Workshop Report:
Maintaining Excellence Through Change
Employee involvement, a Material As Needed (MAN) system, and statistical
operator control are among the steps toward competitive excellence at
Harley-Davidson Motor Company's York, PA plant. Accounting changes and
revved-up partnerships with suppliers and motor carriers also support the
transition to continuous flow operations.
John A. Saathoff
n 1987, Harley-Davidson became
one of the heroes of American
Imanufacturing.
Two events marked
this happening. First, the company
visited Washington to request that
the tariff on large Japanese motorcycles', imposed in 1983 by the International Trade Commission (ITC),
be lifted a year early. The ITC was
told, "We no longer need tariff relief
to compete with the Japanese."
Second, President Reagan visited
the York, PA plant to applaud Harley's turnaround and spotlight it as
an example of what is possible in
American manufacturing.
Twenty years ago, HarleyDavidson, whose name had been
synonymous with heavyweight
motorcycles, held an estimated 80
percent share of the market segment above 850cc displacement. By
1982, that share had nosedived to
20 percent. The Japanese had become a major force in motorcycles.
Honda had opened its Marysville,
OH plant in 1979. Corporate pressure for high unit volume, coupled
with inadequate design and production systems, took a severe toll on
quality and worker attitudes. According to York management, Harley
found itseif producing over-priced,
low-quality products, while competing directly with the Japanese, who
were doing just the opposite. Harley
began changing its marketing and
capital structure, while focusing on
quality and workers' suggestions,
Spring 1989
JIT Results at Harley-Davidson
• 49 percent overail productivity increase
• 75 percent overall setup reduction
• Inventory turns up from 5 to 20
• 60 percent reduction in WIP and raw material
• 65 percent decrease in scrap and rework
• 35 percent decrease in warranty costs
• 35 percent reduction in warehouse space
• 26 percent reduction in plant space
• 50 percent fewer suppliers
Fig. 1.
but the 1982 recession nearly finished them off.
Today, Harley's share of the
heavyweight market is 45 percent
and climbing. On September 12 and
13, the company hosted an AME
workshop to share its ideas for manufacturing excellence. Also on the
agenda were a tour of the York, PA
plant and feedback by the visitors
regarding Harley's perceived
strengths and opportunities for improvement.
"Change-How, When, What"
was Harley-Davidson's workshop
theme. "One hears a lot of
buzzwords," warned Bob Miller,
general manager of Harley's York,
PA fabrication and final assembly
plant. "But none of them will work
for you unless you know how to
manage change, which becomes
even more difficult as the market improves and profitability picks up."
Management of change at
Harley-Davidson is based on three
interacting "tools for change:" Employee Involvement, Material As
Needed, and Statistical Operator
Control. All three of them were put
in motion before other programs
were started.
Employee Involvement
The use of employee assets to
C>
13
Concepts To Manage In The 80s
Employee
Involvement
Materials
As Needed
Statistical
Operator
Control
Fig. 2. Management of change at Harley-Davidson is based on three interacting
tools for change: Employee Involvement (EI). Material As Needed (MAN). and
Statistical Operator Control (SOC). All three tools were put in motion belore other
programs were started. Among the EI basics: Employees learn how to recognize
and eliminate waste, a key to continuous improvement.
Fig. 3. Quality circle members work together to solve problems at Harley-Davidson's
York, PA plant.
14
improve quality and productivity is
understood and applied in 3 percent
to 5 percent of U.S. companies.
Harley estimates that 95 percent to
98 percent of Japanese companies
operate with this concept. The company's goal is to link teams in a
company-wide network. It understands more now about how to train
operators while letting groups know
what is expected of them. "We
strive for an Employee Involvement
(EI) Program that is as individual
and unique as the members of the
organization," states Anne Thundercloud, York plant Quality Circle facilitator. It is the Harley employees
who make J IT work, by having an
investment in seeing it work. The
facilitator's job in this environment is
to help connect the employees.
"The key to continuous improvement is helping employees
learn how to recognize and eliminate waste." says Don Lefever, York
plant materials manager. Employees
are seen as links in a chain. By
continuing to strengthen the chain,
employees increasingly drive quality
throughout the organization. In Harley's industrial reiations environment. EI also provides a formal
mechanism whereby employees can
influence the quality of work life.
The company continually reinforces
its commitment that employees will
participate in discussions and deci·
sions on changes which affect them.
Problems and solutions are often
seen by workers on the line before
management sees them. Therefore,
management is convinced of the
payoff from asking workers what
they think.
