An interview with Jeffrey L. Bleustein,President and COO, Harley-Davidson Motor Co.

From its beginnings in a shed just after the turn of the century, motorcycle manufacturer Harley-Davidson has survived the Great Depression, two world wars and a manufacturing revolution to become not just a successful company, but one whose products are so valued and sought after as to become more than just purchase items, but a way of life for many owners.

Bleustein spoke recently with editor David Greenfield about how the company engineered its turnaround and how it plans to stay competitive into the next millenium.

Q: What led Harley-Davidson in the late '70s and early '80s to turn its operations around and embrace more advanced manufacturing processes such as JIT and statistical process control?

A: We had basic quality problems from a customer viewpoint related to the design. We had quality problems with regard to operations caused by huge amounts of inventory, and we didn't have the know-how to reduce it. But by watching our Japanese competitors, we began to get a feel for what they were doing with regard to quality. So we began a pilot operation to implement JIT (Just-in-Time), utilize statistical tools, and develop setup reduction teams. Basically, we were doing bits and pieces of a number of things.

But what really helped us make the transition toward a JIT environment was the fact that from 1981 to 1982 the bottom fell out of the motorcycle market and there was a recession going on in the country. Sales of motorcycles dipped to about a third of what they had been. Also, we had become a private company in 1981. We were a highly leveraged buyout, and with the market dropping as it did, we were in violation of all our loan covenants. So we had to generate cash to make our payments, and the only thing we could see as an option was to work down some of that WIP (work in process) inventory we had. And we had heard that was possible. So over a two-year period, we reduced WIP inventory by about $50 million. And that just about coincided with how much money we lost at the profit line. So through WIP reduction, we moved to a JIT system we call the MAN system &endash; material as needed. That allowed us to keep a positive cash flow even though we were losing money at the profit line.

It was the fear of not surviving that drove the change within Harley-Davidson at such a fast pace.

We also saw that to make this work, we needed more than just quality circles. We needed setup reduction, JIT, better quality in each of the operations. We had to have operators responsible for the quality of work and not have inspectors trying to inspect quality in. We knew that all these things had to come together.

Once we "got the religion" of these advanced manufacturing practices, we probably went a bit overboard in our efforts to eliminate every source of inventory buildup. What we eventually learned, however, is that some selected places in our system can allow for the building of a day's bank of inventory,

thus providing flexibility without detracting from quality.

Q: Speaking of quality, what programs do you have in place at Harley-Davidson to ensure it?

A: You know, quality used to be the way in which some manufacturers tried to distinguish themselves from others. Today, you have to have good quality if you're going to be in the game. We emphasize quality as one of our basic issues, and it's right up there at the top. The way we define quality is the reduction of waste, defects and variability in everything we do, while still trying to exceed the expectations of our customers. Quality is not just a thing for the factory floor &endash; quality has to take place in every area of our company. The responsibility for quality rests with each employee.

In our factories we have a number of measures of quality that we track very carefully. We look at our customer satisfaction returns and see how our customers perceive quality. We look at our warranty measures and we monitor those very carefully. As time goes on, we develop more measures as we try to bring what we do in the factory in line with the customer's expectation. And as those expectations continue to grow, we have as our driving force of continuous improvement the constant evolution of measurements we use to stay in tune with customer expectations.

Q: The hot topic now is supply chain management. How does Harley-Davidson implement this process?

A: We work closely with suppliers through our suppliers' advisory council, which is selected by the suppliers, and we meet with them regularly to improve the relationship between Harley-Davidson and its suppliers.

We've even had occasions where we send our manufacturing people to our suppliers' plants. For example, after we had learned setup reduction techniques, we wanted to share this knowledge with our suppliers so they could make the same kind of improvements and move to a JIT mode as well. Because if all you do is push inventory back to your supplier and have them holding it, you don't have a real JIT system. In addition, from the early '80s to today, we've very actively tried to reduce our number of suppliers and do more business with each one. And since that has worked very well, we're now looking at the next step: tiering the suppliers and having some suppliers responsible for other suppliers.

Q: Harley-Davidson has set a goal for itself of manufacturing 200,000+ units by 2003 (the company's 100th anniversary). What's being done to achieve that?

A: The first step was doubling the output of our plants over the last five years; this was done within our own existing walls. We haven't had to add a lot of floor space. But to get from where we are now (producing 119,000 motorcycles in 1996) to our goal, we have to add facilities. So we are building a factory in Kansas City, and we have recently purchased a factory from Briggs & Stratton here in Milwaukee. So with those two additional facilities, we'll have the floor space we need.

Q: Will your manufacturing practices remain the same to achieve this goal?

A: All of our manufacturing processes will continue to evolve. What will be coming into play will be focusing investment in our core competencies. In some cases, we may end up relying more on suppliers for certain things that they do better than we do.

Q: Customer service is a high priority across the business spectrum today. Harley-Davidson's plans call for the company not only to anticipate customer desires, but also to meet and exceed them. How do you plan on doing that?

A: We have two levels of customers. One is the dealers, with whom we've always had a close relationship. We have a dealer advisory council that has been in place for many years, and these dealers are selected by the dealer network. We meet with this council at least four times a year to find out how to continue to be the best supplier for them. It's a very open and honest relationship; we talk about real issues and we try to work them out.

