Production of Quality Goods and Service

Facing Business Challenges at Harley-Davidson

Staying on the Road to Higher Sales

When Japanese manufacturers began selling heavyweight motorcycles in the United States during the early 1970s, Barley-Davidson remained calm. The Milwaukee com­pany controlled 99.7 percent of the market and saw no reason to panic. After all, if your customers love your product so much that they tattoo your logo on their chests, can't you count on their loyalty?

The company was mistaken. The Harley was no longer the superb machine it once had been. It leaked oil, vibrated wildly, and broke down frequently. Harley's older customers patiently rebuilt their motorcycles, but younger riders were not so forgiving. Increasing numbers of them chose the trouble-free, smooth-riding imports, and Harley's U.S. market share eventually tumbled to 23 percent.

During the 1980s, Harley decided to open the throttle on quality production. The company changed its de­sign and manufacturing systems to stress quality and reliability, and it carefully controlled the number of motorcycles produced so that their quality could be main­tained. This turnaround reestablished Harley's worldwide reputation for superior quality. Customers liked the new motorcycles, and sales began to climb.

By the early 1990s, market share had returned to 64 percent, a number that could have been higher if the com­pany hadn't presold its entire output by the middle of every year. With $1.2 billion in sales, Harley's biggest problem now was to make enough motorcycles to keep up with soaring demand in the United States and abroad. Dealers were frustrated because they couldn't give customers what they wanted, As dealer Debra Meyers put it: "People don't understand. Not only can't they have the color they want, they can't have the bike. Period."

The last thing Harley CEO Richard F. Teerlink wanted was to frustrate dealers and customers. Although he recognized that higher production would lead to higher sales and profits, he refused to increase output at the risk of damaging the company's new reputation for quality. Faced with a sea of clamoring customers and anxious deal­ers, how could Teerlink boost Harley's production while keeping a firm grip on the quality that had brought the company back to its dominant position in the motorcycle industry? What could the CEO do to monitor the produc­tion process and keep it on track and on time? How could he make Harley flexible enough to handle the constant change needed to compete with rivals all over the globe?

Meeting Business Challenges at Harley-Davidson

Even though Harley-Davidson had regained its reputation for building dependable motorcycles, higher demand created a new dilemma for CEO Richard Teerlink: how to increase production and boost sales without sacrificing quality. Even though mo­torcycle enthusiasts in Europe, Japan, and Australia were eager to buy, Harley agreed to limit international exports to 30 per­cent of all sales until production caught up with demand in North America. Now Teerlink turned his attention to produc­tion and operations, the areas that had fueled Harley's return to prominence in the late 1980s.

Following Honda's lead, Harley installed the HT system of inventory management. Among other things, HT lowered the number of parts and supplies held in waiting, so Harley could spend more on research to improve quality and to speed up the manufacturing process. Harley adapted to HT by changing everything from its purchasing practices to the layout of its fac­tories. It also forged closer relationships with a smaller group of suppliers who could deliver high-quality parts on time. Because Harley was using fewer suppliers, it was able to place larger or­ders and qualify for bulk discounts.

In addition, Harley redesigned its production machinery and created more standardized parts for multiple bike models. With this approach, the company could build individual mod­els in smaller batches, which allowed for more frequent prod­uct upgrades. The smaller batches also cut down on the num­ber of defective parts.

Now Teerlink decided that Harley had to do more. He appointed a vice president of continuous improvement to over­see further reductions in waste, defects, and variability. He also moved Harley deeper into flexible manufacturing, and he set up a create-demand team, a production team, and a product sup­port team to tap the knowledge of people who had experience in a variety of functions.

This emphasis on quality and world-class manufacturing has kept Harley well ahead of second-place Honda. Revamping its production and operations processes has even positioned Harley to turn the tables on Japanese companies: Harley-David­son is now the best-selling imported motorcycle in Japan.