HD Paper

Running Head: HARLEY-DAVIDSON, INC.
& THE GREAT RIDE INTO THE SUNSET

(OOPS)
Harley-Davidson, Inc.
External and Internal Analysis, Value Chain, Core Competencies
and EVA Evaluations
within the Competitive Recreational Vehicles Industry Environment
Including Strategic Recommendations.
Patrick Beach
Elise Boldt
Neil Colombini
Carl Seaberg
Heather Songer
Pacific Lutheran University
In partial fulfillment of the requirements for BUSA 499-02

Professor Quoc Pham
May 14, 2009
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Table of Contents
Chapter Page
Executive Summary........................................................................................................2
Brief Company Overview………………………………………………………………2
Porter’s Five Forces........................................................................................................3
Industry PESTE Analysis................................................................................................6
Harley-Davidson PESTE Analysis.................................................................................8
Industry Value Chain Analysis ……….………………………………………………..8
Harley-Davidson Strategic Profile................................................................................10
 Resources and Capabilities...............................................................................14

 Value Chain Analysis………………………………………………………....14
 VRIO Analysis………………………………………………………………...14
 Core Competencies...........................................................................................17
 SWOT Analysis……………………………………………………………….17
 Economic Value-Added Analysis……………………………………………..17
Suzuki Strategic Profile................................................................................................23

 VRIO Analysis………………………………………………………………...14
Honda Strategic Profile.................................................................................................33

 VRIO Analysis………………………………………………………………...14
Polaris Strategic Profile................................................................................................45

