on ordering material consumed by planned production and sales forecasts, and 2) Pull MRP, based on ordering material used by HD, dealers, and merchants (Material Forecasting and Replenishment, 2012).
Mechanisms used to indicate needed materials are Min-Max Stocking Levels, Automatic Backflush, Material Trigger Cards, and Empty Carts, Racks or Containers. HD also utilizes Supplier Managed Inventory in certain locations. ERP. When MRP-MRP II programs are working effectively many companies step into an Enterprise Resource Planning (ERP) to fully integrate of internal / external business processes, practices, and information. HD’s plans for ERP in York, PA originally scheduled for spring 2012 were pushed back after discovering more complexities with parts and handling than anticipated (Barrett, 2012).
Once combined MRP-ERP are operational, HD will better align itself in retaining its position as the number one selling motorcycle nationally and globally for years ahead. Operational Planning Policies Even though Harley-Davidson’s production facilities’ share common workflow characteristics, each work environment varies in size, work flow process and overall activity. Operations managers of each location are faced with the task of labor planning and job design for achieving optimal performance and employee satisfaction. HD refers to methods for managing operational conditions as Capacity Management.
Capacity Management uses the formulations of Overall Equipment Effectives (OEE) and Capacity Calculation to determine maximum rate of output a plant is able to produce under a given set of assumed operating conditions (Capacity Management, 2012). Clearly understanding operating conditions including shifts per day, number of days in the week, and employment levels allows an operations manager to create precise and accurate production plans. Lean Processes Lean operations and Just-In-Time (JIT) approaches have worked well for
Harley-Davidson but success did not happen overnight. Since World War II, HD has made attempts at improvement of operational procedures and process strategies with various success but lean processes took complete precedent in the early 2000’s. In his book, The Lean Machine, former Product Development Director, Dantar Oosterwal, talks of HD doing well in 2002, but bikes were being manufactured faster than customers buying, so an opportunity to innovate on Lean principles became as apparent solution (Moving to lean product development, 2010).
Results from Oosterwal’s Lean Process Development (LPD) at Harley-Davidson not only improved time to market and throughput but significantly increased quality. JIT and suppliers. Harley-Davidson’s supplier partnerships are also critical to the success of its JIT programs. Without good communication and trust between owner and supplier waste removal and improved quality would not be achieved. HD’s Material Forecasting and Replenishment program points out the fact many suppliers mistake JIT for a method of inventory reduction but HD stresses the ultimate goal of JIT is supply chain excellence (Material Forecasting and Replenishment, 2012).
Conclusion From JIT to MRP, Harley-Davidson is an example of a company whose success rides on the shoulders of its operations management. What was once a struggling, U. S. -based producer of heavyweight motorcycles is now an international phenomenon with a culture and brand all its own. With today’s poor consumer confidence and high unemployment, few companies can proclaim an 11% gain in international sales in 2011 (Barrett, 2011). The success of Harley-Davidson, however, is dependent upon the leadership and strategic planning of its operations management.
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