Lean increases productivity and profits at Harley Davidson’s York plant

An article in the Wall Street Journal (September 21, 2012) describes the transformation of Harley Davidson’s plant in York, PA, from 41 buildings to 1, with workforce cut by 50 %, using 10 % temporary labor but with an operating profit margin of 16 % now vs 12.5 % in 2009. Production is linked directly to sales and is ramped up or down flexibly. Job classifications are now 5 instead of the 62 earlier, thus providing for a wider range of skills for each worker. Do the changes in Harley’s York plant suggest that flexibility and its ability to match supply and demand will be a key capability for the future ? How much of this change requires product redesign to enable part commonality and to anticipate manufacturing costs for designs ? The report also cites the use of robots and information capture at earlier stages to synchronize later manufacturing steps – is this a case of swapping capital for labor, given the low interest rates, to improve profitability ?

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26 Responses to Lean increases productivity and profits at Harley Davidson’s York plant

  1. Sean Michael says:

    If Harley is seeking to change production operations to better align with just-in-time manufacturing processes, then I would imagine this change could give them a competitive advantage while reducing production costs due to better efficiency. By implementing these changes, Harley shouldn’t have to redesign their products. These changes would mostly improve efficiency and quality assurance for the production of their products. While it would definitely improve profitability, these manufacturing process changes are most likely not Harley’s primary intention with automating parts of the process using robots. It’s definitely an inherent benefit, but my impression is that the change is warranted to mainly improve quality assurance and better align supply with demand given the market trends.

  2. Jennie Killian says:

    It sounds like Harley is making significant efforts to increase the flexibility of their staff to meet changes in demand. They have now placed them into 2 categories- permanent, and temporary, and they have also given them additional skills so they can be used in different areas as needed. My concern in terms of flexibility is that of their capacity to produce. Is it truly possible to produce in 1 factory what was previously done in 41? Having such limited facility capabilities would require them to look at mainstreaming some of the components of multiple motorcycles. But what is there plan if something happens to this plant?!
    It does seem awfully suspicious that they are investing so much in capital vs their employees. And if they do move to robots, that will be an even farther shift. Given their recent financial history, I think this could certainly be a possibility.

  3. Jason Meridew says:

    There strategy certainly seems to be trying to match supply to demand. This effort will certainly drive design commonality. I would question if this aligns with strategy of the company. Moving designs to find commonality works in some instances however creativity and functionality is often sacrificed. My vision of HD is that creativity and functionality is very important. I would be concerned that this drive to find commonality might sacrifice one of the key reasons buy a Harley, its uniqueness. It seems that Harley owners want a unique motorcycle.

    HD is certainly trying to drive down cost with the move to a single plant and more automation. This may be a good strategy for cost savings and increased profitability.

  4. Andrew Tigulis says:

    In becoming lean Harley-Davidson is becoming more competitive and productive. The plant receives supplies based on day to day sales instead of buying extra materials they will not need. Like many other companies, Harley is just trying to cut costs and stay competitive in todays economy. Companies keep looking for new ways to increase profits. Harley-Davidson appears to be getting rid of the specialization of their employees and would prefer them to be able to perform numerous tasks instead of one. Productivity, is defined as the ratio of outputs divided by inputs. This is exactly what Harley-Davidson is doing. By reducing inputs like labor and other costs they are increasing their productivity efficiency. Harley-Davidson seems to be leaning on the labor variable more than others to improve its productivity by counting on the increased knowledge of their workers and the ability to use this knowledge to perform multiple tasks.

  5. Tyler Le Roy says:

    Harley has clearly been focused on driving lean operations within their manufacturing plant. Their increasing in net operating income is a clear reflection of the process giving them more capability for the future. They changes that Harley is making is focused on reducing the wastes within the operating process. Particularly, reducing the number of plants and people, Harley has made the biggest improvements to transportation and motion wastes to better control flow rates, inventory levels, and match demand.