 VRIO Analysis………………………………………………………………...14
Winnebago Strategic Profile.........................................................................................45
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 VRIO Analysis………………………………………………………………...14
Strategic Recommendations and Implementation.........................................................50
 Strategy 1..........................................................................................................51
 Strategy 2..........................................................................................................53
 Strategy 3..........................................................................................................56
 Strategy 4..........................................................................................................56
 Synergy.............................................................................................................62
References.....................................................................................................................76
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Brief Company Overview
Harley-Davidson, Inc. operates in the Consumer Goods sector, within the Recreational Vehicle
industry, and specifically in the heavyweight motorcycle segment. While Harley-Davidson has
two operational segments, motorcycle and financing, this report will focus only on the
motorcycle operations of the company.
The Motorcycle segment designs, manufactures, and sells at wholesale primarily heavyweight
(engine displacement of 651+cc) touring, custom and performance motorcycles. It also produces
a line of motorcycle parts, accessories, general merchandise and related services. Harley-
Davidson, which is the only major American motorcycle manufacturer, conducts business on a
global basis, with sales primarily in North America, Europe, Asia/Pacific and Latin America.
(Form 10-K, 2009)
“The primary business of the Motorcycles segment is to design and manufacture premium
motorcycles for the heavyweight market and sell them at wholesale. The Company is best known
for its Harley-Davidson motorcycle products. The Company’s worldwide motorcycle sales
generate approximately 80% of the total net revenue in the Motorcycles segment during each of
the years 2008, 2007 and 2006, respectively… Harley-Davidson branded motorcycle products
emphasize traditional styling, design simplicity, durability and quality.”
Harley-Davidson has been a leader in the industry for the past 21 years. (Form 10-K, 2009)
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Porter’s Five Forces
Rivalry
Harley-Davidson operates within the Recreational Vehicles industry along with five other major
competitors: Winnebago, Polaris, Thor, Arctic Cat and Marine Products. The top performers
within the industry and hold 92% of the market share by volume with a market capitalization of
64.653 Billion of a total Industry of 7 Billion (Yahoo Finance, 2009). Other firms in different
industries that are direct product rivals include Honda Motor Company Limited, Yamaha Motor
Co, Ltd., and Suzuki Motor Corporation (Datamonitor, 2007).
The presence of these large multinational corporations with exceptionally high assets boosts the
degree of rivalry within the industry. Because of the small number of material rivals, the
market’s revenue is shared between fewer firms and enhances the degree of rivalry for bottom
line profit.
This rivalry forces most competitors to try and diversify their business models through
geographical expansion or vertical expansion, leading to interests and investments in a variety of
other segments such as the automobile, watercraft, industrial and farming equipment areas
(Datamonitor, 2004). Many industry competitors add a competitive advantage to their companies
by differentiating in product lines: such as specifically producing heavyweight motorcycles,
motorcycle parts, accessories, apparel and general merchandise. Many rivals have also expanded
into the industries of financial services and insurance programs to diversify in order to ease the
rivalry factors.
Furthermore, the US market where rivals base most of their operations is exhibiting a decent
level of growth that reduces rivalry (Datamonitor, 2008). Within this geographical sector, rivalry
is moderate. However, many companies are facing future concerns due to the aging of loyal
customer bases and rivalry from competitors in other lifestyle-based industries such as BMW,
Ducati and other companies that appeal to the younger generation.
Within the Recreational Vehicle industry, consumer switching costs are moderate to high. This
lowers rivalry within the loyal customer base but also forces companies to intensify their
marketing strategies aimed at a younger generation of consumers. Also, the high switching costs
help maintain a loyal customer base, but can be a barrier for increasing it.
Finally, because of the substantial investments in highly specific assets, exit barriers are high.
This increases the level of rivalry within the industry and forces competing firms to be
continuously innovative in order to keep their market share (Datamonitor, 2008).
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Threat of Substitutes
The Recreational Vehicle industry faces threats from the Automobile Industry, from public
transportation options and from Bicycles. The threat is largely dependent on the indispensability
of motorcycles and other lifestyle products to the end user (Datamonitor, 2008).
In most developed countries, motorcycles, jetski’s and other recreational vehicles are leisure
items that lack necessity and are therefore largely dispensable or substitutable by more
“practical” items such as cars or more “cost effective” means of transportation such as bicycles.
This lack of necessity increases the threat of substitutes and illustrates why the external market
goes into decline during economic recession.
However, even though there is a lack of necessity, when a consumer owns a motorcycle or other
product, switching costs to a substitute can range from low to high. Switching to public
transportation can be cheap, but switching to a luxury vehicle involves a high cost factor.
Because switching costs vary depending on the alternative means of transportation chosen, the
overall threat of substitutes within this industry is moderate.
Buyer Power
Buyer power is weakened by a high level of product differentiation and customer loyalty to
dominating brands (Datamonitor, 2008). Because customer loyalty with respect to dealers is
high, as is the demand for specific and/or customized products, buyers’ power is weakened since
the consumers rely on companies to produce their preferred product. This high demand allows
companies to increase their price due to high product differentiation and low standardization.
Relatively large numbers of buyers within the US, coupled with a high level of product
differentiation weakens buyer power. This gives Recreational Vehicle manufacturers a
competitive edge in the industry because they can produce a product based on customer demand.
An increasing factor of buyer power is the fact that over half of recreational vehicles sold in the
U.S. are sold and bought through non-retail channels. This provides consumers with an option
for cheaper purchasing, and becomes a major threat to the industry if they cannot move their new
products. Fortunately for the large competitors, who rely on product differentiation, their
customers desire customized products that aren’t available on the second-hand market.
Overall, buyer power is low due to sustainable competitive advantage of product differentiation
which is impossible for other brand competitors to match.
Supplier Power
Competitors within the Recreational Vehicle industry rely mostly on commodities such as
metals. There is a highly stressed importance on the quality of these raw materials which
enhances supplier power. Also, as global prices of primary raw materials (ie: steel, aluminum)
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increase, pressure is put on the manufacturers’ to increase their margins. Furthermore, the
increasing consolidation of the steel industry has the potential to lead to even higher raw material
costs and product differentiation. The competitors often deal with this high power of suppliers by
signing contracts with manufacturers to ensure the delivery of quality raw materials at a set
market price.
Power of suppliers is decreased by the competitor’s large size and the fact that manufacturers
account for only a small portion of the suppliers’ revenues. Large multinational corporations
such as Harley-Davidson and others can receive materials from many different international
suppliers and face low switching costs due to minimal product differentiation. This presence
within the international market boosts Industry leaders’ power. (Competitive Landscape, 2009)
Overall, supplier power is moderate.
Threat of New Entrants
The industry faces moderate threats of new entrants because of moderate industry growth levels
and high barriers to entry. The Recreational Vehicle industry is continuing to grow, especially in
America, as consumers are traveling shorter distances and on weekends with less planning. New
entrants are lured by good market growth, especially in the budget or low-cost areas due to
consumer, ownership and demographic trends towards convenient travel patterns. (RVIA.org,
2009)
Barriers to entry include large capital requirements and high fixed costs for set-up of new
production and provider facilities, an exceptionally high level of brand recognition and customer
loyalty. Modes of entry include starting a new company, diversifying and existing company’s
operations into motorcycle or other vehicle manufacturing, and beginning to export into the host
country. Another barrier is the global tightening of emission standards that further ramps up
costs as motorcycle and other recreational vehicle redesigns are required, increasing research and
development costs. (Competitive landscape, 2009)
Along with the tightening of emissions standards is an increase in the global costs of raw
materials such as steel. As standards and product costs increase, barriers to entry become larger
hurdles for new entrants. In order to be profitable, new entrants must pass on large capital
requirement, R&D costs and raw material costs to their customers and reflect these in the costs
of the finished product. In the current economic recession, this becomes problematic because
average consumers and not willing to spend their small disposable income on leisure items.
Since sales are sensitive to price, another mode of entry is possible in the sale of budget vehicles.
However, these companies would still be subject to the large capital requirements and high fixed
costs, resulting in a business that would not be sustainable and therefore becomes undesirable.
Overall, this threat is moderate.
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Porter’s Five Forces Summary
