Fluent Essays

1. Why did Harley Davidson initiate the Supplier Information Link (SiL’K) project?  Please think about the external vs. the internal, and the business vs. the technological aspects of the issues and challenges. You can also take the SWOT analysis approach. 2.Based on the case information available, which provider would you select?  Why? 3.Summarize the steps that Harley Davidson took in managing their analyses of as-is and to-be processes, considering the functionality requirements of the ERP vendors, to eventually selecting the technology provider.  4.If you were in charge of the project of this case, what would you have done differently? If you were in charge of an IT-enabled business process innovation project, what would be the top three issues and action items on your agenda list? 9-600-006 R E V : J A N U A R Y 2 2 , 2 0 0 3 ________________________________________________________________________________________________________________ Doctoral Candidate Deborah Sole and Postdoctoral Reseach Fellow Mark J. Cotteleer prepared this case under the supervision of Professor Robert D. Austin. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 1999 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. R O B E R T D . A U S T I N D E B O R A H S O L E M A R K J . C O T T E L E E R Harley Davidson Motor Company: Enterprise Software Selection We were in McDonald’s having our initial SiL’K planning meeting when a gunfight erupted in the parking lot. Bullets started flying through the restaurant. Someone said, ‘Everyone down, lock the doors’. We all hid under the table. I’m lying on the floor looking at Dave and Pat—I’m thinking, Holy Smokes, this is unreal. It was just incredible—a real bonding experience! —Garry Berryman, Vice President, Materials Management David Cotteleer, Information Systems (IS) Manager of the Supplier Information Link (SiL’K) project, smiled as he recalled the terror and subsequent camaraderie that had grown out of that unusual beginning. It had set the tone for the partnership that developed between Berryman, Pat Davidson, Manager of Purchasing, Planning and Control, and himself, as they worked collaboratively to develop the specifications for an integrated procurement system to support the new Supply Management Strategy (SMS). Now he and the SiL’K project team were gathered in their “war room” on the top floor of the Harley-Davidson Corporate Headquarters to face another critical moment in the project’s history. After three hectic months of meeting potential software suppliers, reviewing documentation, and evaluating software packages, the SiL’K team had to make a decision. Who should they choose as their supplier and partner in implementing an enterprise-wide procurement and supplier management system? On what criteria should that decision be based? And had they done everything possible to enable them to make the right decision? The Harley-Davidson Motor Company Harley-Davidson Motor Company was founded in a shed in 1903, when young William Harley and Arthur Davidson began experiments on “taking the work out of bicycling.”1 By 1920 the company had become the largest motorcycle manufacturer in the world, with production of over 1 Harley-Davidson website at http://www.harley-davidson.com/. 600-006 Harley Davidson Motor Company: Enterprise Software Selection 2 28,000 motorcycles per year and dealers in 67 countries. In 1998, Harley-Davidson shipped 150,818 motorcycles, a 14 percent increase over 1997, and a step closer to its ambitious Plan 2003 - the vision to dramatically increase production capacity by the company’s 100th anniversary. Most of the company’s revenues and income were derived from motorcycles and related products (Exhibit 1). Harley-Davidson employed approximately 6,000 people and supported over 600 independently owned US dealerships. Headquartered in Milwaukee, Wisconsin, the company had manufacturing facilities in Wisconsin, Pennsylvania and Missouri (Exhibit 2a), and wholly owned subsidiaries in Germany, UK, Benelux, France, and Japan. Harley-Davidson competed primarily in the heavyweight (>651cc) motorcycle market against the likes of Honda, Yamaha, Suzuki, and Kawasaki. Strong Japanese competition, coupled with Harley-Davidson’s rapidly expanding production and accompanying quality problems, had brought the company to the brink of bankruptcy in the mid 1980s. The crisis had prompted a management buy-out, followed by a renewed focus on quality and, subsequently, Harley-Davidson’s successful IPO in 1986. Worldwide retail registration data through October/November 1998 showed that Harley-Davidson’s target market grew by 13.8 percent over prior-year numbers. In that same time Harley-Davidson had grown 14.3 percent. The company’s renaissance was viewed by some as a symbolic reassertion of American manufacturing prowess, and proof that US industrial companies could compete against foreign rivals. Over the course of its 95 years, the Harley brand had acquired an almost mystical power. Many customers were willing to wait up to two years for a motorcycle. Harley-Davidson bikers were traditionally perceived as young, reckless and “born to be wild.” However, much of the recent growth trend was fueled by riders in their forties with grown children no longer at home. These customers were drawn to the dream of adventure and freedom that motorcycling offered—and had the wherewithal to fund such recreation. Despite the gentrification of its customer profile, Harley- Davidson continued to revel in its image of being, in the words of CEO Jeff Bleustein, “a little bit special, a little bit mysterious, a little bit bad.”2 Harley-Davidson valued