The accounts payable to sales ratio measures how the company is paying it suppliers in relation to the volume being transacted. An increasing percentage, or one larger than the industry norm, indicates the firm may be using suppliers to help finance operations. The ratio is especially important to short-term creditors since a high percentage could indicate potential problems in paying vendors. Harley-Davidson uses internally generated funds provided by operation rather than financing through debt. Without debt financing the accounts payable ratio should be higher than the industry average, because other companies that use debt financing will pay their suppliers using debt funds. The other companies in the industry also have lower liquidity rations which is also an indication of debt financing.
The quality of the receivables of a company can be determined by this relationship when compared with selling terms and industry norms. In some industries where credit sales are not the normal way of doing business, the percentage of cash sales should be taken into consideration. Generally, where most sales are for credit, any collection selling terms is indicative of some slow-turning receivables. When comparing the collection period of one concern with that of another, allowances should be made for possible variations in selling terms. Harley Davidson’s collection period in 1996 went from a little over 30 to almost 40 days per month. Ordinarily an increase of 10 days in collection period would cause concern. Harley-Davidson is in an expansion period both domestic and international. They have relaxed their credit policy, most likely, to increase market penetration. Once the collection period has stabilized, management can determine if the credit policy can remain. Harley has adequate cash flows to support such a market penetration policy.
Inventory control is a prime management objective since poor controls allow inventory to become costly to store, because they could be obsolete or insufficient to meet demands. This relationship is a guide to how fast the merchandise is being moved and the effect on the flow of funds into the business. The company’s figures are only meaningful when compared to the industry norm. Individual figures that are outside the industry norms should be examined carefully. Although low figures are usually the biggest problem, as they indicate excessively high inventories, extremely high turnovers might reflect insufficient merchandise to meet customer demand and result in lost sales. Harley-Davidson has a higher sales to inventory ratio for two major reason first of which is their inability to meet the demand for their motorcycles, and the second is the fact that Harley can charge a premium price for their motorcycles. In addition to the factors that make Harley-Davidson’s ratio higher, the rest of the industry has to charge lower prices to try to gain market share.
Research and Development
Motorcycle manufactures must utilize technology in developing their product as well as in the process of manufacturing them. More powerful motors and lighter, stronger structural components led to an increase in performance, while new brake and suspension systems help to make riding safer. Technology also plays an important part in the manufacture and distribution of motorcycles. Computer programs allow designs to be tested in a virtual environment without having to pay for expensive prototypes. Computers are also used in manufacturing, distribution and delivery systems. Motorcycle manufactures must use all available technology resources to be successful.
Technology has been put to use throughout Harley-Davidson in order to design and produce the finest motorcycle possible. In 1997, the Willie G. Davidson Product Development Center (PDC) was opened to provide research and development facilities for product development. Employees from various functional units within the organization meet regularly with material suppliers to come up with new designs and processes. The PDC has been responsible for the successful launch of many new product innovations. The research and development teams are constantly working to find ways to make new motors with more power and durability. Harley-Davidson has several upgrade performance packages that were designed, tested, and perfected at PDC.
Harley-Davidson technology is also being incorporated into Buell motorcycles. These motorcycles combine cutting-edge performance with the sport motorcycle design that has become so popular with the young riders throughout the world.
Operations and Logistics
Motorcycle Segment
Since Harley-Davidson s dramatic turnaround in 1985, the company has been continuously committed to achieving low cost efficiencies without sacrificing quality, and maintaining close relations with suppliers, customers, and distributors. Further evidence of this commitment exists in Harley s formal written operating policy, which is as follows:
1. Foster a retail customer satisfaction culture throughout the organization.
2. Enhance two-way customer communications.
3. Offer choices of higher quality, lower complexity products.
4. Improve control and support of distribution channels by strengthening
partnerships with dealers.
Demand for Harley-Davidson motorcycles has been so great, that the company is unable to keep up with customer orders through its existing manufacturing facilities. Because of this, the company recently adopted a comprehensive motorcycle manufacturing strategy, that is designed for, among other things, to increase their production rate to 100,000-units-per-year by 1996. This strategy called was designed to reach the new production rate goal without expanding existing manufacturing facilities. Harley implemented a number of key operating strategies in order to meet this new production goal and further their commitment to satisfying customers through quality products.
