The Harley-Davidson Motor Company (Harley-Davidson) began nearly 100 years ago fulfilling a dream of 21 -year old William S. Harley and 20 -year old Arthur Davidson. In 1903, they made available to the public the first Harley-Davidson motorcycle, a bike built to be a racer. The factory in which they worked was a 10 by 15 -foot wooden shed with the words "Harley-Davidson Motor Company" scrawled on the door. Arthur's brother Walter later joined their efforts.

Almost a century later, Harley-Davidson's total assets and net sales have each grown to over \(\$ 3\) billion, with annual production exceeding 230,000 motorcycles. By the end of 2001, the company held a \(28 \%\) share of the worldwide heavyweight motorcycle market, and company production forecasts reflect anticipated growth in production capacity and plans for exciting new products, such as the new V-Rod \({ }^{\mathrm{TM}}\) bike introduced for the 2002 model year.

The Milwaukee-based company has an incredible following of avid motorcycle enthusiasts. The Harley-Davidson Owners Group, frequently referred to as "H.O.G.," is the largest factory-sponsored motorcycle club in the world, with over 650,000 members and 1,200 chapters in over 100 countries worldwide.
The company's reputation and financial success have not gone unnoticed by the business community. In January 2002, FORBES named Harley-Davidson as its company of the year for 2001, while Fortune selected Harley-Davidson as one of the nation's "Most Admired Companies" in February 2002. FORBES summarized the tremendous success of Harley-Davidson as follows:
"In a disastrous year for hundreds of companies, Harley's estimated 2001 sales grew \(15 \%\), to \(\$ 3.3\) billion, and its earnings grew \(26 \%\), to \(\$ 435\) million. Its shares were up \(40 \%\) in 2001, while the \(S \& P\) dropped \(15 \%\). Recessions don't phase this profit machine. Harley grew right through the last one, too. In fact, since Harley's initial public offering in 1986, the company has put up \(37 \%\) average annual earnings growth. Investors who went looking for tech sizzle and cover-boy chief executives would have done better with hogs. Since Harley went public, its shares have risen \(15,000 \%\). Intel? A mere \(7,200 \%\) since 1986. GE? A paltry \(1,056 \% ., 1\)