The competitors within the Recreational Vehicle industry’s assessed position and competitive
landscape face moderate competition. Rivalry between large multinational corporations with
interests stretching across various industries reduces dependence on the motorcycle market and
makes competition for market share less intense and focused. Due to the moderate power of
buyers and suppliers, high capital investment costs and high barriers to entry, the larger
competitors are most likely continue to operate successfully in the industry’s external
environment.
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P.E.S.T. Analysis : Recreational Vehicle Industry
Political
The recreational Vehicle industry has been included in the new administration’s stimulus
plan. Anyone who purchases a motorcycle will receive a Federal Tax credit deductible.
Currently most motorcycles cost around $25,000 or more. This tax break could save buyers a
good amount of money as long as you meet the criterion. Buyers will still have to pay the sales
tax and then claim it on their Federal income taxes at the end of the year. “For example if you
buy a $25,000 motorcycle with 8% state sales tax, you would pay about $2000 in state taxes and
then deduct that $2000 from your Federal.” (Sahadi 2009)
While one piece of legislation has benefitted the industry, another has really hurt it. A bill
passed in the United States last year that bans lead paint in children's toys has resulted in the
recall and ban of mini bikes nationwide. The highly talked about law is designed to protect
children from the damaging effects of lead paint but because the law lacks exclusionary
classifications the bill addresses any product designed to be sold to children. As of February 23,
2008 mini bikes have essentially been banned from being sold. This has two huge affects on the
industry, one is “Last year, more than 100,000 of the youth-oriented vehicles were sold. Industry
experts estimate that 13,000 dealers nationwide might be stuck holding $100 million in inventory
because the vehicles contain lead levels greater than allowed under the law.” (Kells 2009). The
other part of this legislation that hurts the industry is that mini bikes target children to get them
interested in motorcycles when they get older. This could hamper future motorcycle sales
because the kids are not getting to ride early on in their life and build an attachment to bike
riding.
Economic
The current economy is hurting all parts of the recreational vehicles industry. RV’s,
trailers, and motor-homes have taken a big hit. They are no longer being purchased or rented out
for vacations. According to some studies “typical RV family vacations are on average 26 to 74
percent less expensive than other types of vacations studied."(Gross 2008). This is either not
known or not interesting the American people. Americans seem to put RVs in the same category
as powerboats, which is unnecessary high priced purchases that use up way too much gas. RVs
vary widely in size and cost, from folding camping trailers, $4,000 used to $13,000 new, to Type
A motor homes, from $58,000 used to $400,000 new. “According to RVIA spokesman Kevin
Broom, Type A homes get 6 to 12 miles per gallon, while smaller Type C vehicles can get 15 to
18 mpg.” (Gross 2008). This terrible gas mileage is directly related hampering RV sales. Many
people do not have the disposable income to make these high priced purchases. ““This industry
is in the middle of a three-year downturn, and you can really probably even date it farther back
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than that,” said Kathryn Thompson, who follows RV companies for Avondale Partners.”
(Associated Press 2008)
Motorcycle Sales have been no better. The first quarter of 2009 was disastrous in all
categories of bikes. “Total sales year to date, from January to March of 2009 were reported as
120,794 compared to 173,922 in Q1 of 2008. This is a decrease of 53,128 or almost 32%. Street
bike sales were down approximately 27%, while dual-sport sales, which had some strength even
in the weak market, were down 24.0%. Sales of off-road motorcycles were down 40% and
scooter sales were down 37%”(Web Bike World 2009). The current problem motorcycles are
having is that they are not being looked at as a daily transportation option. Bikes are used for
thrill seeking and joyriding, not getting from point A to point B. There are also not as many
climates outside of the southern United States that can support daily motorcycle rides. The
market that was hit most by the economic down turn was the off-highway market which dropped
nearly 40% (Web Bike World 2009). This could be largely due to the controversial ban on mini-
bikes.
Despite the economic climate snowmobile sales have actually been weathering the storm.
Arctic Cat and Polaris have posted positive sales numbers in 2009. Arctic Cat’s sales rose from
$60 million in Q3 to over $90 million in Q4 (Snowmobile.com 2009). This could be due to
winter months, but it is the only productive sales figures in the industry. Boat and jet-ski sales
have seen sales plummet in all major dealers.
The economy has also hurt the corporate core of the major players in the recreational
vehicles industry as they have seen stock prices tumble only to slightly rebound. Polaris’ stock
price on March 9, 2009 was a mere $14.59 but in April and in beginning of May has risen to
around $35 per share. Motorcycle giant Harley Davidson hit an all time low on March 5, 2009
with a stock price of $8.20 but has rebounded slightly up to $21 per share. The top RV dealer
Winnebago was trading on March 5th for just $3.23 but on May 6th was up to $8.20. Although
Arctic Cat has had productive sales figures their stock price is unreflective as they sit currently at
$4.60 per share. Thor Industries also saw a low price of $9.00 per share in March and is up to
$21 currently.
Social
The social culture for the recreational vehicles industry is centered around expos,
conventions, clubs, events, rallies, magazines, and other publications. Expos and conventions
give dealers a chance to show off their new products and give enthusiasts a chance to come
together to celebrate their favorite leisure hobbies. The conventions can also be used to spike
some interest into communities for the product being displayed as those in attendance will be
looking at the very best of what the industry has to offer. There are hundreds of expos and
conventions each year across America for motorcycles, RVs, boats, snowmobiles, and jet-skis.
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The top motorcycle conventions are Sturgis Motorcycle Rally, Americade, Bikes Blues and
BBQ, Daytona Beach Bike Week, Laconia Motorcycle Week, Laughlin River Run, Love Ride
(Quinn 2009). These events alone attract well over 1 million people. RV conventions and Boat
shows also see high attendance numbers. They have started selling more accessory products at
these events to attract owners and enthusiasts who need small items to accessorize there vehicles.
Biker clubs are a large part of motorcycle culture. The Motorcycle Club Index which
only covers ten states has 251 registered clubs (Motorcycle Club Index). There are also 25
popular biker magazines and e-news letters. Snowmobiles, boats, and RVs all have near 10
different publications each to inform there followers and feed the culture.
Technology
The latest technology craze in the motorcycle market is electric motorcycles. The most
hyped brand is Zero motorcycles. They are coming out with bikes for the street and dirt. Their
products are hitting the markets this summer and have been featured on the Jay Leno show.
These bikes cost around $10,000. The unique feature on these bikes is there ability to plug into a
normal electrical wall outlet plug in. This allows for easy and convenient charges. Their electric
bikes are also fast, getting from 0-30 MPH in under 2 seconds (Zero Motorcycles 2009). Another
electric motorcycle company is Mission Motors. They have nearly completed an electric
motorcycle that can go up to 150 MPH. They plan to sell this bike for $69,000. Once this
product hits the market it will be the fastest electric powered vehicle in the world. (Wired 2009)
The RV market has made a lot of their technological advancements in making the new
mobile homes more environmentally friendly. The most talked about ATV and Jet-Ski product
is the Quad-ski, an ATV that can turn from a land cruising 4 wheeler into a jet-ski that can go up
to 50 MPH. They are made by Gibb Technologies which offers a variety of land and water use
products (Gibb Technologies 2009). For boats there is news that a Belgian company with a
patent pending for pleasure motorboats of a hybrid type (Invenia 2008).
Environment
RVs are known for low gas mileage, so they are trying to change their image by going
green. New RVs are “featuring recycled materials, low VOC paints, water and energy efficient
appliances and fixtures, insulated windows and enough solar panels to make the units energy
independent” (Roaming Times 2009). Powerboats and jet-skis are also known for being gas
guzzling luxury items.
Common belief is that motorcycles are efficient forms of transportation that have a minimal
impact on the environmental. This is actually a debatable fact because motorcycles and scooters
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often have worse emissions than cars, even if they get better gas mileage. This is because
motorcycles and scooters have worse pollution control standards, so even though they emit less
CO2, the emissions of more potent greenhouse gases count for more than the CO2 emissions.
The nuanced answer is that 2-wheelers are better than cars in urban areas, and worse in rural or
highway settings. Another factor is that carbon monoxide (CO), nitrous oxides (NOx), and un-
burnt gas have bad human health impacts (Johnston 2009).
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P.E.S.T. Analysis : Harley-Davidson, Inc.
Political
Harley-Davidson faces a favorable political environment in 2009. This year, motorcycles are
added into the economic stimulus package, passed into legislation by the Barack Obama
Administration, that offers tax deductions to buyers. This stimulus allows customers to receive
deductions for their purchases on the 2009 tax returns, which in turn gives buyers an incentive
that might push them from the “on the fence buyer” to customer status (Wachter, 2009).
Another political byproduct that may favor Harley-Davidson is the extensive consumer
protection law passed last summer. “…the regulations have squeezed the brakes on sales of all-
terrain vehicles and small dirt bikes intended for use by children 12 and under. Since the new
rules went into effect Feb. 10, an expensive inventory of them has piled up as shoppers across
the country are turned away without their new rides.” (Cate, 2009). This constricts their
competitors and eliminates a substitute or opportunity cost that may push consumers to spend
more on their “Harleys.”
Furthermore, Coachman Industries, a recreational vehicle manufacturer, has been eliminated