both individual participation and teamwork. The company applied the concept of self-directed teams from the factory floor to the executive level. Instead of employing a functionally separated hierarchy, the organizational structure consisted of three interlocking “circles”: Create Demand (CDC), Produce Products Group (PPG), and Provide Support (PSC). CDC was responsible for sales and marketing issues. PPG handled development and manufacturing. PSC fulfilled legal, financial, human resources, and communications needs. Circles were headed by standing committees or “Circles of Leadership,” as they were known. A Leadership and Strategy Council, comprised of executives from each group, provided oversight of the circles to ensure that an integrated vision of corporate direction was maintained (Exhibit 2b). The Information Systems Organization Teamwork also played a role in the structure of the IS function at Harley-Davidson. Instead of a Chief Information Officer (CIO), Harley-Davidson had an “Office of the CIO” in which three “Directors” filled the role of providing IS leadership. Cory Mason, Director of Information Systems for PPG, maintained “in the collaborative culture of this organization it is acceptable to share leadership.” He elaborated on the need to have three people share CIO responsibility: 2 Gina Imperato, “Harley shifts gears” FastCompany, no. 9 (June 1997): 104. Harley Davidson Motor Company: Enterprise Software Selection 600-006 3 Senior management looks to the CIO to be their internal consultant; to give them guidance and direction regarding technology’s ability to create business value. The problem is that it’s too much ground for one person to cover effectively. Instead, each IS Director is tightly integrated in the business decisions of a circle and together, with the VP of Strategic Planning and Information Services, they are able to craft well-aligned business and enterprise-wide IS capabilities. To guide IS results, each Circle of Leadership had an Information Technology Circle (ITC), made up of pairs of senior IS people and end users representing each site and function. The role of the ITC was to understand group processes and interactions, and to decide, from a business perspective, where the group should focus its technology efforts. In PPG, the ITC was fully empowered to make technology investment decisions. Management considered the ITC to be in the best position to understand the needs of the business, since they were closer to the action. The Purchasing Organization As part of PPG, the purchasing organization was tightly integrated with the engineering and manufacturing operations. A purchasing development group was collocated with the engineering community at Harley-Davidson’s Product Development Center (PDC). Purchasing operations groups were located with their manufacturing counterparts at plants and facilities. A centralized purchasing planning and control group was located at corporate headquarters in Milwaukee. Leadership for the purchasing function was provided by the Purchasing Unity Group (PUG) which was comprised of purchasing managers representing the different Harley-Davidson sites. The PUG also included members representing the company’s Maintenance, Repair, and Operations (MRO), Original Equipment (OE), Parts and Accessories (P&A), and General Merchandising (GM) purchasing activities.3 Over the years, site independence had been encouraged, resulting in different methods for handling procurement, including the acquisition and/or development of different information systems for Purchasing. Not only were there separate systems for MRO and OE but systems provided by the same supplier had been modified to meet specific needs at local sites. For example, the OE system at Harley-Davidson’s York, Pennsylvania site was different from the OE system in Kansas City, and both differed from the OE systems at Powertrain sites.4 Supply Management Strategy: Setting the Stage When Garry Berryman joined Harley-Davidson in 1995, he became an important force for change in the purchasing organization. Drawing on prior experiences at John Deere and Honda he sought opportunities to develop purchasing’s role within the corporate vision of Plan 2003. Berryman’s assessment was that the supplier relationship “wasn’t viewed as a strategic opportunity to speed time to market, reduce costs, and improve product quality.” Since purchased parts comprised 55-60 percent of a motorcycle’s value, Berryman was convinced that if the purchasing organization could initially influence cost, everything else would follow in terms of the internal 3 MRO deals with items to be consumed during manufacturing, e.g. machine tool components; cleaning equipment. OE concerns components to be included in the product, i.e. bought-in motorcycle parts. P&A deals with after market accessories and service parts, and GM concerns H-D clothing, collectibles and other licensed products. 4 “Powertrain” refers to the motorcycle engine and transmission components. 