HARLEY-DAVIDSON'S eBUSINESS SUPPLY CHAIN
In the mid-1990s, amidst all the success, Harley-Davidson faced the enormous challenge of meeting production demand for its motorcycles. Like many companies in today's global marketplace, Harley-Davidson struggled to manage all of its upstream suppliers (who provide raw materials) to ensure an effective downstream manufacture and delivery of motorcycles to customers. Company leaders found that the management of complex supply-chains, which involve material and information flows about new product development, systems management, operations and assembly, production scheduling, order processing, inventory management, transportation, warehousing and customer service, presents numerous challenges for large manufacturing organizations like Harley-Davidson.
Harley-Davidson attacked the supply-chain problem by streamlining its cumbersome and bureaucratic supply-chain into a vertically and technologically integrated system of suppliers directly interested in Harley-Davidson's success. To assist in the transformation, Harley-Davidson's Vice President of Materials Management, Garry Berryman, initiated a consolidation of Harley-Davidson's supply-chain to overhaul this vital aspect of company management. His plan involved a company-wide consolidation of its various purchasing departments, formation of new business partnerships, and technological innovations.
Consistent with other companies with complex supply-chain systems, HarleyDavidson faced huge hurdles associated with coordinating a large number of material requirements and suppliers. To effectively implement its internal supply chain makeover, Harley-Davidson had to alter its corporate purchasing philosophy and consolidate the function. Prior to initiating the overhaul, Harley-Davidson had nine purchasing systems, over 4,000 separate suppliers, and little or no central guidance for purchasing. The company consolidated its purchasing function by forming a select group of suppliers from its enormous supply chain and ultimately cut its supplier base by \(80 \%\), from 4,000 to 800 .
In addition to consolidating its purchasing functions, Harley-Davidson also worked hard on fostering new business partnerships with these key suppliers. Bringing the suppliers into strategic partnerships with Harley-Davidson was a difficult and complex task. Management had to show their business partners that being selected as a key supplier for a company like Harley-Davidson would have a tremendous positive impact. Then, the company had to convince suppliers to agree to certain conditions associated with their offer. For example, Georgia Pacific's Unisource division had to commit to doubling quality, cutting product development time in half, and lowering the cost of goods in order to meet Harley-Davidson's requirements for inclusion in its supply chain. Fortunately, Unisource recognized the potential payoff. Unisource's revenues increased over ten times as a result of being selected a key Harley-Davidson supplier.
Once suppliers were integrated into Harley-Davidson's supply chain, the company faced another problem: how to effectively and seamlessly share information with its new network of suppliers? Harley-Davidson turned to the Internet as the solution for integrating its supplier network. Use of the Internet enabled smaller suppliers, previously unable to connect to the company's legacy electronic data interface (EDI) systems, to participate in the supply-chain process. The versatility of the Internet provided an interface for transactions and interactions with the majority of its suppliers, removing costly hurdles imposed by the restrictive technology compatibility requirements of its old EDI systems.
To provide the technological interface for communicating with its suppliers, Harley-Davidson selected Manugistics Group, Inc. to power the Harley-Davidson Supplier Network that provides real-time access to detailed order and inventory data. Manugistics is one of the leading suppliers of Enterprise Profit Optimization (EPO) services. These services use information technology (IT) innovations to allow companies and their suppliers to lower operating costs by simultaneously improving supply-chain management and supplier relationship management. \({ }^{3}\)
The Manugistics-designed private Internet trading network enables HarleyDavidson and its trading partners to communicate and collaborate around key aspects of the company's supply chain. The network provides transaction execution capability to the company's supply chain. Suppliers have the ability to initiate and receive transactions related to the order lifecycle, from planning orders through invoicing.
Among other things, the Harley-Davidson eBusiness supply-chain network (www.h-dsn.com) enables suppliers to share and gather information with HarleyDavidson about upcoming demand for parts and past order histories. The Internetbased eBusiness supply-chain network provides the ability to initiate transactions, utilize supplier-reporting tools, and create collaborative forecasts for parts needs. This eBusiness site offers secure access to billing histories and a full year's forecast for total demand for various parts.
The company has also encouraged cost reductions through innovation and efficiency. After whittling down the number of relationships to be managed, Berryman invited Harley-Davidson's key suppliers to place employees at Harley's facilities, thereby including key suppliers not only in purchasing decisions but also in product design and manufacturing discussions. These in-house suppliers have access to Harley's Intranet, which allows suppliers access to meeting minutes, schedules, plans and other internal systems. With the increased sharing of information between Harley-Davidson and its supply-chain through Harley-Davidson's new Intranet, the company has become a model for successfully using eBusiness and technologicallyfueled partnerships to facilitate and enhance core business activities.
Dave Cotteleer, Harley-Davidson's Manager of Planning and Control explains some of the motives for the change.
"We're using technology to cut back on communication times and administrative trivia, like invoice tracking, so we can focus the relationships on more strategic issues. We're not saying, "Here's a neat piece of technology. Let's jam it into our model...Our goal is to have the suppliers doing their own replenishing, using the site. They can see what our consumption rates are, rather than trying to project (them) based on historical information. "4 Have all these changes made a difference? By forming strategic alliances with all its top suppliers, bringing them into the design and planning process, and integrating with them through the Internet, Harley-Davidson has been able to dramatically reduce the cost of producing its famous "H.O.G.s." The company has shaved \(\$ 40\) million off its materials costs since 1996. Product-development time is down \(30 \%\). Defect levels on bike parts have plummeted from an average of 10,000 to 48 parts per million for over \(75 \%\) of its suppliers. \({ }^{15}\)

