SCM

Abstract:

Managing the supply chain became a key point in having a successful organization. Cousins et al. (2007) discussed the importance of SCM in the last two decades due to the improvement and advance in technology and globalization by concentrating in inventory control system, transportation, trans-shipment problems and distribution issues and focusing on the strategic nature of supply itself. In 1960's-1970's companies began to improve their internal policies and systems, in-order to stay competitive and survive in the market (Southey 2009).Harley Davidson as the last surviving American manufacturer of motorcycles realised the importance of the supply chain management. In 1980's they started to develop their supply chain in-order to survive and compete with the Japanese market which was not easy for them. They implemented a just in time program in their plants and developed it internally and then was known as MAN (Materials As Needed).As a result for this program and developing their supply chain Harley Davidson managed to survive and become the leading manufacturers of motorcycles in the world(Nimwegan,Kleiner 2000).

1. Background:

In 1903 Harley Davidson motor company was founded by William S.Harley and Arthur Davidson, that's where the name came from. During the First World War almost half of Harley Davidson's motorcycles were sold to the US military which was around 20,000 motorcycles in that year. After the war they became the sole manufacturer in America and the world with almost 2000dealers in 67countries (Harley Davidson 2010).

In 1969 Harley Davidson was sold to American Machine and Foundry (AMF) .This Company had a wrong concept of increasing the profit by increasing the production. So, they increased the productivity by 300% which eventually had a direct impact on the quality that has been decreased and resulted in defaults in the products (Nimwegan, Kliener 2000).

At that time HONDA was getting into the market and gaining a big share of it. As a Japanese competitor HONDA were manufacturing better bikes at lower cost because of the low labor cost and other factors such as: Just In Time(JIT)programmes which made them have almost 30 inventory turns per year, in contrast Harley Davidson had almost 4 turns per year which resulted in high cost and bad quality.

In 1981 AMF decided to sell Harley Davidson but it was not an easy mission to find a buyer and they were threatened by going out of business. A group of Harley Davidson's top management executives with one of the members of Davidson's family decided to buy it. It was a hard task for them to get back into the market and re-gain their market share (Nimwegan, Kliener 2000).

2. Video Summary:

The video shows the problems that faced Harley Davidson and how they solved it. This can be summarized in the following points:

1. Challenges:Competing with Japanese market and overproduction production which resulted in:

- Quality problems

- Large inventory

2. Inventory turns.How Harley Davidson managed to increase it.

3. Set up times.Reducing set up times was one of the keys to improve the supply chain.

And these problems were solved by the following:

a) Employee involvement

b) JIT

c) MAN

d) Side business

3. Key Theoretical Points:

v Supply Chain Management (SCM)

v Materials As Needed (MAN)

Inventory Turns
Quality Circle
Employee Involvement

v Push System → Pull System

v Continuous Improvement

Cell Designed

Benchmark

v World Class Supplier + Customer

4. Link between Theory and Practical:

4.1 Time Based Competitor:

Being a time based supplier can affect the organization in many ways such as:

1-Time reduction

2-Less inventory which means less rework

3-Higher quality

4-Less over heads

There are external benefits such as: quick customer response, advanced products. Also internal benefits such as: simplified organization, shorter planning loops, better communication and coordination between departments (Southey 2009).

In Harley Davidson reducing the setup time was one of the major changes in their chain and being a Just In Time manufacturer. They reduced their inventory from 24,000,000 to 4,000,000 which is almost 83%.This reduction also had an impact on the number of staff either in Harley Davidson itself or its suppliers, in KSG one of Harley's major suppliers they cut their staff in a production line from 15 to 3 workers.

Ultra tool, another Harley supplier had a production line with 100feet length cut to 10feet.Eventually this improved their customer response which was one of Harley's principles from the beginning and reduced their overheads.

4.2 Purchasing Management:

Purchasing management enables the organization to choose the right supplier and these suppliers can meet the expected performance and helps the performance to be measured. It also, applies the appropriate contractual meahcanism.By this a good relationship can be obtained with suppliers, because managing a relationship is the most fragile but, by establishing communication links between customers and suppliers based on trust these relationships can lead to improvement. “To effectively implement integrated supply chain management, however, a relationship based on mutual benefits and trust must exist” (Southey 2009).

Improvement of SCM Relationships by:

ü Communication and problem solving activities.

ü Joint improvement projects.

ü Training seminars and workshops.

ü Meeting between organizations' top managements.

ü Councils.