from the New York Stock Exchange. Coachman was a competitor of Harley-Davidson and its
removal may favor HOG stock. The RV industry is not doing well in the political landscape that
faces laws and restrictions.
Economic
An important aspect to keep in mind when analyzing Harley-Davidson’s external economic

environment is the importance of social and environmental preference factors which influence
economic factors. The economic factors regarding the vast variety of recreational vehicles deeply
depends on the consumers social and environmental preferences. For example: a consumer who
lives on a mountain in Colorado is more likely to own a snowmobile, a consumer who lives in
southern Texas more likely to own a Harley, a consumer who lives on a Miami beach a jet ski,
and an environmentally conscious consumer living in Eugene, OR a bicycle with fenders. The
Recreational Vehicle industry encompasses a wide variety of differentiated products, with
specific segments experiencing a variety of growth rates based on economic, geographic and
demographic trends.
According to the Datamonitor report, the Motorcycle Industry segment has had economic growth
for the past three years, and has only recently been experiencing decline. In 2007 it declined
2.3%, yet is forecasted to recover 4.3% by 2012. An economic factor in favor of Harley-
Davidson, despite this decline, is that the U.S. industry generated total revenues of $10.2 billion
in 2007, of which 98.8% were of motorcycles (not scooters, minibikes, etc.). Furthermore, within
the U.S. economy Harley-Davidson holds the majority of motorcycle sales. Therefore, even
while industry growth is declining, Harley-Davidson sales and other motorcycle sales are still
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continuing to increase. See figure 1 for illustration of the motorcycle industry growth versus
sales.
These numbers are unlikely to experience significant change. Because there are only a few
corporations operating within the industry with moderate rivalry, and new entrants are unlikely
due to high barriers to entry, Harley-Davidson will continue to lead in the industry because of its
sustainable advantage of product differentiation.
Outside of the Motorcycle segment, Harley-Davidson continues to perform as a leader. The

company clearly outranks all other major competitors in net sales numbers – $2.4 billion in 2007.
The Recreational Vehicle Market Capitalization statistics report Harley Davidson with $2.4B
Market Cap, Thor INDS INC (Trailers and motor homes) $624.8M, Polaris Industries (ATV,
snowmobiles, and motorcycles) $566M, Winnebago (RVs) $122.9M, and Marine Products Corp.
(Powerboats, cruiser boats) $122.5M. (Yahoo.Finance, 2009).
As previously mention, Coachman Industries has been eliminated from the New York Stock
Exchange. Economically, this illustrates how the RV industry is not doing well. The Motorcycle
Industry Council reveals that while the motorcycle segment is economically declining, it does
not face such as steep decline as other leisure product industries. The Motorcycle Industry
Council reveals that all categories of motorcycles experienced sales drops in 2008, but scooters
jumped 41.5 percent and dual purposes leaped 22.8 percent. MIC president Tim Buche says,
"Overall, motorcycle sales were down 7.2 percent, not nearly as sharp a decline as many other
consumer products in today's economy." (Wasef, 2009)
Social
As previously mentioned, social factors play a large role in the external industry in which
Harley-Davidson operates. While buyer power is weakened due to large product differentiation,
most loyal customers to Harley-Davidson has a defined lifestyle-brand image that characterizes
its buyers. Even with moderate switching costs, buyers are not likely to switch to substitutes
because of these social factors. Other competitors such as Yamaha, Winnebago, and Honda
Manufacturers such as Honda offer competitive but different lifestyles which define the buyer. In
this way competition is weakened due to differences in lifestyle and strong brand loyalty.
This loyalty is indicated in the increasing average age of Harley-Davidson consumers. Harley-
Davidson’s average buying age is 42 years old and increasing (Gauvin, 2005). Harley-Davidson
is aiming to increase its consumer demographics, however, “…although the younger generation
below 35 years of age has posted the largest gains in ownership, the generation that is on the
edge of baby boomer segment will be the main catalyst of growth for the industry.” (Koncept,
2007).
Another noteworthy increase is that of the female consumer which has risen to 10% of all
motorcycle operators. 4.3 million of the 23.5 million people in the United States who operate a
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motorcycle are female. And the number is even higher among buyers of new motorcycles,
ranging up to 23% for both Kawasaki and Harley-Davidson. This social trend plays in favor of
Harley-Davidson’s market share.
However, there are still unfavorable social factors that have influence on Harley-Davidson’s
bottom line. There is the social belief that motorcycles are dangerous. Due to the increased rate
of motorcycle licensing, fatalities and crashes have drastically risen as well which help to
illustrate the dangers in the public eye. This has provoked many riders to take safety courses and
such and may deter them from buying the product. Harley-Davidson does have a competitive
advantage though in this area, in that its motorcycles are considered “cruisers” and not dangerous
“speed bikes.” (Marshall, 2007)
Technological
Harley-Davidson’s competitors are all in continuous processes of innovation in order to remain