Harley-Davidson realized that in order to increase production efficiencies, improve quality, and meet their production goal, their workforce needed some additional training. A tremendous amount of time, effort, and resources were expended to train the manufacturing workforces in analytical problem solving techniques, and statistical quality control methods in order to enhance the quality of their motorcycles and increase efficiencies.
Furthermore, the company adopted just-in-time inventory principles to minimize inventories of raw materials and work in process. By forming close partnership like alliances with a few quality conscious suppliers, Harley has been able to successfully implement the just-in-time inventory system. Harley frequently holds in-house training sessions, and plant evaluations with its key suppliers to ensure that suppliers share the same commitment to quality and production efficiencies. Overall, the new system has allowed Harley to react quicker to engineering design changes, quality improvements, and marketing demands within its existing manufacturing facilities. Although the close relationships with suppliers, and reliance with only a few key suppliers has been successful so far, there is a risk of significant interruptions in production if a particular supplier failed to provide the needed materials, or ceased operations. This gives the suppliers a relatively large amount of bargaining power, and is something Harley should be keenly aware of.
Harley began implementing the aforementioned strategies in 1993 and estimated that they would be able to reach their production goal by 1995, a full year ahead of schedule. Not only did they beat their estimated time for the new production goal, they went on to exceed the previous goal by producing 115,000 units-per-year in 1997.
Transportation Vehicle Segment
Harley-Davidson s transportation vehicles segment, Holiday Rambler, principally manufacturers recreational vehicles such as motor homes, travel trailers, and specialized commercial vehicles. These products are built using an assembly line process utilizing specialized fabricating and assembly equipment designed and built by Holiday Rambler. The company believes that its commitment to efficient manufacturing systems and utilization of the latest technological advancements enable it to produce high quality products.
A number of the secondary plastic component parts, used in the production of motor homes and travel trailers are actually produced by Holiday Rambler. However, principle raw materials such as, aluminum, plywood, fiberglass, and chassis are purchased from third party suppliers. Automobile and truck manufacturers such as Ford and Chevrolet provide the chassis.
The assembly lines, manufacturing processes, and equipment used to make the recreational vehicles are all interchangeable. This allows the company to utilize the same facilities to produce its complete line of motor homes, travel trailers, and specialty commercial vehicles. Employee skills are applicable to the production of either type of vehicle. This allows a smooth transition from one process to the next.
Human Resources
Motorcycle Segment
In order to survive in the competitive motorcycle industry and to continue to strive toward their commitment to quality improvement and production efficiencies, Harley-Davidson s management realized they needed to foster a perpetual learning and improving organization. The management believes that open communication between all levels of employees is essential to the success of the organization. In order to foster an organizational environment made up of employees who share the same vision and values as the company, Harley saw that it was necessary to communicate the company s high moral values, and educate the employees about the whole business environment. This quest for incorporating the company s vision and high moral values into the organizational structure and expecting the employees to believe in and carryout this same vision and moral values, could have been extremely difficult since Harley s workers are unionized. However, Harley s relationship with the unions is excellent. Both the company and the unions have stuck by each other during good and bad times. Because of this, the unions trust Harley s management and realize that their efforts toward continuous improvement and quality consciousness are in the best interest of the employees (Vroom, Vroom). Collective bargaining agreements between the company and the unions are expected to expire during the first quarter of 1997, but company and union relations are strong and there are no concerns about future agreements.
Transportation Vehicles Segment
Discussion of human resources and employee relations, within the transportation vehicle segment is limited. The segment employs approximately 2,400 people. The employees have no union representation and there is no discussion of any future efforts to unionize. The Holiday Rambler segment is committed to the continuous training and skills improvement of its current workforce, as is evident by the company s requirement that manufacturing employees maintain the flexibility to work on the production of any of its line of vehicles. Part of each employee s compensation package consists of production group incentives. These incentives allow an employee to increase their total compensation by meeting production goals and quality standards.
Information Systems
Harley-Davidson s commitment to manufacturing efficiencies, quality improvement, and technological advancements, provide evidence of the company s investments in information systems. By utilizing just-in-time inventory techniques through close, continuous, contact with key suppliers the company was required to expend a substantial amount of effort and resources towards the allocation of advanced communication systems. Management s earlier investments in Computer-Aided Design (CAD) systems in the early 1980s drastically increased production efficiencies and reduced the break-even point from 53,000 motorcycles in 1982 to 35,000 in 1986. Harley-Davidson seems to be making the necessary commitments in capital and other resources to stay competitive in this area.