BENEFITS AND RISKS OF eBUSINESS MODELS
eBusiness solutions, such as Harley-Davidson's supply-chain system, leverage the power of information technology (IT) and electronic communication networks, such as the Internet, to transform critical business strategies and processes. These eBusiness models remove traditional boundaries of time and geography and make possible the creation of new virtual communities of suppliers and customers.
Formally defined, eBusiness is the use of IT and electronic communication networks to exchange business information and conduct transactions in electronic, paperless form. As indicated in the definition, eBusiness includes the exchange of business information that may or may not directly relate to the purchase or sale of goods or services. For example, businesses are increasingly using electronic mechanisms to improve company performance by facilitating collaboration and data sharing among employees as well as to provide improved customer support. Participants in eBusiness transactions and information exchanges may be individuals (consumers and employees) or automated agents (information systems that are programmed to perform with little or no human intervention). Transactions and information exchanges can take place within a company, between companies, between companies and individuals, and between individuals.
As evidenced by Harley-Davidson's supply-chain network, the Internet is frequently one of the electronic mechanisms used by companies to support core business functions. Companies that recognize the ability of the Internet to assist in essential business operations often find tremendous synergies through the implementation of the technology. Although many of the early "dot-coms" are dead, eBusiness is very much alive. eBusiness is becoming an integral part of the way many companies conduct business.
The integration of technology at companies like Harley-Davidson, however, introduces new issues and risks that must be effectively managed. Companies must be sure they have the resources to integrate new technologies effectively and efficiently. This is often accomplished through strategic partnerships within the company's supply chain, and by adding partners to obtain technical abilities not currently found within the organization.
eBusiness partnerships create interdependencies between business partners that can substantially increase the amount of business risk faced by each organization. The success of technology-linked partnerships is often determined by the ability of each partner to identify and mitigate risks to its business and IT systems. The integrity and quality of each partner's IT system and the communication system between partners are critical. Because of the amount of information access and sharing that takes place in eBusiness partnerships, participating companies must be concerned not only with the integrity of their own information systems but also with the quality of the IT systems of its strategic business partners. For example, the more business partners share electronic information about suppliers and customers, the more critical it becomes that information is safely processed, transmitted, and stored by all partners involved.
An effectively integrated system involves not only an interdependent relationship between business partners, but it also involves a complete system of hardware, software, people, procedures, and data that effectively isolate and manage the risks associated with eBusiness models. Because of the interdependencies often involved in an eBusiness environment, organizations must realize their responsibility to ensure that trading partners are using effective risk identification and management practices to protect the strength and the integrity of the entire network of interdependent enterprises.
Understanding the benefits and risks associated with eBusiness models is important to CPAs for several reasons. First, CPAs need a good understanding of the key technologies underlying eBusiness models to effectively identify, measure, and assess the related costs and benefits when potential eBusiness solutions are being evaluated. In addition, CPAs who are engaged as auditors to provide assurance about client financial statements need a good understanding of eBusiness systems to effectively evaluate business risks that may increase the likelihood of material misstatements in those financial statements. Such an understanding will allow CPAs to provide high-quality business and assurance services for which they are known. To do so, they must understand the nature of eBusiness partnerships powered by the Internet and the risks and opportunities involved.

REQUIREMENTS

1. What new risks does Harley-Davidson face by integrating eBusiness into its supply-chain management system and by allowing suppliers to have access to the company's Intranet?
2. What internal controls has Harley-Davidson likely implemented to mitigate the risks identified above?
3. Given the technology linkages between business partners in eBusiness systems, how might an eBusiness system like Harley-Davidson's increase business risks for its business partners?
4. Research the SysTrust and WebTrust services from the information on the following web pages:
http://www.aicpa.org/assurance/systrust/index.htm http://www.aicpa.org/assurance/webtrust/index.htm.
Describe how WebTrust services differ from SysTrust services? Describe how they are related?
5. What principles are examined in a SysTrust audit? Describe the role of the SysTrust criteria when evaluating these principles. What types of CPA reporting requirements exist?
6. Summarize the certification requirements for completing a WebTrust certification and a Sys Trust certification.
7. Assume that Harley-Davidson asked your CPA firm about the WebTrust and SysTrust services that it provides. Write a brief memo to Gerry Berryman, Vice president of Materials Management, detailing the potential benefits of WebTrust and SysTrust for Harley-Davidson. Which of these assurance services would you recommend to Mr. Berryman? Why?
8. Harley-Davidson is using an eBusiness system to manage its supply-chain processes. Describe how Internet-based eBusiness systems might be developed by organizations to address other business process issues.