    Commonality of parts will almost always lead to better operational efficiencies by reducing variability. There is most certainly opportunity for Harley to continue to utilize similar parts throughout their platforms to increase operational efficiencies and increase supplier leverage.

    Implementing robotics creates a big improvement on quality, specifically reducing rework times, by taking the human element out of the equation. Adding standard work processes from lean manufacturing will also help to reduce the these levels. By adding more information capture throughout the process, Harley is able to have a much better “pull” system, thereby reducing “in-work” inventory levels and better match demand. All of these changes are a part of the Toyota Production System (TPS) and has quickly shown has lead to improved profitability throughout the business.

    • David says:

      HD will have to be flexible and responsive to match and shift or change in demand. By reducing to a single plant, you are tied to the abilities of that plant to produce. If there are any major changes or new lines introduced, it could have a major effect on the productivity of that plant. This leads to the third question of trading labor for capital, with more data better forecasting can be accomplished and keep things flowing. This isn’t really removing labor but ensuring the best use of the labor by showing them what they need to be working on and how much stock they need to maintain. I feel that redesigns are imperative, they are planning on closing 40 buildings and 50% of their workforce, to do this, the lines must be similar for all their products with minimal machine changes to not lose any major production times. I would worry that HD could be going the way of Tesla as far as expectations of the buyer. You may not be able to walk into a showroom and drive away that same day. You may have to “build” your motorcycle online and wait a week or months for a personalized delivery. I see more smaller businesses doing things like this with Kickstarter, you are essentially developing a product, then asking the customer to pay upfront for all the production costs and then much later they receive the product. Essentially providing interest free loans and financing to these companies. So, if HD customers are OK, with potentially waiting for personalized services on a motorcycle that looks near the same as any other HD on the road, they might be able to pull it off. However, given their recent issues, it seems like the wrong way to go. If they choose to go back towards custom motorcycles and non-standard parts, this could lead to a similar business line but with a truly custom experience.

  6. Tony Merlie says:

    As Tyler said in his post, these changes seem to be fitting into the suggestions described when implementing TPS from our reading in Chapter 11:

    1. Seems like production is changing to a pull system, by linking production to sales. Letting demand drive production completely makes sense. Seems like HD is trying to follow Toyota’s approach of producing directly to a customer order. I think that this helps their sales because it would seem that those who buy Harley’s would want more customization in their bikes. It seems like they’re going to a “make to order” process that was described in our reading?

    2. I don’t see the use of robots and information capturing as a case of swapping capital for labor. I see this as an attempt to improve the overall equipment effectiveness by trying to improve the processing speed and reduce idle time of equipment. It also seems like an attempt to reduce defects.

  7. Bryan M Corbin says:

    HD’s changes are clearly directed at ensuring their production process is it adaptable enough to flex with shifts in demand. Given the amount of time and planning it takes to change a footprint to this scale I would imagine they took the opportunity to adapt designs to improve efficiency as they retired old models or parts. It’s hard to say if the OPM% is being driven exclusively by the changes, could be pricing, product mix, etc., but the reduction in complexity must be driving efficiency. As volumes slow there are people in the plant that are more broadly trained, and as production ramps up there are fewer positions to train. Additionally, they’re likely realizing better value throughout their supply chain if they’ve been able to share more data with their suppliers. Likely with the robotics and fewer facilities they are able to clearly identify and communicate their inventory levels from raws through finished goods.

  8. Brian Long says:

    The changes described in Harley’s York plant I believe is just the beginning and a way to “stop the bleeding” so to speak. I feel that matching supply and demand will be a key capability for the future. Lean operations have now been proven to work for several years in many different industries and born and raised in one like Harley’s manufacturing plants. My concern would be that they may need to consider a new marketing approach. When I think of a Harley I think of hand craftsmanship to some extent still, and that you never see two that look the same.
    The second part is a great question because of my response to the first question. I think uniqueness is a big part of there charm. Product redesign I would think needs to happen on a large scale for pathing the path to a successful future. I do feel that they will have to expand quickly to survive in the long run.
    Maybe in the short term you could say swapping capital for labor but if they are successful and can improve the bottom line the company can start to expand again with their new model in place. This would potentially add even more jobs in the future. The bottom line is just that, so it must be protected at any initial cost if possible. It is a good move in my opinion.