Among the forms of Employee
Involvement at Harley are:
• Quality Circles
• Preventive maintenance
• Setup reduction
• Value Analysis
• Statistical Operator Control.
Management appears to be
acutely aware of the high mortality
rate among productivity and cost
containment programs. Much of the
problem can be traced to poor communication. lessening enthusiasm,
and a lack of reward and recog ni -
Target
Production Flow Based On Consumption
Raw Material Storage
~~~
I
t
Raw material
ordered via
raw material
card
Raw material
delivered
,
,.....
'P'
cards
Board
118-31
Board
F36-11
~
Machine
F36-11
-/
tP
'P'
cards
Board
E39-21
~
~ ~
,
WIP
tP
~
~ ~
~ ~
Machine
118-31
'P'
cards
WIP
Machine
E39-21
Board
G19-43
Finished P arts
Place in master location for consu mption
100 PCS./de dicated
container
-
'-./ '-./
WIP
tP
I
I
I
Machine
G19-43
tP
Location SF 20-3
-------- - - - - ...
P
P
P I
I
I
1-
[;]~:
11001 100
p
p
P
I
I
100
J-~ B~:
WIP
./
I
I
I
I
p
I
B:
100
- - - - - - - - ____ ..J
Production card is returned to 1st operation MAN board 118-31 signaling
consumption of one card quantity.
-------- I
M
M
I
I
:~B:
Move card replaces the production card and full container is returned to
the point of consumption.
I
I
M
I
:I 1100
L_
I
__
:
Empty container with card goes to issue from master location SF20-3.
I
_J
Fig. 4. Starting with the principles of the Kanban system developed at Toyota, Harley devised MAN (Material As Needed) to
replace MRP (Material Requirements Planning) and gain visual control of the production and movement of parts. Key features of
Harley's system: MAN boards at each machine hold production cards for the next lot to be run. Cards, released as parts are
consumed, represent the authorized number of standard containers in WIP (work in process) and finished stock.
tion. EI has evidently been the most
important as well as the most difficult to implement of the three "tools
for change." Harley succeeded by
continuously buiiding top-down commitment, trust, and cooperation, and
by learning how to surrender some
of management's traditional authority.
Material As Needed
Harley's Just-In-Time (JIT) manufacturing system is called Material
Spring 1989
as Needed (MAN). It was developed
in 1982 with the primary goal of improving quality. Trends in the automotive industry toward JIT delivery
of purchased parts, reducing inventory and releasing capital, strongly
influenced the MAN system design.
An implementation team was formed
of six salaried and four hourly personnel.
Prior to 1982, Harley suffered
from chronic parts shortages. By
one estimate, fewer than 70 percent
of motorcycles were complete off
the end of the assembly line. Vehicles missing parts littered the shop
floor. Motorcycle production was
often based on parts availability
rather 'than the master schedule.
Gaining control of parts became an
important objective, with parts manufactured in-house as the first point
of attack. By developing a system
that would put parts control directly
on the shop floor, the implementation team knew it would also improve parts quality. The team reasoned that inventories produced
before they are needed by the next
operation are likely to deteriorate
I>
15
from storage and handling. Obsolescence. engineering change, and hidden defects all impact high Inventories to a greater extent than they do
parts produced as required.
In view of the source of the
competitive threat, together with the
similarities between motorcycle and
automobile manufacturing, the team
chose the Toyota Production System
as a guide, modifying it to meet Harley's requirements. Toyota's system
focuses on the elimination of waste,
in part by continually reducing the
inventories that decouple the user of
parts from the preceding operation.
It is driven by Kanban, a visibie
communications and controi system
using circulating cards and standard
containers. Kanban appeaied to
Hariey because it puts real time production control information at the
point of use on the shop floor, without requiring complex and costly resources for planning and support.
Any major departure from "business as usual" requires that something be done. In the York plant,
MAN was implemented first. The
sole change to facilitate It was a
move from batch lot motorcycle production to mixed model final assembly. This improved the labor balance
at final assembly as well as
smoothed production in upstream
operations.
MAN was designed to use the
features of the York facility to best
advantage. The location of each machine is identified by a shop floor
address which corresponds with the
coordinates of its adjacent support
column. MAN cards are used to assign a sequence of dedicated machines to specific parts and specific
operations, thus eliminating a major
source of variability.
By identifying both shop floor
locations and machines, Harley set
the stage to eliminate WIP warehousing and store reduced levels of
manufactured parts on the shop
floor. Finished parts are placed in
one of several types of standard
containers. The number of containers needed to meet the calculated
supply (lot size plus demand during
leadtime plus safety stock) determines the number of production
cards in the system. The flow of raw
material, parts, and MAN cards is
illustrated in Fig. 4.