600-006 Harley Davidson Motor Company: Enterprise Software Selection 4 support needed to change the way the company interacted with its supplier community. Berryman envisaged the purchasing organization becoming a common enterprise-wide point of contact with suppliers who would be real partners in Harley-Davidson’s business. Under Berryman’s direction, the purchasing organization began development of a corporate wide Supply Management Strategy (SMS) in 1996. The goal of SMS was “to ensure that Harley- Davidson is provided with the right product, at the right time, with the best quality, for the lowest possible cost.”5 A key element was articulating the distinction between a “vendor” and a “supplier.” Berryman elaborated on the difference: A vendor is what you’ll find on a street corner. You’re simply going to get the product that you see, you’re not going to get anything behind that product - in terms of innovation, creativity, and commitment to your business success. A supplier is an extension; is an opportunity to extend our primary business within organizations that can bring a competency to product development and innovation. Throughout 1996, Berryman and the PUG engaged other functions and Harley-Davidson supplier organizations, articulating the SMS vision and enlisting participation in the refinement of the strategy. When it was published at the end of 1996, Berryman was confident that it truly incorporated the contributions of all stakeholders. At the heart of SMS was the need to shift the organization from a short-term transaction mentality to a long-term focus on supplier relationships. Collocation of suppliers with production facilities and their integration into Harley-Davidson’s development process was an important part of long-term relationship development, but it could not be achieved by Purchasing alone. Berryman remarked how platform teams6 developing new products slowly became aware that Purchasing could not leverage supplier resources single-handedly, and that they themselves were responsible for developing a work plan to convince suppliers of the value of collocation. Harley-Davidson’s values and willingness to experiment were instrumental in facilitating the shift to the supplier relationship perspective. Berryman acknowledged that being an equal player, with Engineering and Manufacturing, was also key to achieving the vision of a new role for supply management. Finally, the involvement of each functional area was essential in selling the strategy. Berryman commented: It’s simply having a presence in each one of the major segments of the company, so you’ve got a voice there and people don’t forget about the role of supply management. You’ve got to have a strong voice in every major forum and discussion that goes on around the company to make certain [the strategy] isn’t forgotten. Berryman argued that a slow and steady approach was necessary to build the necessary trust, enthusiasm and engagement in SMS. He insisted that the new way of thinking become institutionalized, before process and technology changes were addressed. He emphasized his point, quoting from his pocket copy of The Art of War:7 5 SiL’K Newsletter 1998, no.1. 6 A Platform team is a multifunctional new model development team, which includes representatives from engineering, manufacturing, purchasing, and marketing. 7 Sun Tzu (BC2500) The Art of War, English Translation by Penguin Classics (1974), p. 10. Harley Davidson Motor Company: Enterprise Software Selection 600-006 5 “When your strategy is deep and far reaching, what you gain by your calculations is much. So you can win before you fight.” And I think that’s what we are driving home. Too many times, we do just the opposite. “When your strategic thinking is shallow and near-sighted, what you gain by your calculations is little. So you lose before you even do battle.” We can afford to take the time to do it right. You’re better off being a little slow, a little deliberate to make certain you get it right because you don’t have a second chance. For me, the key is building a depth of understanding around the strategy. Time for Transformational Thinking: Let’s Get Wild! After a year of indoctrination and a couple of revisions, we finally said this thing is rock solid. We started to hear across the company people talking about the supply management strategy as their own. We knew then it was time to begin to create a change in our process and the tool sets that we had to manage that process. —Garry Berryman Mason foresaw two main hurdles to introducing changes into purchasing processes and systems. The first was Harley-Davidson’s absolutely overriding concern with unmet demand and a resulting wariness of any change that might impact production. He commented: We have people that are passionate about making sure the lines continue to run. When you’ve got that kind of “I’m not going to bring the line down” attitude, there are some really interesting barriers that you’re going to have to go through when you are trying to convince somebody to, in some cases, radically, change their processes and procedures. Mason’s second hurdle, a common problem faced by project teams, was the company’s “natural proclivity to continuously improve, rather than to transform business functions.” Davidson explained why change did not come easy to the company: We’re rooted in our heritage. I think part of it is the way our product line has evolved. We’ve got these big long life cycles on our products.8 They don't change frequently. We always have continuous improvement, but larger scale, sweeping changes haven’t occurred unless significant events presented reason to change. The combination of huge potential value and the change effort likely to be incurred made IS management wary of this strategic initiative gravitating towards a continuous improvement project. Given Harley-Davidson’s historic functional autonomy, Mason knew that if transformational change was to take place, it was imperative to get Purchasing leadership excited and committed before asking them to provide resources for a major systems project. In an effort to get the organization to “think out of the box,” Mason took the PUG offsite for a brainstorming session and encouraged them to “get wild” in thinking about radical changes to their procurement processes. Reflecting on the results of the day, Mason commented “That discussion with the procurement leadership was a good foundation to start getting them to really think about procurement differently.” 