Read the following and answer the questions at the end of the article.

Reference: http://www.informationweek.com/711/11iuhar.htm

Harley Shifts Into Higher Gear

Harley-Davidson turns to IT to rev up production and tighten supply-chain links

By Bruce Caldwell

Branding to die for: Your logo is a popular tattoo and your customers wait as long as two years to take delivery of your products. That kind of sex appeal and loyalty have made Harley-Davidson an American icon--as well as the envy of retailers and manufacturers worldwide.

With that kind of competitive advantage, is IT crucial to the bottom line? Ask Harley-Davidson. Company officials say they plan to use IT to help increase production from about 150,000 motorcycles this year to 200,000 a year by 2003, the company's centennial. Officials say they plan to use IT to cut $40 million out of production costs and inventory.

What's less clear is how Harley-Davidson, the quintessential Midwest manufacturer, plans to use IT to address more forward-looking concerns, such as implementing an E-commerce strategy without alienating its dealership channel, or getting closer to a rapidly aging customer base without the benefit of direct contact with its end customers.

Harley-Davidson has some answers: Customers meet on the company's Web site and dealerships execute warranty-claim transactions and parts order-entry over an extranet known as H-D.Net. But so far, only one-tenth of Harley-Davidson's dealers take advantage of H-D.Net.

Still, the $1.8 billion company is making its biggest technology commitment to date. This year's IS budget is $50 million, slightly more than 2% of projected revenue--above average in the conservative manufacturing sector. More than half of that budget is dedicated to new development, funding an IP-based corporate network, a data warehouse project, Microsoft desktop and server software, and other projects.

Harley-Davidson has grown rapidly since 1986, when the company was pulled back from the brink of bankruptcy and went public under new management. Because of the product's tremendous appeal, the company grew from $757 million in sales in 1988 to $1.8 billion last year.

But IT wasn't a big factor in that growth. In 1994, when the IS budget was just 1.3% of revenue, "IS was just treading water," says Cory Mason, director of IS for production. When David Storm, VP of planning, was hired from Andersen Consulting in 1992, he found a traditional, functionally oriented IS organization. Director of IS Rich Kolbe reported to the president, and the hierarchical structure didn't track with Harley-Davidson's decentralized management structure: three standing committees totaling 25 executives, known internally as "circles of leadership," that manage the company around the issues of customers, production, and corporate support. Each group reports directly to CEO Jeffrey Bleustein.

When IS was added to Storm's strategic planning responsibilities in 1994, he named Kolbe the director of IS for support, promoted 20-year veteran Laurel Tschurwald to director of IS for customers, and created the production position, which Mason filled when he came from Johnson Wax that year. Kolbe left last August and was replaced by Reid Engstrom, recruited from IBM two years ago to help establish an IS architecture and infrastructure. The three IS directors report to Storm.

IT's alignment with Harley-Davidson's "circles of leadership" structure has helped change the way IT is viewed by business executives, Storm says. "There are still some hurdles," he says, such as the lingering mind-set among older managers that IT is a necessary evil rather than a strategic partner that helps move the business forward. "But we're a lot further ahead than some other manufacturers."

Harley-Davidson has continued to beef up its IT resources. Over the past four years IT staffing has more than doubled, to 180 employees.

Infrastructure Upgrade

Still, Harley-Davidson has been conservative in upgrading its IT infrastructure. Last summer, the company opened its newest manufacturing plant, in Kansas City, Mo., which is expected to produce bikes 30% more efficiently than its York, Pa., plant. The Kansas City plant runs American Software Inc.'s AS/400-based manufacturing suite, the same one used at Harley-Davidson's four other manufacturing facilities. And while Harley-Davidson has been increasing its use of Windows NT as a server platform, the company plans to keep its base of AS/400s for manufacturing, and use them to support the data warehouse under development. "We don't see abandoning the AS/400," says Engstrom. "We'll consolidate to bigger and fewer."

At least one person close to the company says Harley-Davidson's management structure contributes to its conservative approach. "Their hearts and minds are in the right place, but because they have such a decentralized organizational structure, it's harder for them to get consensus on a lot of applications," says Chris Davidson, regional manager at DataMirror Corp., a Toronto maker of data transformation and replication software and one of Harley-Davidson's IT suppliers. "In some respects, it's slower," Mason acknowledges, "because you have to bring all the stakeholders together."