The MAN system uses cards as
the visible signal to produce or
move something. Three kinds of
cards are employed:
1. Raw material:
Move raw material to machine when a job is triggered
to be run. Signal the need to
order raw material to replace
the quantity used.
2. Product/on:
Authorize production of parts
via specified routing, and
placement in designated
storage area.
3. Move:
Authorize movement of manufactured parts to a consuming area from their storage
area.
Having met its first priority, that
is, to achieve control of parts production and flows, Harley could now
see more clearly how to approach
the next opportunities in setup reduction, preventive maintenance,
statistical process controi, and group
technology.
Statistical Operator Control
What is quaiity? Harley management believes that quality is different things to different people.
Quality may be getting the right part
at the right time, or in the right
quantity, to print specifications. It
may also be getting good products
or service at a fair price.
Statistical Operator Control
(SOC) was management's response
to lost market share and weakening
financial position due to poor product quality, and high scrap and rework. The name (Statistical Operator
Control) means that the operator
can control the process with statistics. The operator is the key "ingredient," The charts are kept manually. a form of employee involvement.
It is a way to personalize SPC.
When each employee has the tools
needed to control the quality of his
or her output, employee involvement
and quality at the source are linked.
Attending a basic course of 40
hours, all employees receive the
statistics training needed to "know
where they are in any given continuous improvement cycle." The vice
president and general manager was
trained first. Training of others
began in January 1984. The course
is kept interesting and vitai by teachIng it on company time. The W.
Edwards Deming video tapes are interspersed with classroom lectures
and exercises. Homework assignments give each employee the opportunity to make a personal commitment. Today, suppliers are also
being involved in the monthly statistics training courses.
The SOC training program basics include:
• Introduction to control charttheory
• Introduction to attributes control
chart
• Introduction to variables control
chart
• Process capability
• Problem solving
• Uses/applications.
Fig. 5. A bike is ridden an equivalent of
two mites, when all functions of the
vehicle are checked.
16
Target
-
Fig. 6. Harley's own fleet heuls 15 to 18 shipments each week from the Milwaukee
engine piant to York, PA.
Vendor Freight Consolidation
Purchasing practices have
changed at Harley since the early
1980s in order to capture the benefits of supplier partnerships. It was a
natural progression from there to the
analysis and improvement of the inbound logistics process. "Partners in
Profit," states Tom Schwarz, general
manager of Harley-Davidson Transportation Company, "describes our
policy to establish long-term, successful vendor relationships; and
that policy extends to our carrier
network." The key developments in
purchasing include: stabilizing 16week rolling schedules, single
sourcing and supplier base reduction, more frequent deliveries in
small quantities, and evaluation of
suppliers on the criteria of manufacturing excellence instead of price
alone. Some of these changes
would have <ncreased inbound
freight costs had the logistics process not been changed.
Prior to 1984, Harley's analysis
showed that inventory was turning 8
to 10 times per year. Inbound shipments of 2500 Ibs. or less comprised 85 percent of the total, and
38 percent were 400 Ibs. or less.
Anticipating the impact of JIT plans,
Harley expected that inventory turns
would increase by a factor of three
Spring 1989
to four. Harley felt that its inbound
materials logistics processes were
archaic, ineffective, and costly even
for the demands of that era. Without
fundamental change, the company
could have absorbed neither the
cost nor the confusion caused by
escalating frequencies of shipments
and receipts.
Harley-Davidson found that the
impact of high LTL (less than truckload) rates on small shipments over
long distances could be offset
through innovation in its transportation system. One aspect of this was
implementing consolidation techniques with specialized motor carriers. Partnerships were as effective
here as with suppliers of other kinds
of services and materials.
Partnerships with Motor CarriersKey Steps:
• Reduce and stabilize the number
of carriers used.
• Focus purchasing power with the
reduced carrier base.
• Negotiate customized rates and
realistic schedules.
• Monitor on-time delivery performance.
Successful long-term relationships with carners as partners mean
that these carriers are interdependent with Harley's own truck fleet.
The carriers are used interchangeably to move both inbound plant ma-
terials and outbound finished goods
to retail dealers. Tom Schwarz offers
a word of caution. "If you are not
ready to exercise the necessary forbearance that this commitment imposes, don't start," he says.
Freight consolidation is handled
in two modes. Which one depends
on the supplier's distance from the
York plant. For distances of 200
miles and greater, suppliers are instructed to ship via preferred carrier
to consolidation centers at Aurora,
IL and Cleveland, OH. The individual loads of 100 to 2000 Ibs. each
are placed in a Harley consolidation
trailer, which departs for the York
plant on the same day each week.