competitive within the market. Motor homes manufacturers are developing more advanced home
appliances and entertainment consoles such as satellite television. Snowmobiles are becoming
greener: “[t]he big development in snowmobile technology, in the wake of the controversy over
banning snowmobiles from National Parks, due to emission problems, has been the production of
4-stroke snowmobiles.” (Aksomitis, 2002) Also, some are even combining as seen with Gibbs
Technologies Ltd, the world’s only High Speed Amphibian technology specialist, who “unveiled
a prototype of the first commercially viable high-speed amphibian Quadbike/All Terrain
Vehicle” also known as the “quadski” (Boop, 2006).
In order to keep up within the industry, Motorcycles companies are introducing their own
innovative technologies. Honda is now featuring six new engine models, with the new V-Twin
engine line offering customers more power, versatility and greater fuel economy in a more
compact package (Automotive Review, 2009). Vectrix, a newer competitor, is following the
electric transportation device trend and now offers an electric powered motorcycle that can reach
speeds of up to 65 miles per hour (Delozier, 2007).
“With recent improvements in battery technology, companies are now producing electric-cycles.
They carry the same qualities and benefits of an electric car, but can they deliver the same
exhilaration and sense of freedom we are used to?” Harley-Davidson consumers say no. They
like the loud HOG experience of the custom, heavyweight cruiser. (Delozier, 2007)
Surprisingly, Harley-Davidson and other Motorcycle manufacturers do not take advantage of the
technology currently in use that grants their bikes more economical gas mileage. With new
technologies emerging for optimal engine performance, this may be a strategy that Harley-
Davidson should meld into their motorcycles. “MAST, Inc. has developed an oil sensor device to
provide simple, easy-to-use monitoring of the basic properties of engine oil, and allow vehicle
owners to change the oil at intervals that optimize engine performance” (Mircromem, 2009). One
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reason for this oversight may be that “only Suzuki and Harley-Davidson provide fuel economy
numbers to the public. Part of the reasoning behind that is the lack of a standard test procedure
for measuring motorcycle fuel economy. Motorcycle manufacturers, after all, are not required to
calculate fuel data like auto manufacturers are. Plus the motorcycle fuel economy could be
controversial because of the vastly different way riders get from here to there. After all, there is
no device that measures how much throttle each rider uses and how that affects their individual
gas mileage.” (Pascale, 2006) In comparison to substitutes, Harley-Davidson has the technical
advantage of low fuel economy.
Another new technology that Harley-Davidson and other competitors may want to take
advantage of is developing anti-lock brake systems. “Antilock brakes could help motorcycle
riders avoid fatal crashes, according to a study by the insurance industry.”
Summary of the P.E.S.T. Analysis
Harley-Davidson faces a favorable political environment in 2009 due to the Economic Stimulus
Package that gives tax breaks to Motorcycle consumers. Even though the market is facing an
economic recession this year and the Recreational Vehicle is experiencing a decline, Motorcycle
sales are holding relatively steady when compared to their substitutes. This may be due to the
social aspect of the industry which relies on strong brand loyalty and other lifestyle factors.
Socially, Harley-Davidson has an edge on the competition because of its customer base and other
demographic trends, such as the increase in female operators. Technologically, Harley-Davidson
needs to take advantage of emerging devices that will increase its sustainable position within the
industry and help it keep up with the competition.
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Figure 1
1
a
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Industry Value Chain Analysis
Raw Materials
Industrial Mine  Steel, Aluminum, Glass, Copper Manufacturers
These companies, located all over the worlds, extract base minerals and metals from the earth
then ship them to refineries and companies that process the materials into sheets of metal or bars
of metal. These finished products are then shipped to base components manufacturers. The
industry capitalizes around 265 Billion dollars in revenues each year with a profit margin of
18.2%. An example of a company is US Steel, who produces most of the metal and subsequently
ships it further upstream.
Chemical Manufacturers
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These companies produce base chemicals that go into manufacturing almost all base components
created. Located around the world, they ship large quantities of chemicals that are crucial to the
manufacturing processes across the value chain.
Animal Farms  Leather Manufacturers
Leather and other animal based skin products are treated with chemicals after being removed
from the animal. These raw materials are then shipped up the value stream to manufacturers who
produce upholstery and other leather components such as the seats on HD motorcycles.
Textile RM Farms  Cloth Manufacturers
After being harvested, skeins of thread or yarn are produced and possibly mixed with other
chemically formed threads such as polyester. The material is then shipped to manufacturers
further up the value chain.
Rubber Plantation  Rubber Manufacturer
After being extracted from trees and chemically altered, rubber is shipped in sheets to companies
to melt it down to produce rubber products.
Glass Manufacturers
Chemicals and Silica are combined and formed into panes of glass, then shipped to respective
manufacturers who use them to form other part components.
Base Components
Engine and Transmission Manufacturers
These manufacturers take steel, chemicals, aluminum and other raw materials and form them
into components that are then assembled into engines and transmissions. Manufacturing plants
normally produces kits to be put together during final assembly, or finished products to be
shipped to the vehicle manufacturer.
Electrical Components
Wiring and other components are produced from copper and rubber and are then assembled into
electronic wiring and either shipped further up the value chain or assembled into product
components.
Tires
Made from melted down rubber and manufactured by companies such as Michelin, Dunlop, and
Goodyear, these are either shipped to final assembly plants, dealerships, or other distribution
centers to be put onto assemble products either before or after market.
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Wheels
Made of either aluminum or steel, designed in a variety of ways, this product is formed and then
shipped through the same distribution channels as tires.
Upholstery
Made from either leather or cloth textiles, formed into seats, cushions, curtains or other
upholstery and embroidered to match product specifications, then shipped through the same
distribution channels tires and wheels.
Body Parts
Made from steel, fiberglass, glass or aluminum these are molded and smelted into various shapes
and sizes built to specifications developed by R&D divisions of respective companies and
shipped to order.
Other
Other components include paint and chroming, appliances, light bulbs, and anything else that
doesn’t fall underneath any of the main base components categories. These are made from a
variety of the raw materials mentioned and shipped through mentioned distribution channels.
Operations and Manufacturing

Technological & Aesthetic Design
Research and Development departments create new product specifications and communicate
these needs to manufacturers.
Final Assembly
All required parts and components are gathered an assembled into finished products according to
each models specifications. These are then packaged and shipped to points of sale locations.
Logistics and Distribution (Inbound & Outbound)

Distribution Companies
Raw materials, base components and finished products all need to move from finished
production points on to the next stage of the value chain. For this, most manufacturers either
have a private fleet for transporting materials or outsource with a company such as UPS. Once
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the product is fully assembled at a given location, it is loaded onto trucks, ships, and rail
containers and then transported throughout various logistics channels to the dealer networks.
Transportation Networks & Contracts
Most companies aim to organize transportation networks in order to minimize costs and lead
times, while maximizing units moved. Some manufacturers own their transportation systems,
while others have contracts with outside firms. These vary based on product size, amount, and
location.
Sales and Marketing

Company Owned Dealerships
Sell company-manufactured products to customers and communicate demand in real time in

order to accommodate a “Just-in-Time” inventory system.
Individually Owned Dealerships
Sell multiple products manufactured by a variety of companies, not brand-specific and often
offer more diverse product options. Receive products from a variety of different distribution
channels.
Internet Procurement
Some manufacturers allow for the direct purchase of their products using the manufacturer to
consumer direct distribution model. Consumers can specify their desired options with this
approach, for a more personalized item.
Service and Aftermarket