The other level is our riders &endash; our dealers' customers &endash; who we like to think of as our joint customers. We try to maintain close contact with them as well. We're out there with them a lot, and that includes our management team as well as employees. We spend a lot of time with our customers trying to find out what's on their minds, what they expect of us, and what they would like us to do. We have the HOG (Harley Owners Group) clubs, which now number 330,000 members on a worldwide basis. Activities for the HOGs are organized via our dealers on a local basis to give people more reasons to ride. And we organize four regional rallies every year for HOGs. All this is done to keep people using their motorcycles and having fun doing it.

Q: Human resources involvement is a high priority at Harley-Davidson with its paid-for education and workshops. What do you hope, ultimately, to achieve from this and how do you measure results?

A: A part of our basic business process is having all of our employees participate in the business. And to do that, we feel that they need to continue to learn new things. We can't force anyone to learn, but we can provide opportunities and time for people to learn and to encourage learning. We encourage it by offering a large variety of courses. We encourage work groups &endash; teams of people taking courses together &endash; on topics such as problem solving and even basic financial information. We want the people in our factories to have the tools of financial analysis and know about profit and loss, balance sheets, cash flow and inventory, so that they can be better able to make judgments themselves.

Q: Explain Harley-Davidson's emphasis on social/cultural issues training.

A: In order for people to work together, they need a lot more than just the technical tools. We have an eight-hour diversity program that we put people through. We also have training units on trust building, conflict resolution, business fundamentals, and our values and business processes. We provide a lot of training on the fundamentals of our business. We probably do more of this kind of training than technical training because the technical training is left up to the employee; we don't force that. But our training in diversity and business processes is not optional.

Q: How do you measure your success in this area?

A: The most important thing to measure is how we evolve as an organization. We know that our success is only going to come through the efforts of people. And so as we see improvement in quality and productivity, we know that it's coming about as the result of the efforts of people and that our training programs are working. We're taking the success of these programs on faith; and that faith is being rewarded in the continuous improvement of all our operational measures.

Q: Another core value for Harley-Davidson states that for leaders to be effective, they must make themselves vulnerable to others. How do you make sure that attitude remains in effect?

A: We do that by having frequent town hall meetings with our customers, our dealers and our employees, where our senior management is out there and open to questions. We keep ourselves accessible. We literally don't have doors on our offices. But more than that, we encourage people, through our openness, to push back and talk about things that are on their minds.

In terms of specific instruments to measure this, we introduced a 180-degree feedback instrument. This allows for leaders at Harley-Davidson to be evaluated by the people they lead. These evaluations not only go to the leader, but to the leader's boss.

Q: How do you ensure that not only your employees remain flexible in the face of changes, but the company itself?

A: The flexibility in manufacturing we're trying to achieve is happening in part through the choices we're making in equipment. We're also choosing processes that are flexible and can handle new products in relatively simple ways, without tearing down big transfer lines.

In terms of flexibility as it relates to the marketplace, our plan lies in getting faster &endash; reducing the time between new product introductions. We do this by working concurrently with engineering, purchasing, manufacturing, marketing and our suppliers. We will soon open our new product development center, which is set up to house a concurrent product development process in an optimum way. We have offices in this building for suppliers for permanent or long-term on-site participation in this process. In this way we'll be flexible to our customers' desires and also be able to come up with a much wider variety of designs in the future.

Q: What are the most important aspects of value added for Harley-Davidson?

A: We add value in many places: We do it in the basic designs of our products &endash; the way they look and feel and sound. We add value in the way we manufacture motorcycles, especially in our finishing operations (paint and chrome and styling) &endash; this is an area where our customers feel we do an outstanding job. And we add value in the range of activities that go beyond the motorcycle. As we have said in our tag lines: "Harley-Davidson is more than a machine."

But we really add value through the relationship we have with our customers. It's value added both to them and to us. The time that we spend together talking about something we both love is time very well spent. And I think our customers get a kick out of going to an event and seeing the employees of the company that make the product out there with them using the product and being open and wanting to listen to them. And they love it when Willie G. Davidson (the grandson of one of the founders), or CEO Rich Teerlink or I will go out there and be with them. We get everyone from the factory floor to the executives out there and spending time with the customer. I think that's unique.

Q: What factors do you see affecting manufacturing in the immediate future?

A: Speaking for Harley-Davidson, the way we're going to get better is to tie all those areas that interrelate with manufacturing closer together. We have to improve the interfaces between manufacturing and product development and engineering. We have to improve the interface between manufacturing and suppliers. And we have to improve the interface between manufacturing and marketing.

When I look back on what we've done in the past, we've worked very hard at improving the functionality within functions &endash; doing a better job of engineering products, a good job of improving the manufacturing of products, and a good job of improving the marketing. But to go forward, we don't have the luxury to work on improvements in all those areas in a sequential way. What we need to do is work on the interfacing of all these areas to move forward together.

The next stage in manufacturing improvement will require working more closely with suppliers to make sure the things we're asking them to do are reasonable. And in all cases where we involve them in the process, we know it will come out with something that works better for them and for us. This goes for engineering as well. The more closely we can interface manufacturing with all the areas that it impacts, or impacts it, the better progress will be made in improving the manufacturing area. n

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