The cost of consolidating on-time
deliveries to a regional center is
borne by Harley. Failed shipments
must be expedited by air freight at
the supplier's expense.
Within a 200 mile radius of
York, inbound freight is moved via
MANTRAN, which means Material
As Needed Transportation. In this
case, the truck, driven by a Harley
employee, completes a daily "milk
run" to a designated set of vendors
on a pre-defined route. Some vendors are served weekly, some less
frequently, and some more than
once per week. Each vendor is expected to have his order staged on
the dock at the agreed time in order
to meet a 15-minute daily pickup
window. Harley believes these circumstances to be ideal for the use
of returnable containers. As with
more distant vendors, Harley bears
the costs of on-time pickup. Failed
shipments must be expedited via
surface carrier at the vendor's expense.
Shipments in truckload (TL) volumes do occur. Harley's own fleet
.hauls between 15 and 18 such shipments each week from the Milwaukee engine plant to York. Shipments
of tires from Buffalo and inbound
containers from offshore suppliers
through the port of Baltimore are
also moved in TL quantities. The
Milwaukee material inciudes engines, transmissions, and plastic
parts, all mounted in specially deC>
17
Vendor Consolidation Points for TL Shipments to York
MN
JA
IN
MO
Fig. 7. Rather than receive costly frequent small shipments from distant suppliers, Harley-Davidson Transportation Company
positions an empty traiier in its Aurora, IL and Cleveland, OH consolidation centers on the same day each week. The empty trailer
Is exchanged for a full consolidated truck load containing one week's worth of supplier material for movement to York, PA. Tires
are shipped from Buffafo, NY, and Baltimore, MD is the port of entry for materials purchased offshore.
Deficiencies in Traditional
Practices
Needs from Modern
Accounting
•
Encourage bUilding inventory with
large lots and long runs
•
Encourage lower cost and
improved quality
•
Too much attention to labor detail
•
Information available when it can
be used to fix problems
•
Do not focus on material velocity
•
Simple system, easily understood
•
Do not encourage continous
improvement
•
Responsive to market changes.
Fig. 8.
signed racks. In addition, this TL
lane (motor carrier route) handles
accumulated parts from Milwaukee's
internal manufacturing centers, as
weil as other parts from Milwaukeebased suppliers.
The benefits Harley is realizing
from these changes go beyond inbound freight cost reduction:
• Consolidated shipments from 60
18
suppliers into two trucks, reducing
delivery frequency at the York
dock
• Established outbound freight control from point of origin to two
main regions.
• Built on-time delivery improve,ment trend approaching "high
90s"
• Provided advance warning
of - and time to react to - missed
shipments.
Schwarz says he knows the
contents of each trailer at 7 a.m.
each morning through EDI (Electronic Data Interchange), linking the preferred carrier's mainframe computer
to his office PC (personal computer).
MAN Manufacturing Accounting
As Harley-Davidson saw the impact of JIT practices on inventory,
Target
Continuous Improvement
Measures
•
First-run acceptance
•
Vehicles per employee
•
Conversion cost/unit
•
Inventory days
•
Scrap cost/unit
•
Cycle time
•
Schedule stability
Fig. 9.
quality, and delivery, questions
arose about the effectiveness and
value of its cost accounting systems.
The main issues were the cost of
administering the system, the
decision-making value of the information provided, and the actions encouraged by accounting measurements to reduce customer service,
profitability, and inventory turnover.
Instead of supporting the elimination
of waste, Harley found, these measures encouraged its creation. For
example, department efficiency
measures could be improved by
building inventory and by treating rework as earned direct labor hours. It
was also found that administrative
cost was a function of the degree of
control required to measure performance of a complex manufacturing
process.
Significant changes in accounting philosophy and practices were
precipitated by the changes in manufacturing organization and systems.
As processes were simplified, visual
controls could be substituted for detailed accounting controls.
The first change, eliminating detailed labor reporting, was implemented in January 1988. Job cards
were removed, labor classifications
were combined, and iabor and overhead were combined into an account called conversion cost. Some
40 labor control codes that had
Spring 1989
Success Factors
• Management commitment. From the CEO down through division and
plant management, the top leveis of Harley-Davidson speak and act
with conviction about the new culture of continuous improvement, a
rededication to quality, and true employee involvement.
• Openness and morale. There is obvious pride displayed by many
operators at York. These people were anxious to share their success
with us, a fact that validates the commitment voiced by management.