Warranties, Other Services –Company Owned
Most manufacturers offer limited warranties on their products. Some services are provided by the
manufacturer itself, while others are outsourced to various service providers.
Repair and Maintenance – Privately owned
Some dealers offer in-house protection plans that the consumer can purchase at will. These plans
go above and beyond what the manufacturer offers for a warranty. Another aspect of this
segment is the group of private repair shops who service the products at retail prices.
Aftermarket Dealers
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This group consists of the large network of companies who offer both original replacement parts
and custom privately-made parts. These dealers offer products through various distribution
channels, including brick and mortar stores and the internet.
Breakdown of Profit and Market Capitalization –See Figure 1.2

Based off of the breakdown of industry share, market capitalization and profit margin, the most
profitable segment contributing to the Recreational Vehicle Industry Value Chain industry is
distribution and mining according to the numbers. Furthermore, internet providers are also
creating enormous profit revenues and have high profit margins. Most companies participate in
multiple stages of the value chain, and try to diversify vertically in order to cut costs. It is also
important for companies to maintain excellent relationships and have strong communication with
their suppliers in order to be competitively lean and create value either by a low-cost strategy or
product differentiation.
Core competencies of the industry are in the logistics management, JIT or customized production
and new product development. Most value is created in these segments. Value in new product
development that is created is difficult to imitate in a quick manner in order to get the new
product to customers. Logistics networks involve vast capital investments and are difficult to
organize and keep track of, and production techniques take large technological investments and
are costly to implement. However, once a company has control of one of these value creating
aspects, the company has a sustainably competitive advantage over rivals.
22
Figure 1.2 – Breakdown Of Industry Share and Revenues (Yahoo.Finance)
23
24
Figure 1.3 – VRIO Analysis
25
Harley-Davidson, Inc. Value Chain Analysis
Prepared by Elise Boldt
Resources - Tangible
Financial Resources
While HD has been slammed over the past few months by credit and liquidity issues due to
receding economy, they have just announced that they have received an extension on a $500
million dollar loan it received from a group of lenders. Previously, HD stated that it would need
an additional “$1.0 billion on top of the $500.0 million credit facility to make it through 2009.”
(Ackerman, 2009)
HD’s net income decreased by almost $300 in 2008, down to $654,718,000 from $933,843,000.
While the company is still making a 10% profit margin on final sales, and has an operating
margin of around 17%, the company has a negative operating cash flow of around -$685 million,
meaning HD is still in need of greater debt leverage. The company is continuing to search for
ways to manage and preserve cash flow, one of the methods taken being a decrease in dividends
paid to stockholders.
HD’s current ratio is 2.065, and their debt to equity ratio is 1.028. While the company is in a
hard place for cash, they may still be able to take out more short or long term debt in order to
continue financing operations.
“Over the long-term, the Company expects that its business model will continue to generate cash
that will allow it to invest in the business, fund future growth opportunities and return value to
(1)
shareholders. At the same time, the Company recognizes that the recent disruption in the global
capital markets has impacted its ability to access funding sources historically utilized to support
the operation of its Financial Services business. During 2008, the Company funded its Financial
Services operations with unsecured debt, unsecured commercial paper, an asset-backed
commercial paper conduit facility, a committed unsecured bank credit facility and a term asset-
backed securitization.” (10K, 2008)
HD is managing its cash flow with long-term goals, as is visible in the statement of cash flows
from 2008 that show cash and cash equivalents as increasing over the past three years – up to
593K at the end of 2008. (Ibid.)
Organizational Resources
HD has a formal structure that works for the company: decentralized, expert teams and
leadership circles that value employee input. Programs they use to plan, report and track
inventory and production include their SMS, Vibration Tech & PdM technology systems, as well
as their web-based HD Distribution supplier network that provides vendors with a wealth of
information about supply and demand within the company.
Physical Resources
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The “Harley Triangle” provides a basis for tracking and monitoring the firm’s physical
resources. Location and Sophistication of management and the expertise of manufacturing
personnel and other employees are key in accessing raw materials, procurement and upkeep
related to manufacturing equipment. HD plants are streamlined and well-maintained, which is a
core resource for HD.
Actual physical value is based on historical cost principal. For inventory and PP&E values, see
Figure 2.2. HD total physical assets net worth is $1,495,395.
Technological Resources
Harley-Davidson has many technological resources: including many different brand name
Patents, Trademarks, and Copyrights which protect its reputation and image.
Resources – Intangible
Human Resources/Capital
Trust, Knowledge, Managerial capabilities, as well as organizational culture are HD’s key, most
valuable human resources. The company culture, as previously discussed, gives HD a major
competitive advantage. Employees and suppliers know their input is valued and take pride in
their work. People involved are passionate about the brand and this adds invisible value to the
company.
Innovation Resources
Employee and supplier, as well as management’s ideas are huge resources for HD, as these
people know the business and know its potential. Since there are such a variety of inputs, HD’s
capacity to innovate and create/develop new product is not subject to stagnation or groupthink.
However, HD does try to stay true to its niche market, and this creates some boundaries for
innovative ideas.
Reputational Resources
Reputation with customers, brand name, perceptions of product, and reputation with suppliers
are all very beneficial to HD’s operations, and keep customers loyal to the product. Interactions
and relationships are stressed at HD in order to ensure quality workmanship and mutually
beneficial participation in all stages of production.
Capabilities
Purposely Integrated Technological Resources
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HD ensures that all processes and activities throughout its value chain are integrated using web
based SMS systems, barcodes, and reports that enable its JIT inventory flow. This allows
production to flow smoothly.
Foundations – unique skills and knowledge of firm’s employees and functional expertise
HD also ensures that its employees are trained for all aspects of their job, integrating employee
knowledge in order to ease smooth flow, repairs and transitions. These employees are passionate
about their jobs, and transfer that passion into their work in a functional, professional manner.
HD empowers their employees, and in turn HD employees add value to the company.
Manufacturing
HD’s JIT inventory pull system means that it must have streamlined manufacturing abilities. HD
does this by ensuring quality inputs into its manufacturing plants, flow production methods, and
well-maintained equipment. HD manufacturing plants are capable of producing many different
models and base their inventory off of customer pull demand, reducing costs around the board as
well as inventory finished products that sit unsold in warehouses (of which HD has very few).
Distribution
JIT inventory management needs good transportation flow logistics. HD has the capability to
reduce lead times and ensure pull delivery through its private fleet of trucks and contracts with
distribution suppliers such as UPS.
Primary Activities
Inbound Logistics
Harley-Davidson’s inbound logistics revolve around quality, cost, timing and technology (Staff,
2003). To actively pursue each of these goals, Harley-Davidson has developed a supply
management strategy that provides roadmap guidelines and objectives for organizing its inbound
materials. Specifically focusing on purchasing and the acquiring of raw materials and pre-
manufactured items such as tires, Harley-Davidson has organized its inbound logistics into four
main categories that allow it to focus on specific areas which add value to the inbound logistics
segment of the value stream. These four main categories of management include General
Merchandise, Maintenance, Repair, and Operating, Original Equipment, and Parts & Accessories
and will be discussed in more depth later in the support activities section (Purchasing, 1999).
Along these same lines, Harley-Davidson relies heavily on its mutually advantageous
relationships -managed by one of the four categories- with key suppliers to organize and add
value to its just-in-time inventory pull logistics.
Harley-Davidson uses a Supply Management Strategies system, integrated and organized by

