Harley-Davidson, Inc.

Case Study
BUS 755

April 23, 2004

Joel Hirschboeck
Heidi Scheller
Markham Chatterton
Harley-Davidson, Inc.

Contents

Introduction

Problem Statement

Supply Management Strategy

Project Scope

Project Execution

Software Vendor Finalists

Recommendations

2004 Update

References

2
Harley-Davidson, Inc.

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.

3
Harley-Davidson, Inc.

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.

4
Harley-Davidson, Inc.

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 cannot 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

5
Harley-Davidson, Inc.

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
company’s 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.

6
Harley-Davidson, Inc.

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.

7
Harley-Davidson, Inc.

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

8
Harley-Davidson, Inc.

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