In the early 1980’s Wisconsin-based Harley-Davidson Motor Company, the country’s largest manufacturer of motorcycles, was struggling to survive. Faced with an onslaught of sever competition from Japan and failing new products, … Harley-Davidson was challenged to remain profitable. However, not only did Harley-Davidson survive, it became a huge success story, with sales increasing from 36,735 motorcycles in 1986 to 291,417 in 2003 to over 350,000 motorcycles in 2006. It has also expanded globally into Europe, China and India.
A significant factor in its turnaround was the strategic changes it made in managing its supply chain during the next decade.
… In the mid-1990’s Harley-Davidson initiated sophisticated supply chain strategies to reduce inventory and purchasing costs while improving product quality and delivery times from suppliers. Harley-Davidson now expects suppliers to focus strategically on cost, delivery, and quality improvement and to hit established cost and quality targets.
Suppliers are expected to meet “twice the level of quality” and to develop a written strategic plan to achieve goals for quality improvement.
Suppliers are graded according to defective “parts-per-million” and it has a target goal of 48 defective parts-per-million that suppliers are expected to achieve. Harley-Davison sends suppliers a monthly report showing their quality and delivery performance, and if the supplier receives a bad report Harley-Davidson sends their people to the supplier to determine the problems and help them resolve them.
If the supplier does not improve its performance, it is replaced. In 1995 defective parts-per-million for suppliers were generally around 10,000; however, by 2001 approximately 75% of Harley-Davidson’s supplier base was performing at 48 defective parts-per-million or better, and 36 suppliers were performing at zero defective parts-per-million. … These objectives consciously reduced Harley-Davidson’s supplier base that could not meet expectations for cost, quality, and delivery by 80%, from 4,000 suppliers to 800.
In some cases Harley-Davidson has moved toward single-source relationships with suppliers. In these instances, the company partners with one supplier for a part, system, or component – for example, lighting systems, instrumentation gauges, or ignition systems – and works closely with the supplier to develop technology that the company needs to remain competitive. Approximately 80 on-site (resident) suppliers take part in new product design, creating an interface between the company and its suppliers that helps Harley-Davidson improve quality and cut costs.
In return, Harley-Davidson remains loyal to the supplier and reduces supplier uncertainty, provided of course that the supplier continues to meet the company’s objectives for improvement. In order for Harley-Davidson suppliers to remain competitive they must enforce similar exacting goals and standards on their own suppliers, thus creating efficiency and cost effectiveness along the entire length of the supply chain from Harley-Davidson’s suppliers to its suppliers’ suppliers, and so on.
Harley –Davidson is using the Internet to further improve its supply chain performance. The company launched an interactive Internet-based supply chain management strategy that placed a large portion of the company’s supply chain management only to the Internet. It provided all suppliers with information they need to conduct online financial transactions and reduce the time spent chasing invoices. Suppliers are linked by a web portal to critical business transaction information, including data on delivery and quality performance and the status of financial transactions.
In-house software reports defect rates that provides quick feedback to suppliers about bad components. Suppliers can look at production schedules and delivery requirements and assess their ability to meet those schedules. Documents and information previously sent using an EDI format are now sent more cheaply through the Internet, which is also more universally available to supply companies, particularly smaller ones.
What has been the effect of these changes in supply chain management at Harley-Davidson? They reduced operating expenses by $161 million; the company now manages its inventory according to a JIT system, and it runs on 6. 5 to 10 days’ worth of inventory compared to 8 to 15 days of inventory before its supply chain initiatives; its logistics and distribution center costs as a percentage of sales decreased by 59%. By any measure Harley-Davidson’s supply chain management strategy has been a success.