each management category, to effectively and efficiently organize its inbound logistics.
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Specifically focusing on purchasing, SMS clearly connects the suppliers, shareholders, and
company management together in a common goal that aims for efficiency and effectiveness in
order to meet just-in-time quality specifications and requirements. A crucial aspect to HD’s
inbound logistics is that suppliers understand their commitment to ship quality raw materials and
other input to Harley-Davidson. This commitment cuts down on the inbound prevention and
assessment costs, as well as any unnecessary input into the system, and ensures that the quality
of materials headed into production meet specifications and demand (Purchasing, 1999). This
integrated, strategic input system allows HD to manage inbound logistics in an efficient and
effective way that cuts down on miscommunication and unnecessary ordering.
Along with integrated input, HD creates value for the customer through inbound logistics by
using quality materials that arrive when needed; which lowers carrying costs and increases flow.
They have developed a barcode system to complement the trigger system in order to keep track
of inventory. This trigger system uses an EAGE barcode system developed especially for HD to
track the movement of materials. This barcode system has allowed HD to create off-site
"Material Velocity Centers" that replace in-factory receiving areas. They move simultaneously to
centralize parts supplies, improve logistics, free up valuable factory floor space and create a
more efficient, integrated supply chain and manufacturing operation.
HD uses a web-based approach for managing inbound logistics. HD has developed software that
allows suppliers to access to daily production schedules and production status via the company’s
Web site. “[They] feel that using trigger inventory replenishment systems represents the future:
rather than push, [they] pull inventory into the plant, where items are actually re-ordered at the
point of use on the shop floor based on a signal sent from our computer to the supplier.”
(Zimdars, 2000) This forward look is a move towards complete process integration that allows
HD to measure quality, cost, timing, technology, supplier responsiveness to corrective action,
and capacity planning capabilities. Now suppliers can access a wealth of information related to
shipping and demand, as well as view tech tips, bulletins and other resources using the Harley-
Davidson Supplier Network.
HD receives parts from mainly domestic sources and processes them through a Material Velocity
distribution center in Franklin, WI. This center is responsible for receiving, recording, packaging
and other aspects of both inbound and outbound logistics that are triggered through the
information management system. The center makes sure sources arrive as quickly as possible to
manufacturing plants so that HD incurs as small of raw material carrying costs as possible.
For shipping in and out, Harley-Davidson has a both a private fleet of delivery vehicles and a
contract with UPS Supply Chain Solutions. Currently, about 75% of inbound materials are
carried by the private fleet, with the other 25% delivered by commercial carriers –specifically
UPS (Hannon, 2003).
“Using historic data from the suppliers, the analysts calculated optimal shipping frequencies for
each of the suppliers, enabling the company to reduce the rate of regular inbound shipments to
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three times a week, while also giving the manufacturing plant faster access to larger stocks of
parts.
UPS Supply Chain Solutions is gradually optimizing the entire Harley-Davidson inbound
transportation network, by calculating optimal ship frequencies for all the suppliers and
identifying cross-docking opportunities at the other manufacturing facilities. As a result, Harley-
Davidson Motor Company is gaining efficiencies throughout its manufacturing operations, while
reducing its transportation costs.
The comprehensive solution also added value to Harley-Davidson’s shipments of parts and
accessories to dealerships. In the previous system, Harley-Davidson shipped parts and accessories
to its distribution center in Wisconsin where parts were stocked, picked and packed to fill
orders.The orders were delivered by less-than-truckload to dealerships around the country.
Leveraging its delivery network, UPS will begin shipping orders of less than 1,000 pounds
directly to the Harley-Davidson dealerships. Orders of more than 1,000 pounds will be delivered
to a UPS Supply Chain Solutions cross-docking facility in Wisconsin where they will be loaded
onto pallets the same day and shipped by less-than-truckload. As a result, Harley-Davidson
expects to further reduce its transportation costs and speed up average delivery times.” (UPS,
2005)
Domestic origins are important to HD’s inbound logistics as this allows a quicker and lower cost
shipping system. The four categories that monitor inbound logistics source domestically and try
to only draw on global resources when appropriate. Because of the domestic origins, inbound
logistics management, and shipping contract with UPS, HD is able to operate under the pull
system of just-in-time product demand and ensure quality and timely raw material supplies to
manufacturing operations. “At Harley-Davidson we need to think of the customer when sourcing
parts. The customer wants the Harley-Davidson® brand with American production and domestic
content (Board of Regents, 2007).”
As illustrated in Figure 2.1, HD motorcycle manufacturing facilities receive tires from New
York, wheels from either Australia, China or domestically, pistons, seats and PowerTrains
(engine and transmission) from Wisconsin, engine control modules from the Midwest, shocks
from Japan (which are assembled in Ohio then shipped to one of HD’s manufacturing plants in
Pennsylvania), and wiring from North Dakota, Pennsylvania and Mexico. (Ibid)
HD receives its tires from Dunlop, located in New York, who has created a unique Dunlop
Harley-Davidson Tire Series. They offer four different tires in varieties that fit different bike
models. They view their relationship with HD as growing stronger over the years, and view it as
a mark of confidence in their tire quality. (Dunlop, 2008) They also have a relationship with
Michelin as an official supplier of their replacement tires (RidersWest, 2007).
Operations
For HD, process drives quality. This means that HD works in all stages “… to design [and
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manufacture] quality into the products we develop.” (Zimdars, 2000). They do this through a
concurrent pride methodology, which is detailed and exceedingly specific for both product
development and the input that they get on design from engineers, manufacturing people, and
suppliers. All levels the organization give input in the early stages, and everyone effectively
designs products together. (Zimdars, 2000). When it comes to manufacturing, HD makes a
quality product that is demanded by its customers and profitable for its shareholders.
When a customer orders a Harley, the order triggers the just-in-time flow process which HD uses
to produce its motorcycles. In order to have a continuously updating, real-time manufacturing
schedule HD uses use bar codes and electronic trigger systems for replenishing materials and
ordering the inbound raw materials it needs to keep continuous flow. In many cases their
suppliers get a planning schedule, but it is more common that the materials are actually pulled
from the suppliers’ facilities into HD’s by means of the trigger system. HD has a whole range of
electronic resources such as funds transfers, Purchase Orders, and scheduling that keep its
operations running smoothly.
Pistons, seats and PowerTrains are manufactured at HD owned Powertrain Manufacturing plants
for final assembly. The inbound logistics for the raw materials that go into making these parts are
direct results of the JIT pull, and are triggered only when materials are needed.
Engine control modules are also manufactured by a HD owned plant located in Menomonee
Falls, WI. Known as the “PowerTrain Operations-Pilgrim Road” and the “Home of the Big Twin,”
this plant produces engines and transmissions for the final assembly plants in York,
Pennsylvania, Kansas City, Missouri and for the Parts & Accessories Division in Franklin,
Wisconsin. Powertrains for Touring, Softail and Dyna motorcycles are produced here. (Harley-
Davidson USA, 2009) Parts used to produce engines and transmission and shipped directly to the
PowerTrain plants from Sputhe Engineering, one of HD’s suppliers (Sputhe, 2009).
Other original manufacturing components that go into final assembly are the fiberglass body
parts produced by Tomahawk Operations.
“Tomahawk Operations –owned by HD- is the sole supplier and manufacturer of the fiberglass
parts including sidecar bodies, saddlebags and windshields. This “Kaphaem Road” facility
produces windshields, both assembled and non-assembled. Diversified Products, also located at
the Kaphaem Road facility, includes sidecar production, Genuine Motor Parts & Accessories
production and custom painting. Tomahawk’s Somo Avenue facility paints, assembles and ships
plastic and fiberglass components to the York Vehicle Operations facility for assembly on
Original Equipment (OE) motorcycles.” (Ibid.)
These orders arrive for final assembly at two different vehicle operation plants located in either
York, PA, or Kansas City, MI. Here they are introduced into a flow system process.
It is all about predictability and flow for HD. Good organization and visible expectations in
manufacturing are a fundamental part of HD’s operations. "From Harley's perspective, if you
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really want to hit a home run, it's your background processes - the enhancement work - that make
a difference. It's not as exciting. It's not as visible for others to see. But, this is what saves you
time, effort and money (Arnold, 2007)." At the operations level, HD focuses on detail and root
causes, team concepts, communication and technology from both the back- and fore-ground
perspective. In other words, “No bottlenecks. No breakdowns. No downtime.” (Ibid.)
An example of one of the background processes is plant maintenance. The web system in place
at HD that keeps track of barcodes also allows for tool management tracking. Because HD uses a
wide range of steel-die processes for everything from high-pressure die-casting to permanent
molds and stampings, they need to know where tools are and how to replenish them in order to
keep the factories running at optimum capacity. Through tool management tracking, HD can
decrease internal costs of errors, repairs, and the time it takes to rectify the consequential
problems of each.
Another way HD realizes their perspective on operations is by having the right people in the
right positions. A plant manager at one of their Power Train manufacturing facilities says, “We
found that by utilizing our own people, we could be more effective at monitoring and staying on
top of equipment issues… These people provide skills and consistency to this effort. The bottom
line is time savings, in-house expertise, overall cost savings and increased machine uptime.”
(Arnold, 2007).
Dedicated assembly line teams assemble the motorcycles from start to finish, raising team
knowledge with all contributing to the custom feel of the motorcycle. Additionally, since Harley-
Davidson concentrates on assembly setup and computer systems for information and inventory
management to shift production from a push to pull format, employees have raw materials when
they need them. Furthermore, employees are equipped with the necessary tools to fix problems
before they happen. (Rajagopal, 2004)
Harley-Davidson has many programs in place to maximize communication, monitor