Written Analysis of External Environment by Sector
Economic/Demand
The past few years has seen a global trend towards increased demand for virtually all industries involved in the manufacture of recreational equipment. Important to this analysis are the motorcycle, motor home, and travel trailer/camper industries. In particular, demand has been especially strong for made in the U.S.A. products. Primarily because the U.S. is the largest market for recreational products, and U.S. firms are aware of customer s tastes and preferences. Secondly, and certainly not of lesser importance, is the attention to high quality that U.S. manufacturers place on their operations. Companies are aware of the advantages and opportunities that strong demand in overseas markets will have on their business plans, and are therefore increasing their efforts to expand on export sales. The strong demand for recreational equipment in the overseas markets is growing so rapidly because of the increases in leisure time activities in newly industrialized nations and emerging market economies. Because of the increases and popularity of regional trade agreements/associations, forecasts for exports and imports of recreational equipment are expected to continue to rise (Recreational 39-3). The following page shows a table outlining U.S. trade patterns in recreational equipment.
Top five exporting countries 1996 value( $ Millions) % 1996 share %92-96 change
Canada 969 19.6 6.2
Japan 892 18.1 16.6
United Kingdom 324 6.6 7.2
Germany 314 6.4 4.9
Mexico 270 5.5 1.3
Top five importing countries 1996 value($ Millions) % 1996 share %92-96 change
China 7063 43.9 19.9
Japan 2603 16.2 -2.6
Taiwan 1622 10.1 -5.3
Canada 1110 6.9 30.8
Mexico 744 4.6 26.0
(Source: U.S. Department of Commerce, Bureau of the Census)
Motorcycle Division
The 1990 s have been called, by the motorcycle industry, the decade of the heavyweight motorcycle. The total unit share of the market accounted for by the heavyweight motorcycle industry increased from 18% in 1987 to approximately 39% in 1995. The U.S. domestic motorcycle industry, led by Harley Davidson Inc., has benefited most by this trend. While total motorcycle registration has been falling in recent years, this trend seems to be coming to an end, as 1995 s total motorcycle registration was the same as that in 1993, and only down by 0.5% since 1990, when 4.1 million motorcycle were registered.
(Source: Federal Highway Administration Motorcycle Safety Foundation)
Although total motorcycle registration has been declining, the consumers demand for the more expensive heavyweight motorcycles has increased the industry s dollar value of shipments. As heavyweight motorcycle sales continue to climb, sales of smaller, less expensive bikes are declining. This can be explained by the fact that younger buyers have traditionally been the major consumers in the motorcycle industry. Being younger, they typically had less disposable income to make discretionary purchases. Due to the greater availability of financing and other credit terms, younger buyers can now afford the more expensive heavyweight motorcycles (Recreational 39-13). Other reasons that could explain the increased demand in motorcycles, are the continuing rise in automobile prices and the convenience/efficiency of traveling on a motorcycle throughout heavily congested cities. Many consumers are purchasing motorcycles as a primary means of transportation to and from work. Not only is the cost of operating a motorcycle lower than an automobile, they are much easier to negotiate through heavy traffic.
Transportation Vehicles Division
More affluent Americans are the Motor home and travel trailer industries best consumers. This is a positive aspect, because of the aging trend in today s society. More and more people, having reached the age of retirement, have built up a substantial savings and are ready to buy that RV of their dreams (Encyclopedia 1250-51). The motor home and travel trailer industry is extremely susceptible to fluctuating interest rates, income growth, and consumer confidence levels. As the economy slows the industry tends to decline. However, if the economy is booming the industry thrives. Gasoline prices are also key variables in forecasting demand within the industry. The industry experienced a slow down in sales in the early 1990 s, but forecasters are optimistic about the future. The mid 1990 s have been particularly good for motor home and travel trailer manufacturers. With low interest rates, modest gasoline prices, and low unemployment, sales are up and expected to continue rising (Recreational 39-18). Industry spokespersons say that the number of U.S. households owning RVs was 8.2 million in 1994, up from 7.3 million in 1984 (Where RVs 15).
Summary
Overall, the outlook for demand within the motorcycle, motor home, and travel trailer industry looks pretty favorable. The most important factors seem to be the aging of the baby boom generation (as will be explained further in a later section), optimistic forecasts for economic indicators such as interests rates and income growth, and increasing demand in foreign markets.