  9. Neha Purohit says:

    Demand variability and inventory planning are fundamental challenges facing supply chain operations and require strategic supply chain design initiatives. Companies can minimize forecasting errors by designing more responsive and agile supply chain through range forecasting, flexible contracting, strategic multi-sourcing and visibility to supplier capacity(Blog 2).

    Advances in computing power, software development techniques, and networking technologies have made assembling, installing and maintaining robots faster and less costly than before. As the demand from emerging economies encourages the production of robots to shift to lower-cost regions, they are cheaper. Also, the workforce incurs additional training, recruitment, hiring costs healthcare benefits and vacation days are other overhead costs. GM recently laid off due to high interest rates and commodity prices for future of the autonomous electric car.

    The design changes will require for SKU. Each SKU has a potential cost impact that goes well beyond its actual purchase price. The decisions surrounding whether a SKU should be stocked and where, and in what status it is to be held in the supply chain, impact the profitability of your company.

  10. Vinutha Ram says:

    As seen in the book, “The Goal”, being efficient in manufacturing production to match supply with demand is essential in some cases to the very survival of the manufacturing plant. Being flexible to do what it takes is definitely the need of the hour and Harley’s York plant has successfully demonstrated this by measurable efficiency results.

    A major strength in American manufacturing is innovation. In my opinion, product redesigns and new designs using current technology would play a central role in finding efficiencies such as part commonality. Given that owning a Harley has an associated sense of pride, Harley has to be strategic in identifying which parts can be commonly used without losing the personalization that customers are willing to pay for.

    Robots and other means of automation are used in manufacturing to replace human labor, so in that sense, I would agree that this is a case of swapping capital for labor. However, robots are still used for very routine, monotonous tasks while humans are used where more critical thinking decision making is required. Given the increased complexity of tasks performed by humans, this would actually increase wages, so, in the long term, I don’t believe this swap would be the cure-all for improving profitability.

  11. Michael Morad says:

    Harley’s changes in their York plant are interesting because I would imagine that a 50% work force reduction and the using 1 building versus 41 would lead to a higher delta in their change of operating profit margin. To go from 12.5 to 16% seems to small of an improvement for such a radical transformation. Regardless of this the changes Harley made do indicate they are shifting from holding inventory in their 41 buildings to a JIT model in an effort to reduce waste and holding costs. This also promotes Harley to build on demand as orders are received. Many mature organizations are moving to this model as sales forecasts are never perfect and with luxury items like a Harley consumer demand can fall quickly and leave the company stuck with excess inventory and no orders.

    Moving to a JIT model does not require any product redesign in itself, however if Harley shifts to part commonality to further drive waste reduction and efficiency then that would lead to current and future product redesigns. For Harley this can be a great cost savings, but it could also lead them to lose one of their competitive advantages – differentiation. Perhaps Harley can sell lower end models with more common parts, but should maintain their higher end unique models to maintain their brand power.

    Moving to automation may very well be a further indicator of cost savings with capital investment at low interest rates. With that said this could also be driven by the need to reduce quality issues in production such as waste created by poor yields, scrap and rework. Furthermore, the automation may be a result of labor intensive processes that result in ergonomic and EHS concerns for employees. Without more information on how much automation, at what areas of production and a better understanding of those operations it would be impossible to conclude that the automation is purely related to cost savings.