8 For example, the design of the original V-twin engine, first produced in 1909, is still used in motorcycles produced today. It should be emphasized that Harley-Davidson product evolution is strongly influenced by enduring customer loyalty and attachment to tradition. 600-006 Harley Davidson Motor Company: Enterprise Software Selection 6 Supplier Information Link (SiL’K) While Berryman and Mason were building commitment to SMS among Harley-Davidson’s leadership, Cotteleer and Davidson started investigating the possibilities for new systems and processes. There was a high degree of dissatisfaction with the existing systems, as well as a mismatch with the SMS, which depended on people having the skills, resources, and time to focus on building supplier relationships. In October 1997 the pair made a presentation to the PUG that laid out a “value proposition” for instigating significant changes in terms of people, processes, and technology.9 Elements of the value proposition included estimated purchasing cost reductions over five years on the order of $34 million, as well as a number of intangible benefits (Exhibit 3). Forming a Project Team At the PUG presentation, Cotteleer and Davidson asked for part-time resources from each of the procurement organizations to pursue the project. With Berryman’s endorsement, they were able to handpick influential players from across the PPG (Exhibit 4). Cotteleer explained their selection: We wanted the best person. Someone who would be thought of as an opinion leader in their organization, someone who was intimate with the existing processes, and who would be a tough customer during implementation should we get that far. We wanted to know that when we were finished, we had the hard sell done already, that these people would be able to influence their organizations to say “Hey, you know this is what we need to do.” Using SMS as a starting point, the SiL’K team tried to move from “strategy to action” to define the requirements and capabilities necessary to realize the strategic vision. The team met three to four days a month between November 1997 and April 1998. Chuck Braunschweig, from Harley- Davidson’s Process Innovation group, joined the team in January 1998 and acted as a driver of two important activities: mapping the “as is” procurement processes and conducting a stakeholder survey. Mapping “as is” Processes We really started gaining momentum as a team when we started trying to talk about the process flow. We had at least three different central processes, but we kept driving it home saying that we want to think about this in terms of why are we more similar than we are different. And if we can think about it in terms of common practices and common processes, then we may be able to get to a common system. —Chuck Braunschweig Using recently developed maps of the MRO and OE processes from each site, the Sil’K team created an enterprise-wide process map of procurement, sequentially incorporating the procedures of the P&A, MRO, and OE purchasing units. Despite the diversity of their processes, the team was able to identify many commonalities across sites through this exercise. 9 All Harley IS projects were framed around these three elements - Processes, People, and Technology—which comprised its Business Integration (BI) model. Harley Davidson Motor Company: Enterprise Software Selection 600-006 7 Stakeholder Survey Although many team members felt that they already knew the main problems and that they should push forward developing system requirements, Braunschweig persuaded them that a stakeholder survey was important to accurately identify the purchasing organization’s requirements. One survey sought to discover exactly what purchasing did on a day-to-day basis and was distributed to all purchasing representatives within the company. A second survey targeted key stakeholders such as Accounts Payable, Human Resources, and Logistics, who interacted with Purchasing. Although there were only about 200 individuals in the purchasing organization, more than 2000 individuals generated purchase order requests. The survey results were sobering (Exhibit 5). In contrast to the SMS goal of having personnel spend at least 70 percent of their time on supplier management activities,10 results indicated that a huge proportion (85%) of time was being spent on non-strategic activities such as reviewing inventory, expediting and data entry. As Braunschweig described it: “[the survey] became a battle cry for the sponsors of the team. The PUG was blown away.” Mapping “to be” Processes Near the end of March 1998 the team started developing the “to be” process that represented a future vision for purchasing at Harley-Davidson. Shortly thereafter the team concluded that part- time involvement was inadequate. Team members resolved to request a few full-time resources who would be empowered by the rest of the team to define the future processes. In early April, Cotteleer went to the PUG with a recommendation for full-time resources from OE, MRO, and Product Development. Again, Berryman’s support was indispensable in retaining access to key people. A reduced core team continued to work full-time while original team members stayed loosely connected to the project through videoconferences and occasional meetings. For the purposes of the project, "full-time" meant Tuesday to Thursday – on Mondays and Fridays the three purchasing team members returned to their respective sites