MAN programme focused on picking the right supplier and not over estimating the supplier's capabilities, improving the relationship with the suppliers by:

* Meeting with suppliers twice a year. Go over the goals it has to measurable goals, not necessary to achieve the goals as long there is a plan to show how to achieve it.

* Produce in JIT manner not in large batches and warehouse the products and then ship it. So in this way trust is shared between customer and supplier.

* Improving their supplier as mentioned above with KSG and ULTRA TOOL.

* Seminars to educate the suppliers and improve the relationship, even supplier's supplier come to these seminars.

4.3 Optimizing and developing Supplier Base:

To be an efficient supply chain you must keep your inventory low, and information must flow quickly between different sectors (Slack, Chambers and Johnston 2007).

Information to be shared can be product level, requirements and planning schedule and even sharing the cost data if that is possible to identify the non-value added. If that information is unavailable late shipments can occur (Southey 2009: 14).

Harley shared information with suppliers and that what helped them to be JIT and schedule there production.KSG Harley's pistons supplier has gone from producing 2months inventory to meet daily requirements. Steve Kehoe customer service manager in KSG industries stated in the video that “Getting the information as we do it now, we can see the blips, we can see the overtime periods that are planned, we can see the Saturdays and we can adapt to that and we can see where it relates to on our other customer parts that also share that equipment”.

By optimizing Harley's supplier base they were able to cut down the supplier in the Milwaukee plant from 320 to 120.

4.4 Push to Pull System:

To be a JIT manufacturer it is essential to change from a push system ,by pushing work without any consideration and in-accurate historical data and anticipating demand, to a pull system where the customer is the only trigger for the movement and responding to customer orders and forecasting(Slack, Chambers and Johnston 2007).

Pull system helps to decrease inventory noticeably which will help more in organizing the work and get fewer defaults. Slack, Chambers and Johnston (2007) stated that “Just in Time sees inventory as a ‘blanket of obscurity' which lies over the process and prevents problems being noticed.”

Disadvantages of Holding Inventory (Slack, Chambers and Johnston 2007) :

1. Ties up money.

2. Storage cost.

3. Damage or loss.

4. Uses space that can be used to add value.

5. Administrative and insurance cost.

Harley Davidson managed to migrate from a push system to a pull system which resulted in:

ü Reducing setup times

ü Inventory reduced by 83%

ü Inventory Turns Increased from 4turns/year to 28turns /year

ü Less cycle time

4.5 Total Employee Involvement:

To have an efficient supply chain all employees from all levels must be involved from the shop floor to the top management both to solve problems by teams, or for job enrichment by including maintenance and setup tasks in operation jobs. By this multi-skilling and personal responsibility is achieved, engagement and ownership of the job is involved (Slack, Chambers and Johnston 2007).

Harley Davidson enlisted its employees for group problem solving programmes like the quality circle and management will respond to their proposal within 2weeks either negatively or positively. Employees commitment to quality was reinforced, Dough Tearney a final inspector at Harley stated in the video that “To me every transmission or engine that is built here is going on my motorcycle and what I wouldn't want I certainly wouldn't want a customer to want”.

4.6 Statistical Process Control:

“SPC is not only a tool kit. It is a strategy for reducing variability, the cause of most quality problems; variation in products, in time of deliveries, in ways of doing things, in materials, in people's attitudes, in equipment and its use, in maintenance practices, in everything. Control by itself is not suffieceient; SPC requires that the process should be improved continually by reducing its variability” (Oakland 2008).

Harley Davidson called its statistical process control statistical operator control. The worker doing the manufacturing also measures and records the data and the information to make the process better. And progress is monitored by management, which also reinforces the employee involvement.

4.7 Just In Time (JIT):

Just In Time can be summarized in the following (Slack, Chambers and Johnston 2007):

* Disciplined approach to improve overall productivity and eliminating waste

* Cost effective production.

* Necessary quantity, right quality, right time and place

* Minimum amount of facilities, equipment, materials and human resources.

* Balance between supplier's flexibility and user's flexibility.

* Total employee involvement and teamwork and continuous improvement.

* Simplification.

* Elimination of 7 wastes.

Just In Time(JIT)

Traditional Approach

Production when needed

high capacity utilisation

Lower capacity utilisation

more production at each stage

No surplus production goes to inventory

Extra production to inventory (Continuous stoppage)

Lower inventory(problems are exposed &solved)

High inventory(less problems exposed &solved)

Fewer stoppage

More stoppage because of problems

Material As Needed (MAN) programme was the development of JIT after implementing it they had most of the above points achieved with a cost effective production.