  12. Brett Damisch says:

    Harley is attempting to create a lean environment to match supply with the demand. At times this can be very difficult, but in the long run, the numbers prove the results are beneficial. I am sure it was painful at the beginning, but as engineers and lean experts get involved, they begin to departmentalize the manufacturing process and create a streamline production line for all motorcycles. Product redesign will be necessary in this streamlining process, but in the long run will cut back on inventories and increase cost savings for production of parts ie: higher volume orders, lower prices. The implementation of robots if swapping capital for labor. We use robots on a daily basis in my line of business. Robots are a high initial investment, but think of the savings outside of salary and overhead ie; safety, lost workdays, quality of reproduction.

  13. Nathan Pennington says:

    I think anytime a company has to create change in order for profits to rise there will come with it some significant adjustments. The fact Harley’s profits margin rose from 12.5% to 16% proves the decision to take their 41 buildings and merge it into 1 main hub was a wise choice. The dramatic decrease in its labor force is obviously going to mean Harley employees will have to adjust course. That being said, the move for most companies which already rely on robots is the norm now. We are no longer in the Industrial Age and yet most people still operate as if we still are, respectfully. We have much of our educational system to thank for that but fortunately the school system is changing its tune and starting to teach people to think like entrepreneurs.

    Technology is only going to continue to grow and people are going to have to start thinking outside of the box. Large companies like Harley and its leadership are changing with the times. Harley’s flexibility concept will have to meet its supply and demand otherwise the company will not survive but they are seem to see the future and what is going to be involved. Leverage is what most companies like Harley and others are focused on. Doing more with less and this is a clear example of that. Is there risk involved? Absolutely, but worth it especially if there is a positive return on investment for long-term growth. The drop in its labor force had to have been painful to say the least but any entrepreneur or successful business owner is going to find out where the leaks of his or her organization is at and make the necessary adjustments. The move toward the Industrial Age, where pre-teens can take their cell phone, create an online following, create a business and make more in a month than most MBA’s make in a year is where we are heading. Far too many are missing this. The drop in job classifications from 5 to 62 will also mean Harley is going to have to find superior employees to work for them. A challenge I am sure the company is ready to take on.

  14. Dan Halverstadt says:

    When I think of lean, I prefer to look at it as agile. Many times as companies grow, they put certain things in place that make sense for a period of time but are rarely looked back upon and reevaluated. By Harley taking on this initiative, they have looked to see how not only to simplify but to become more agile. As for swapping capital for labor, I believe we have to look at The Goal and think, did they actually put more money to the bottom line, and the data seems to suggest that they have.

  15. Jennifer Cline says:

    The changes that Harley Davidson is making seem to follow several of the principles outlined in TPS. TPS focuses on eliminating waste; the actions Harley is taking are eliminating waste in sources identified by TPS, overproduction and waiting (matching supply to demand). Additionally, they are taking actions to have a more flexible workforce. The article does not discuss product changes; however, to further the efficiencies, Harley could consider standardizing on components, or parts, used across the motorcycle offerings, as well as standardize assembly tasks, if this has not already been completed. The robots should improve overall performance; the human factor, which impacts variability, is reduced. Reducing variability improves quality, thereby reducing defects and rework time, as well as reducing overall time. The overall improvements in flexibility and production flow are key capabilities that will be needed to have success in the future.

  16. Jason Jackson says:

    Harley Davidson’s lean initiatives are textbook examples of what lean and six sigma can do for an organization. I’m not sure to their timeline of execution, but such initiatives can take time to implement. What I am more curious to know, is how they handled their change management concerns that arose due to these changes. Inevitably changes such as a reduction in workforce and the introduction of robots will certainly bring mixed feelings among some hourly and salary staff alike. I do believe these changes will make HD more competitive in the future to match demand that is brought their way. I do not believe product redesign is necessary, but it is encouraged. Product redesign for commonality amongst like parts, will reduce the number of suppliers required, plus will leverage profit savings through bulk buying opportunities. Robots cannot and will not do everything (right now), but their introduction into a workforce does continue to take us along the path of one day they will be able to do so.

