Harley Davidson

Harley-Davidson, Inc.Harley-Davidson, Inc.

Case StudyBUS 755

April 23, 2004

Joel HirschboeckHeidi Scheller

Harley-Davidson, Inc.

Markham Chatterton

Contents

Introduction

Problem Statement

Supply Management Strategy

Project Scope

Project Execution

Software Vendor Finalists

Recommendations

2004 Update

References

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Introduction

Harley-Davidson is an American motorcycle manufacturer with a rich history and

cultural tradition. Founded in 1903 in Milwaukee, WI, Harley just celebrated its 100th

anniversary with a series of events around the world that culminated in hundreds of

thousands of motorcyclists rallying last summer on the shores of Lake Michigan. In 1929,

there were 241 motorcycle manufacturers in the US. After the Depression, only two

remained: Harley and Indian. By 1953, Indian went out of business, leaving Harley-

Davidson as the only American motorcycle manufacturer. Financial difficulties in the

1970’s led to the parent company, AMF putting the motorcycle division up for sale.

Without a buyer, a group of Harley managers bought out the company and rescued it with

a business turnaround that included brand extensions into licensed goods, such as apparel

and related accessories. Now a publicly owned company, Harley has scored double digit

growth for eighteen consecutive years. Harley transformed itself into a strong marketing

company with a focus on lifestyle image and product quality.

Problem Statement

The case took place in retrospect from 1997-1999. The purpose of the case was to

critique the process of selecting a modular ERP system to support supply chain

management for this large manufacturing company. Recognizing that the purchasing

process for obtaining materials and parts was out of control, management coordinated a

project to understand its purchasing process and activities, solicit feedback from the 800

people who would be affected by the new system, and create a complete transformation

in thinking and action regarding the procurement and management of incoming supplies.

In addition, management wanted to move the company from a short-term transaction

purchasing basis to a long-term relationship with suppliers.

In addition to selecting an ERP system, Harley Davidson was interested in

developing supplier relationships with key vendors. They wanted the new system to

facilitate this development. In the case, the managers went as far as making the

distinction between vendor and a supplier indicating that a vendor is someone selling on

the street corner and a supplier was an extension of the primary business.

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Supply Management Strategy

The company had highly fragmented purchasing functions. Even though all

product development and manufacturing remained in the US, materials represented

nearly 75% of product cost. They used different invoices, schedules and procedures in

every facility. Suppliers complained that they were dealing with three different

companies, sometimes receiving orders from various facilities in the same day. Harley

had hundreds of suppliers and no system of coordination or relationship management.

Because the company was steeped in cultural traditions of gradual improvement and

quality ideology, dramatic change was an unlikely outcome.

As in any major software project, the company faced three types of risk with this

endeavor; size, experience, and structure. The size of the project determined how much

risk was involved in terms of cost, time, and supplier relationships. Switching over to a

centralized purchasing system may have resulted disruptions in supplies and production

flow, costing the company in lost sales and dealer/customer relationships. Failure of the

system to meet the expectations of users would cost the management credibility with

employees and suppliers. We do not know the selection process cost. Because this project

consisted of only two ERP modules in collaboration and delivery management, it was not

as large in size and posed only moderate organizational risk.

Harley employees had experience with many different software systems to

support various activities. They did not have an ERP system, so there was some risk

involved in the coordination of all purchasing activities among facilities under one

program. Because the managers understood the strong culture and history of the

company, they structured the project carefully to create a change in thinking before

creating a change in software. The methods they used to survey purchasing people,

involve representatives from all areas of the company, understand the process, work with

suppliers, and select an ERP provider to grow with company and its future needs. All of

these components helped to reduce the risk of the project.