or organizations. Cotteleer explained the importance of keeping these team members plugged into their organizations: If we were to take those three out of their jobs full-time, they’d start becoming disconnected from what’s happening day to day. We didn’t want that to happen because we knew that it was going to be a long-term project. We knew that we needed to keep in contact with the sites so that we wouldn’t wind up designing something that met requirements that didn’t exist anymore. Despite external pressure for visible activity by the team, Cotteleer was determined to be systematic about identifying processes so as to ensure appropriate software selection and a smooth implementation. By May 1998, having mapped the existing enterprise-wide process, and completed the stakeholder surveys, the core team started refining the “to be” process into requirements for Harley-Davidson’s new purchasing information systems. 10 Strategic Supplier Management Activities at Harley were seen to include Supplier Relationship Development, Supplier Performance Management, and Improvement of Quality, Cost and Timing measures. 600-006 Harley Davidson Motor Company: Enterprise Software Selection 8 People, Processes, and Technology Similar to other systems projects, the SiL’K team used Harley-Davidson’s Business Integration model, which highlighted People, Process, and Technology when considering change initiatives. Under SMS the “People” element had been restructured from a decentralized to a hybrid organization,11 and a group of purchasing managers had been assigned to redefine roles and responsibilities. “Technology” decisions had been deferred to Harley’s Architecture Integration group (AI).12 AI was made responsible for ensuring that the technical solutions defined by the Sil’K team would be compatible with the existing IS architecture in place at Harley-Davidson. The Sil’K team then turned its focus to the “Process” element of the project. A critical step in early process development was defining project scope. The “as is” process flow developed by the Sil’K team had identified a number of interfaces with other functions. By viewing product development as a progression from idea to obsolescence, the team was able to identify a series of broad activities in which Purchasing was involved. Each of these activities disaggregated into sub-activities, with associated stakeholder groups (e.g. purchasing, engineering, manufacturing, finance, suppliers). Once stakeholders were identified, the team was able to decide whether Purchasing should be owner and driver, or merely a participant in an activity (Exhibit 6a). The team then clustered project activities into three implementation phases (Exhibit 6b). Throughout this process the team focused on managing expectations. There was frequent communication between the team and the target internal audience of approximately 800 people - 200 within procurement and 600 in related functions. Team-led communication updates regarding the project status were held at each site on a quarterly basis. Cotteleer gave monthly updates to the PUG and quarterly updates to Harley-Davidson’s Supplier Advisory Council.13 Julie Anding, the team’s Change Management representative, was responsible for regular project newsletters that communicated objectives, activities and progress to the community at large. The team’s shared vision of new processes and activities simplified the task of completing a jointly written functional specification or Request for Quote (RFQ). On September 30th, 1998 a draft copy of the RFQ was circulated through the Purchasing organization to give internal stakeholders a chance to review it and offer feedback. Internal acceptance and validation of the RFQ was prompt and positive. The supplier selection process began to pick up speed (see Exhibit 7). Supplier Selection On October 16, 1998 the RFQ for new systems to support SMS was submitted to a short list of potential suppliers. Identification of candidates had begun months earlier when Cotteleer sent a document that described Harley-Davidson’s SMS goals to a well-recognized industry research organization, requesting recommendations for potential software suppliers. To the six names the research organization offered, Harley-Davidson added several more based on incumbency issues 11 Harley-Davidson’s organization is neither fully centralized nor fully decentralized. Some activity and decision making occurs at a corporate or central level (e.g. all product development activity), and some happens at the operational or site level (e.g. on-going operations support). 12 AI is responsible for defining the strategic direction of IT at Harley-Davidson. This group sets standards for hardware and software configuration. 13 The Supplier Advisory Council comprises 16 of Harley's strategic suppliers who meet on a quarterly basis to discuss supply management issues. Harley Davidson Motor Company: Enterprise Software Selection 600-006 9 (i.e., the presence of the potential suppliers’ products within Harley-Davidson) and other information to which the team had access. Potential suppliers were requested to notify Harley-Davidson of their intent to bid by October 25th. The Provider Conference I think we shocked a lot of people in that room. Here we were, a bunch of purchasing people, a project manager, a change management person, and a process reengineering person, really no executives in the room, no high level decision makers. Here’s this team of worker bees who is ultimately going to make a decision about the software. I don’t think they were ready to deal with that. —Julie Anding The provider conference was the suppliers’ …