Harley-Davidson uses DataMirror Transformation Server and the DataMirror High Availability Suite to move data, such as information on inventory levels, among the AS/400s running its manufacturing systems. The company also uses the software to move warranty and parts information between its main manufacturing system and its Web server supporting H-D.Net.

According to DataMirror's Davidson, Harley-Davidson is aggressively standardizing its IT systems. The by-product of that, he says, will be a more nimble IT shop. "Harley-Davidson sees the need to streamline operations and reduce the expense of supporting multiple products," he says.

The list of IT vendors wasn't the only one to be simplified. In 1995, Garry Berryman was recruited from Honda to serve as VP of purchasing. Berryman began strategically weeding suppliers from the nearly 1,000 that provided Harley-Davidson with motorcycle components, parts, and accessories, as well as general merchandise. The number of suppliers was cut to 425, and Sterling Software's E-commerce application was implemented to streamline the company's $1 billion in annual spending with suppliers. Berryman also worked with IT to deploy Marcam's Advantis software to help manage the inventory and requirements for maintenance, repair, and operations supplies provided by 2,000 suppliers at a cost of $70 million a year.

"Harley-Davidson is capacity-strained," says Bill Swanton, VP and service director for manufacturing strategy at AMR Research Inc. "To the extent they can get better relations with their suppliers, the more successful they can be."

The purchasing strategy and IT deployments, carried out within his first year at Harley-Davidson, paid off in productivity and efficiency, says Berryman. Despite the continued rapid growth of the company, he explains, no additional purchasing staff has been necessary.

Room To Grow

Using IT to make its spending and supplier relationships as efficient and effective as possible is essential for maintaining growth. "We've got to have good information, or we cannot grow at projected rates," says Berryman.

That's why Harley-Davidson continues to enhance its supply chain. In addition to Manugistics' supply-chain software, Harley-Davidson has acquired licenses for Parametric's Pro-E computer-aided design and manufacturing software to support more than 5,000 users, both internally and among its motorcycle component suppliers. The company also acquired Metaphase's product-data management software, to streamline the flow of product information internally and externally.

Recently, Harley-Davidson completed rollout of a custom Web-browser interface, developed using Metaphase's Java-based eVista toolkit, to its 400 Unix workstations at eight locations. The browsers can be used to search current and historical parts drawings, which are batch-loaded from the company's ProE CAD systems to a Metaphase data vault running on an Oracle database.

The data vault and browser interface system--which will be rolled out next spring to Windows 95 machines used by purchasing, inspection, manufacturing, and dealer support--replaces a "clunky manual" process of overnighting every new drawing throughout the company, says Mark Dickson, a systems manager for product development applications at Harley-Davidson. Because the manual process was slow, users were never sure if they had the latest version of a drawing, says Dickson. "The beauty of what we're doing is that Metaphase lets those without CAD workstations have access to the drawings," he says.

Metaphase's product-data management tools may play an even larger role in the near future, Dickson adds. "We have expectations for PDM to be the control point for product- and process-related data, including bills of material, to the extent we need to build bridges to [American Software]," he says.

With the addition of password protection and other security, access to drawings will be extended to parts suppliers, which will also be given ProE CAD licenses. These steps open Harley-Davidson's suppliers to collaborative relationships that will cut product development time and manufacturing costs to the tune of $40 million, the company hopes.

Closer end-customer relationships may prove trickier for Harley-Davidson, which depends on 2,000 dealerships worldwide to sell and service its bikes. While customer loyalty to the brand name may be of the highest order imaginable, the dealerships are the standard-bearers for Harley-Davidson traditions--and the local presence to its customers. Currently, the company sells nothing directly to customers.

That gap between the company and its customers may be a competitive weak point. When James Weatherbe, a research fellow at IT consulting firm Concours Group, bought his 12th Harley-Davidson, he received a corporate thank-you letter as always. But it didn't acknowledge his long history with the company. "At the store level, they have good customer profiles, but their corporate memory on bike purchases isn't good," he says.

To help with that, Harley-Davidson has a data warehouse project on the drawing board. First up: a customer-relationship management system. Next, the company will test warranty and financial applications; it will begin testing the data warehouse system next year.