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Project Scope

To get a better understanding of the scope of their problem and to plan the project,

managers decided to survey those who were responsible for purchasing. They intended to

discover what activities purchasing people carried out and how much time and effort

went into procuring materials. Everyone was surprised to learn that 85% of purchasing

time was being spent in non-strategic activities, such as counting inventory, data entry

and expediting. While the company had 200 purchasing staff, the survey revealed that

over 2,000 people were issuing purchase orders. Quantitative estimates provided a

potential savings of an ERP implementation for purchasing at $34 million. Data like these

helped to get people committed to making the project a success.

The project scope had to identify the purchasing activities, the stakeholder groups

(owner, driver, or participant), and the target audience (800 people). In addition, the

scope had to fine tune the details needed to create a software quote request and a list of

supplier selection criteria. This helped to answer the following questions:

Who will use the system?

What will the system have to do?

How can we make the implementation a success?

Which vendor can best provide the functionality, support, and scalable potential?

Project Execution

Even though the process took over two years, Harley managers did a

comprehensive job of selecting the ERP solution. It appears that the Silk team did a good

job preparing for the project evidenced by the careful mapping of the “as is” process and

of the “to be” process. This helped to reduce and manage project scope creep. Typical of

lower risk, low technology projects, the details in planning generally pay dividends in the

form of reduced implementation time at a cut over to a new system. Poor planning can

lead to huge cost over runs and delays in system implementation. More serious problems

can occur if the system can not deliver on promises made in initial project justification.

These are the kinds of problems over which project managers can lose their jobs.

We think that external consultants could have helped with the initial

assessments. This may have helped Harley Davidson get a broader picture of the

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purchasing organization and allowed for the use of best practices from other industries.

They may have done this—we do not know from the case. Great planning that is myopic

does not necessarily lead to the best solutions. The time Harley Davidson spent on the

initial phase of the project is much longer compared to either Tektronix or Cisco. In the

case of Tektronix, they were happy throwing more money at implementation problems to

stay on schedule. Tektronix also suffered from their lack of planning with previous

implementation failures. Cisco succeeded in meeting the short, implementation schedule

through the use of a very standard, off-the-shelf system. Less customization of any ERP

system leads to lower costs and quicker implementation schedules. A standard system is

easier to upgrade also. Customizations are often required to ensure systems can meet a

companies requirements. More complicated businesses benefit from a combination of

reengineering and ERP customization when implementing an ERP system.

The successful ERP selection at Harley Davidson was not a result of planning

alone. The case paints the picture of the culture of HD well. This culture is brought out in

the style of management and the approach to the project and the selection process. Their

use of their internal business integration (BI) of process, people and technology was

consistent. It would send a good message to the organization. Their definition of full time

members as a Tuesday through Thursday was interesting. This is contrary to our

experience of Monday through Friday being full time. The reason they gave does have

merit. Full time members can lose track of the day-to-day business and not realize the

impact of pending changes. Seemingly small obstacles can turn out to be the biggest

problems of system acceptance.

There are some people that think a new ERP system can fix all of an

organization’s ailments. This is simply not true, as bad processes are often the root cause

of many ERP installation failures. The last paragraph of the case mentions the question

of linking the Supply Management Strategy (SMS) and procurement system. Without the

link, this process could have failed. The risks of not linking were higher than with linking

because the procurement system should be looked at as an enabler of the SMS process.

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Software Vendor Finalists

Harley Davidson also developed additional standards before embarking on the

ERP selection process. One was that of platform standardization. The case did not

mention the standard but made note of the disqualification of one vendor’s product due to

“architectural incompatibility.” IT does need to lead and develop standards as part of the

ERP and other operational strategies. Scalability of the purchasing system must also be

considered. They had a basis to work from for future growth and development. An

example here would be to standardize on Oracle for the database and Java script language

for the web-enabled application development.