  17. Ken Kibler says:

    When I read articles like this that describe a company’s move to restructure, I feel like they just copied and pasted the strategy, only changing the names and sending it to the board. There certainly are takeaways that should help reduce some redundant processes and trim cost that will help profitability. It just seems a little extreme to move from 41 facilities down to one mega facility, realizing just under 4% gain to profit margin. I appreciate the fact that they are striving to move more towards a system that reflexes a more real time production to sales activity. One would believe this should put them in a position to focus on a longer-term sustainability cost structure. I also like the investment in more cross skill training, this should again create positive ramifications from employees and further add value to the organization.
    I have to say though, something still smells a little fishy, whenever I read about cost cutting measures that impact employees in a large capacity, I believe it is impossible to accomplish this without it being very impactful to the employees that remain. Especially, when the solution will be to incorporate a percentage of temporary labor and robots to fill in the gaps. I also, believe this sets in motion something that is difficult to reverse and potentially run the risk of changing the company forever. When you lose talent and knowledge it is unreplaceable and lost forever, so I would suggest smaller steps towards this model. Sometimes companies have no choice in the matter, but in this case, I think they do. When I think of Harley Davidson and what attracts individuals to seek out their brand, I believe they buy much more than just price. This makes me cautiously optimistic as Harley Davidson will need to retain the feeling that people get when they buy one of their motorcycles. Pieces of steel assembled together from the hands of individuals that take great pride in their work.

  18. Amy Phillip says:

    Many operations teams are looking for ways to navigate toward lean manufacturing processes. Harley has managed to streamline operations quite extensively while cutting overhead in facilities and labor. The change requires that Harley match supply with demand. From the information provided in this blog, I am not sure that we can determine if this requires product redesign in order to anticipate manufacturing cost for designs, but we do know they are down to one plant and that plant will have limited manufacturing equipment. This would require outsourcing potentially if the parts needed to be manufactured on equipment that Harley no longer owns or operates.

    I believe that the use of robots does swap capital for labor. Both are seen as an expense, but robots as equipment may be controllable than human capital. They are easier to measure and can be more reliable when it comes to the repetitive nature of manufacturing.

  19. Vish Thottingal says:

    Optimizing part list variability will decrease inventory cost, optimizes EOQ and increase flow rate. Also having production based on demand/sales decreases the waste in the form inventory cost, wait times etc., since parts are replaced only after consumption. Overall this would increase the flow rate to meet any excess demand. With robots and 10% temporary workforce Harley can increase or decrease the production output with marginal variation in the operating cost. Automated work scheduling along with part time work force minimize labor waste. I don’t think bring Robots were in a way swapping capital for labor, robots bring efficiency and flexibility to the production system. However, bringing 41 buildings down to 1 would have reduced the capital and operating cost by leaps but by doing so did Harley take a cut in the capacity. Did this reduction result in selling more Harley products? Based on the article we understand Harley was able to manage earnings.
    Harley has not changed its product portfolio drastically until the recent announcement of its electric and small sized vehicles. Part commonality can be achieved with minimal re-design

    With the announcement of Harley’s new electric segment LiveWire, Harley has taken huge leap in targeting completely different but dynamic target segment. It would be interesting to see how Harley will compete in the new market segment while keeping the existing core customer base intact.

  20. Paul Mukherjee says:

    Harley is all about style and innovation. People are fond of their creation since inceptions. There new approach of innovation in the operations may decrease the operating cost but it leads to more commonality. Again we all know commonality will lead to efficient operational cost but it lacks innovation. Reducing the workforce and facilities increased the operating profit by 3.5% but it will eliminate lots of innovative people from the company.
    The inclusions of robots in the manufacturing is a great step to implement automation but it will lead to commonality and no creativity. It may meet the demand supply model but what is Harley all about? Is it a company to gain its profitability by selling common motorcycles by automating the supply chain model by cutting workforces or is it a company of innovative vehicles?
    With no innovation Harley cannot exists in this market for long although they create the most efficient supply chain model. They will lose their brand value in course of time.
    They should create common motorcycles with automation using robotics but their main focus should be on innovative products with efficient supply chain, which can only be done through skilled and innovative workforce because robots will advance AI has not been invented yet.

