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November 30, 1998

Harley Shifts Into Higher Gear

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

By Bruce Caldwell

Related stories:

Information Sharing Boosts IT's Value

randing 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.

Storm (rear),
with Engstrom, Mason, and Tschurwald (clockwise)

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 (see story, "The Nuts And Bolts Of Harley's New IT").

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."