The group selected three finalists based on a number of variables. By allowing the

software vendors to rate themselves quantitatively on functional variables, the team had

some “hard data,” biased as it was. Each vendor wanted the opportunity and the business

—of course they would rate their functionality as high as possible! There may have been

no statistical differences among any of them. Clearly the motivation for the vendor was to

win the contract, not be accurate in their capability assessment and potential fit for that

organization. Software vendors are notorious for assuring any potential large customer

that their system will be great for them! The qualitative scale of fuzzier attributes (low,

medium, high) was perhaps useful to the selection team, but again, held rater bias.

Finally, three software vendors made it to the final round. The case was written

such that there appeared to be a close tie between two, with a confounding variable for

number three. The reference to provider three’s existing project was interesting. There is

reference to the political and economic advantages. It appears that having an existing

project was a consideration. This may explain the poor first-run performance by the

group as they may have thought they would get the work. The team tried to be objective.

Ultimately, the company selected two modules from the Manugistics Group.

Manugistics has one of the largest client bases of Supply Chain Management in the

world. Harley is using their Collaborate and Delivery Management modules. The

modules provide Harley with a web-based private trading network that provides visibility

and transaction execution through a portal.

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Recommendations

In retrospect, we would have recommended that Harley do a few things

differently. First, they could have researched the literature on what types of problems

mechanistic manufacturing organizations face when they try to implement an ERP

system in a highly inflexible environment. There was enough research and case analysis

available to do this. While they were clearly aware of potential change resistance and the

need to get all stakeholders involved, the amount of time their search and selection

process required was ridiculous in today’s business environment. We speculate that the

sheer demand and high prices of their product allowed them to wallow in their

inefficiencies a few more years before they had to bite the bullet.

Second, obtaining the advice of experienced software and supply chain

consultants earlier in the process probably could have saved some time and created a

defined focus. Often, managers use the discipline and recommendations of consultants to

reinforce the need for organizational change. With the purchasing process out of control,

they could have brought in some purchasing expertise to clean up some of the mess

before selecting a software system to help organize the process.

Third, we questioned the research methods and bias of the data. However, if

Harley eventually got what they wanted and it turned out to be a success for them, then

perhaps their methods were valid.

We do not know final cost figures and messier details of implementation

(schedule, support, etc.). There are many technical details that we also know nothing

about. Three out of five comments in the making the decision section suggest the people

side was more important that the functional side. In reality, the functionality of any

finalist should not be questioned. To get to the final round, the product has to work. It is

analogous to having to have a certain quality level to sell products. The team was looking

at the project from the implementation and buy-in standpoint of the end users, which was

appropriate. They tried to remain close to the end users from the start.

2004 Update

Harley was successful in transforming its scattered purchasing functions into a

supplier relationship management program. The supplier portal now serves 300 of its 695

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suppliers. In 2004, the company will be extending portal access to its accessories and

merchandise suppliers. This year, Harley will have about 300 IT employees. The

department is managed by a circle of three leaders, each specializing in a particular area

of expertise supporting a key company function.

Record earnings for the first quarter of 2004 were gained from a 13% increase in

sales, the largest in its history. Analysts are crediting its profit growth and margin control

to improvement in its supply chain efficiencies. Harley holds a 46% market share in

heavyweight motorcycles in the US. The company sponsors a club for its customers,

known as the Harley Owners Group (HOG) that allows the company to do direct market

research and solicit ideas for product development and testing from 600,000 members. In

2002, the company produced 28 models (over 263,000 units) of touring and custom

motorcycles in nine production facilities.

Its fastest growing market niche is female, with women now accounting for 9% of

new sales (up from 2%). American baby boomers are responsible for the company’s

recent popularity and growth. Harley expects to capitalize on the baby boom retirement

opportunity, as 70 million Americans will have the time, money and interest in leisure

travel and adventure.

References

Eldridge, E. (April 8, 2003). Investors fear Harley’s thunder grows faint. USA Today.

Sullivan, L. (March 8, 2004). Ready to roll. Information Week.

www.informationweek.com

www.manugistics.com/proof/automotive/harley_davidson2.asp

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http://www.informationweek.com/

Documents

Harley Davidson