• Accounting changes. The simplification and alignment of controls and
measures with world class manufacturing goals was seen as a "big
plus."
• Operator involvement and responsibility. Our tour guides identified
strongly with the York organization. and spoke convincingly of their
contribution to the problem solving process.
• Material As Needed. Participants were struck by the simplicity and
visibility of this system in the plant. together with the progress Harley
is making in extending it upstream to suppliers.
• Logistics. York is one of the best examples in the United States of how
inbound transportation and material movement to the point of use
should be redesigned as a process to support JIT manufacturing.
• Work centers and cells. Big dividends are being realized by grouping
similar processes and work teams. Less material movement, shorter
cycle times, and a tighter quality focus are the most obvious ones.
Fig. 10.
been shown in the overhead statement were deieted.
Cost center efficiency is no
longer reported. The company feels
that many individual actions to increase efficiency ran counter to the
goals of the overall organization. Included were long runs that could not
be absorbed by the subsequent operation. Now production credit is
given for good completed units. This
focuses group effort on completing
vehicles and satisfying customers.
More changes took place in
July, this time to the Work In Process (WIP) system. WIP is now treated as a constant dollar number.
Therefore, the need for transactions
of cost in and out of WIP has been
eliminated. Perpetual inventories are
now back flushed, to update raw
material and purchased part balances, when the vehicle is hung on the
final assembly conveyor.
While most measures are now
based on daily actuals, a few variances are developed. These include
purchase price variance and design
change variance. The latter was implemented in response to manufacturing's request to relieve manufacturing at the current BOM cost. The
design change variance is calculated by comparing the current and fro·
zen BOMs.
Harley-Davidson has found
ways to "piggyback" on manufacturing data, reducing the incentive to
find ways around a system often
lacking in accuracy and timeliness.
In simplifying the system, they identified some changes to measuring
manufacturing performance.
These changes were discussed
during the workshop, which also included a tour of the York plant; operators served as capable guides.
The frame shop, paint shop, subassembly, and final assembly areas
received the most attention. The
workshop concluded with small
group discussions and presentations
about strengths and opportunities to
the York piant staff. (See Fig. 10).
Plans for Further Improvement
Beginning with its pilot efforts in
late 1981, and staying the course
through the 1982 collapse of the
heavyweight motorcycle market, the
York fabrication and final assembly
plant has carried its fair share of the
continuous improvement load at
19
Harley-Davidson. The specific needs
of the York plant led it to work first
on schedule stability, mixed model
assembly, and a pull (MAN) system.
York initiated employee involvement
activities in 1982, followed by SPC
(SOC) in all operations in 1983.
Major revisions to change processes
from batch to flow processing,
begun at that time, are continuing as
the focus of improvement today.
According to Harley's Jeff
Sipling, "Completely dropping batch
processing and implementing flow
process operation will cause each
machining and fabrication center to
be an extension of our assembly
line." Since Kanban was implemented in a layout based on functional
equipment areas (press shop, machine shops, welding, etc.), a new
layout that supports production flow
is needed. Harley has identified families of parts that require similar setups and manufacturing processes,
and has determined what equipment
is needed to produce these parts.
The equipment is laid out in a work
center for minimum run size and
materials handling, and is located
close to where the parts are consumed.
Harley is moving towards
paperless production. Some flow
lines that include all operations in a
cell are in place. More are planned.
Returning dedicated containers will
serve as the production authorization, eliminating the need for a system that uses multiple kanban
cards.
Continuous improvement is
foreseen in purchasing as well. Harley's recent efforts here have involved implementing MAN at suppliers. A number of methods are used,
including meetings with more advanced suppliers, on-site SPC training, supplier seminars, and a fulltime supplier assistance team. The
ground work is being laid for bar
coded supplier kanbans that would
permit paperless shipping, receiving,
and invoicing. Leveling schedules
and providing firm information on requirements are two aspects. Also
planned is a further reduction in the
supplier base. Preference will be
given to suppliers who share Harley's JIT philosophy.
Nearly every aspect of JIT, EI,
and SPC can be seen in some area
of the York operation. Harley's management is first to observe that
there is more to do. The discussionl
feedback groups confirmed that opportunities exist in housekeeping,
quality systems, pull system discipline, and performance measure visibility. Harley people speak of their
awareness that change becomes
more difficult to sustain as the market improves and profitability picks
up. The rate of change demonstrated at York is the best evidence that
Harley will successfully resist the
temptation to become complacent.
Author:
John A. Saathoff is corporate director of
materials management, Harris Corporation, Melbourne. FL.