Because most of its customer data is embedded in dealership systems, and only about a quarter of all the dealerships use the proprietary Harley-Davidson Talon point-of-sale system or H-D.Net, Harley-Davidson has an extra challenge in collecting that data: coaxing competitive information from dealers. E-commerce presents a similar challenge: What could be a boon to Harley-Davidson risks alienating the company's relationship with its dealer channel. "We have to be careful about how we approach E-commerce," says Tschurwald, director of IS for customers. "We spent a long time thinking about whether we should have a Web site."

The relationship with dealers is important because Harley-Davidson faces pressure in the marketplace it hasn't felt in years. Japanese competitors are unleashing copycat cruiser bikes, and new competition is emerging from unexpected sources, such as Polaris Industries, a snowmobile maker. Two extinct American motorcycle brands, Victory and Excelsior-Henderson, also are being revitalized. Even the company's own component suppliers have gotten into the act, assembling their own motorcycles to compete against the original.

Update For Distribution

But Harley-Davidson has proved it can respond to a challenge. In 1994, for instance, the parts and accessories business was booming, and there was no way Harley-Davidson's antiquated distribution operation could keep up. In 1987, the company did $42 million in parts and accessories. By the time it brought Brian Smith in as director of logistics in 1994, revenue was more than $150 million. But Harley could have been doing much more.

Harley-Davidson's distribution warehouse was "dismal," says Smith. The building was 84 years old; the lift trucks, fork trucks, and other pieces of materials-handling equipment were 30+ years old; freight elevators were antiquated; and docking areas were cramped and congested.

The information systems were paper-intensive. All orders were printed out, then pencil-wielding employees would pick them up, walk to the parts area, select the parts, and check them off on the paper orders. "It was sort of like going to the grocery store with a grocery list," Smith says. The worst part: It took as long as 12 days to fulfill parts orders. Competitors could deliver in three days or less.

Smith, who had just spent 22 years at Whirlpool--which used state-of-the-art online systems--started from scratch. He built a 250,000-square-foot distribution center in Franklin, Wis., a suburb of Harley-Davidson's home base of Milwaukee. A warehouse-management system from Exeter and a shipping system, Pfastship, were implemented on the IBM AS/400 platform. Harley-Davidson installed Interlake's automated conveyors and other warehouse equipment. The $18 million construction and implementation effort was completed in 1996, and the last dealership region was phased in this spring.

Since January, says Smith, "we've gone on a rocket ride." Productivity has doubled, and order-fulfillment time has been cut to two days. Parts and accessories sales for this year are projected to exceed $250 million. "Today, when I come to work, it feels much more like what I was used to," says Smith. "It's modern, accessible, responsive.''

While the rest of the company doesn't move quite that fast, with the help of IT Harley-Davidson hopes to keep its loyal-but-aging customer base satisfied and growing. "This is a company that gets better every quarter at doing things," says Lee Wilder, an analyst at J.C. Bradford & Co., a brokerage in Milwaukee. "There's nothing wrong with being an intelligent tortoise as opposed to a hare."

Not as long as that tortoise is powered by a 1,450-cc Twin Cam 88 engine.

--with additional reporting by Beth Davis

Photo by Scott Witte

Required:

1.Determine the management practices of the align, plan and organize domain at Harley-Davidson (HD). Use the slides from the COBIT-DomainsAPO.pptx presentation and the materials from the COBIT Governance and Management Objectives eText as your template.

A.Specifically, there are 14 objectives in the align, plan and organize domain. Using the any four processes (APOw, APOx, APOy, and APOz), apply them to the case, that is, determine the management practices at HD for those processes only. Be sure to relate each item in the goal cascade to the case including enterprise goals and alignment goals. You should have a write up of four goal cascades for the four processes.

B.Using the Process Assessment Model (PAM) determine the necessary level of process achievement that will be necessary for the four APO processes you outlined above. Base your analysis on the PAM model and your justification of the four objectives.

2.Using the COBIT assurance guidance (Generic, see the IT-AuditProcess.pptx slide deck, slides 24-39) as a template, develop the audit plan and scope for the four objectives in #1 above. You do NOT have to perform the audit, just use the guidance to develop those procedures which you know from the case can be performed at HD. Do not spend time on what could be done, just plan to audit those areas which are mentioned in the case.