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 Harley-Davidson
is king of the road these days. But in 1985
the venerable firm was hours from bankruptcy. A
combination of management errors, Japanese competition and
recession was about to do in the last American manufacturer of
motorcycles. The company was rescued at the last minute by a
sympathetic investor and a well executed version of Lean
Manufacturing.
The Harley Davidson Story
Founded in 1903, Harley-Davidson became
a leader in motorcycles after the first world war. In 1953 their
only domestic competitor went out of business and
Harley owned the American market until the
1960s when English, German and Italian manufacturers were
their only competition.
In 1965 the founding families took the
firm public and it was bought by AMF in 1969. AMF provided stability
and capital but there were mistakes. AMF built a new assembly plant
for Harley-Davidson in York, Pennsylvania and invested heavily in an
MRP production control system. These
efforts added $1000 to the cost for each bike and AMF
pressured Harley to increase production to compensate.
Quality suffered and there were chronic
shortages of parts. As many as 30 percent of the vehicles
coming off the assembly line were incomplete. This, in turn, meant
extra manpower searching for parts to finish the machines. Dealers
sometimes had to complete the assembly or repairs.
Japanese competitors took advantage of
the situation. In 1969 Harley had an 80% market share for super
heavyweight machines but this dropped to 20% ten years later.
A recession in 1981 reduced sales
nation-wide and further reduced Harley's market share. British
motorcycles were driven from the market and Triumph collapsed.
AMF wanted out.
A management team from Harley-Davidson arranged a
leveraged buyout with the help of Citibank and took control in June
of 1981. But, there were more problems to
come.
The Japanese manufacturers unloaded
their inventory and cut prices further. Then, Harley won an
anti-dumping judgment from the International Trade Commission (ITC).
Tariffs on Japanese bikes increased to 49.4% for five years. The
Japanese response was to build more motorcycles in the U.S.
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In 1984
Citibank became nervous about another recession and the coming end
to increased tariffs. They made financing more difficult
for Harley and it was clear they wanted
out. Other banks followed Citibank's lead and refused
financing. Just hours before bankruptcy, a private investor saw the
potential in Harley and bought out Citibank's financing at an $18
million loss to Citibank.
Lean At Harley
Something had to be done--fast and cheap.
Harley put together a Lean manufacturing strategy that emphasized
employee involvement, Just-In-Time delivery (called MAN for
Materials As Needed) and Statistical Process Control. The plan was
well-thought-out, well-executed and successful.
At the York facility, bikes were
traditionally made in large batches; MAN stabilized schedules and
conditioned suppliers to deliver more frequently. Harley had
previously held four weeks of stock at a
cost of $25 million a year. Now it carries no safety
stock; if there is a problem and parts are short, production halts.
Results
By 1986 Harley-Davidson's share of
the U.S. super heavyweight market was at 33.3 percent,
ahead of Honda for the first time since 1980.
In 1987, one year before the tariffs on Japanese motorcycles were
scheduled to end, Harley announced they no longer needed special
tariffs to compete.
In April 1998 Harley announced record
sales and earnings--for
32 consecutive quarters of growth.
As of 2007, Harley-Davidson continues to
run neck and neck with Honda in unit sales for all categories with shares
of 27% each.
These days no
self-respecting yuppie or Hell's Angel wants to be seen on a Japanese bike.
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