4.8 Continuous Improvement:

Elements of SCM:

1. Time.

2. Money flow.

3. Inventory management.

4. Information flow.

5. Physical material flow.

After obtaining these elements the key to success is continuous improvement and benchmarking (Southey 2009).

“Supplier performance should be compared based on their impact on total cost. Besides purchase price, the total cost is influenced by replenishment lead time, on-time performance, supply flexibilty,delivery frequency,quality,transportation cost, pricing terms, the ability of the supplier to coordinate forecasting and planning, the design collaboration capability of the supplier,exhchange rates and taxes, and supplier viability”(Chopra,Meindl 2003).

Harley Davidson was focusing in continuous improvement by improving themselves before their suppliers and that's why internal success in the beginning is important.

4.9 World Class Customer/Supplier:

Being a world class supplier makes customers interested as mentioned in the video what Harley did to be a world class customer:

1. Optimizing supplier base.

2. Understanding supplier's capabilities

3. Achieving process improvements to reduce cost.

4. Sharing information.

5. Sole sourcing but continuously benchmarking suppliers.

4.10 Return On Capital Employed (R.O.C.E):

R.O.C.E=PROFIT CAPITAL EMPLOYED %

Source: (Southey 2009)

To increase R.O.C.E:

* More sales(Which the market control and cannot be controlled by the company)

* Lower costs and over heads(Company can control)

* Reduce debtors and increase creditors(Harley Davidson went into public)

* Reduce inventory (such as raw materials, work in progress/semi finished goods and finished goods which is the most expensive).

* Reduce fixed assets (Machinery, buildings and cars).

4.11 Definition of Supplier's Development:

“Supplier development can be defined as any activity that a buying firm undertakes to improve a supplier's performance and capabilities to meet the buying firm's supply needs. Buying firms use a variety of activities to improve supplier performance including: assessing supplier's operation, providing incentives to improve performance, instigating competition among suppliers, and working directly with suppliers rather through training or other activities”(Burt,Dobler,Starling 2003).

“To improve supplier's capabilities to meet buyer's short term or long-term supply need” (Rhodes, Warren, Carter 2006).

5. Objectives:

ü Be competitive

ü Continuous improvement (cost, inventory, quality,...)

ü Becoming a world class supplier/customer

6. Mistakes:

Harley Davidson mentioned that if they can go back to the past they will give new suppliers opportunities to introduce themselves.

7. Key Learning points:

Internal improvement
Optimize supplier base
Trust
Benchmark suppliers
Information exchange
Competetive supply chain management
Total quality management

8. Future Trends:

v Cross functional groups operations

v New software and consultants

v New target (Females, teenagers,...)

v “Joint process”

v Opening communication lines

v Become more lean

9. Conclusion:

MAN was introduced and showed that the key to success is having a good supply chain with good relationships and improve quality by learning from mistakes.

References:

Burt D., Dobler D.,Starling S.(2003) World Class Supply Management:The Key to Supply Chain Management. 7th edn. New York: Mcgraw-Hill

Chopra S., Meindl P. (ed.) (2003) Supply Chain Management:Strategy,Planning and Operation 2nd edn. New Jersy: Pearson Education,Inc

Cousins, P., Lamming, R., Lawson, B., and Squire, B. (2007) Strategic Supply Management: Principles, Theories and Practice.: Pearson Education UK

Harley Davidson (2010) History [online] available from < http://www.harley- davidson.com/wcm/Content/Pages/H-D_History/history_1910s.jsp?locale=en_US> [10 February 2010]

Oakland, J. (2008) Statistical Process Control.: Elsevier Science & Technology

Reid N., Sanders N. (2007) Operations Management:An Integrated Approach. 3rd edn: John Wiley &Sons

Rhodes E., Warren J.,Carter R. (2006) Supply Chains and Total Product System:A Reader.: Open University

Slack, N., Chambers, S., and Johnston, R. (eds.) (2007) Operations Management. 5th edn:Pitman

Southey, P. (ed.) (2009) Module Notes, Supply Chain Management.

Van Nimwege, J. and Kleiner, B. H. (2000) ‘Harley-Davidson Motor Company.' Management Research News [online] 23, (7) 121-127. Available from<http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=/published/emeraldabstractonlyarticle/pdf/0210230726.pdf> [23 February 2010]