    • Dear Paul, this argument will hold true if common people are aware of these commonalities. HD is still a mass market product, not equivalent to custom designs commonality is expected in different lines anyhow
      This will bring the HD costs down effectively increasing sales
      If you recall, HD has been forced to introduce cheaper models to make it affordable to its base

  21. Maya Devakiamma says:

    Production changes to reduce variety will result in part commonality, with no options for custom designs. For large volume productions, reducing variety is indeed helpful to cut cost and hence companies are opting this methodology, just like Toyota. This methodology is not suited for products which are handcrafted or custom made. Though reducing variety may cause product redesigns on the manufacturing side, the long-term cost savings from process improvement and reduced inventory would overwrite the redesign cost.

    Match supply and demand is a crucial step for any manufacturer and Harley move towards this direction helps them to be profitable. Having the flexibility to match demand without overloading the process and without the overburden of labor cost would be ideal and Harley decided to capitalize on that.

    Don’t see Harley is swapping capital for labor, rather they are trying to catch up with the technology changes in the market. Competition in the marketplace is so intense, especially with the evolution of technology and process improvements to reduce operational expense will increase a company’s profitability.

  22. bernardinm says:

    I believe the positive effects of the reengineering will last as long as things stay as-is. But innovation is what drives industry. We know from marketing that when you wait long enough in the cycle, you end up facing a decline in sales because the product might become out of fashion. So, the prosperity Harley is enjoying right now is due to the fact that changes have been made to solve current problems. From the reading of the book the goal, we know that robots do not make things more economical. They make a process smoother. The most important thing to look at is always the process. The ability to match supply with demand will always ensure a measure of success. Product redesign and costs associated depend on an external factor called innovation, so it is a rather hard thing to plan in term of time horizon and quantity of work demanded, ascribing it to changes, such as less buildings or less manpower would be to my opinion hazardous. The market varies (Porter 5 forces) and we know from the theory that there is an eternal conflict between optimal staffing and optimal capacity. which leads me to say that as of now. the measures taken have been positive for Harley Davidson, but you can’t continually rely on a static model that has been working in the past to help you make correct predictions about the future.

  23. Allan McNear says:

    The changes in the HD York plant does indicate a key benefit for the company’s future regarding their ability to match supply and demand for their product. The flexibility will allow them to operate efficiently in regards to labor costs, inventory, and reaction time to increased or decreased volume sales. Does lean manufacturing come at a cost to the suppliers for HD? Can all of the suppliers conform to their inventory levels? Who is impacted by HD’s quest for just in time production needs?

    Commonality of components is the best alternative for manufacturing regarding quality, throughput, and NVAA within operations. Most organizations suffer from design constraints based on part complexity that does not allow engineering changes to be implemented at a minimal cost.

    I agree with earlier comments regarding swapping robots for labor to be effective for throughput, mainly cycle time. The drawback in my opinion are the additional maintenance costs, downtime, and skilled teams or technicians that will provide service for the robots. Which costs are greater…robots or labor?

  24. The approach looks aligned to lean manufacturing principles and as long as HD applies these principles, Operations Management Theory proves that they will increase their profits
    The changes do suggest that they have introduced flexibility to be able to produce per demand. They would have also increased commonality in parts to make the different product lines more identical and this could have required significant design changes as the HD product line is vast with heavy cruisers, touring to street bikes and these product lines have some models which have been running for 10 years. Robots at early stages is an attempt to increase quality of products and reduce wastage

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