consumption of materials and sustainable waste removal, and utilize the expertise of its
employees. PdM Technology and Vibration Analysis are only two of the many programs in place
to create value in-house and allow for continuous flow of product through each stage of
production. This “intelligent maintenance” increases inventory turnover and decreases associated
costs, in turn creating bottom-line value for HD. All in all, this has improved the firm’s
production speed, quality, and inventory turnover. In plant maintenance and personnel, HD is a
front-runner.
Outbound Logistics
The “Material Velocity Centers” and UPS shipping contract previously mentioned are relevant
for HD’s outbound logistics as well. HD can ensure timely delivery of quality finished products
and control the costs incurred in their delivery by shipping it’s product in JIT batches throughout
the “Harley Triangle.”
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The Harley Triangle consists of PowerTrains manufacturing plants, headquarters, and final
assembly plants, and has created a triangular transportation network between Kansas City,
Milwaukee, and York, Pa (Hannon, 2003). Shipments between the three and the material
velocity centers help HD control costs and quality, and ensure timeliness of the deliveries the
make JIT inventory production possible. While 75% of inbound materials are carried by HD’s
private fleet, the opposite is true for outbound products with 80% of shipments being outsourced.
Using both shipping methods, HD can focus on cost and quality in different ways
depending on the flow of product.
“In addition to the higher quality standards, leveraging the private fleet allows Harley to better
manage the consolidation from LTL to truckload and backhaul opportunities and combine inbound
and outbound shipments. For example, a Harley truck may deliver completed motorcycles to a
location and work its way to the closest supplier to pick up freight and then head back to the
closest MVC to get it in the Triangle. Getting a commercial carrier to handle that type of shipment
is much more complicated because it may mean crossing contracted routes or even crossing
modes. On the outbound side, Harley is working to convert as much LTL freight to truckload as
possible and move finished product to market quicker. To drive this effort, third-party provider
Eagle Global Logistics was called in to handle outbound sequencing and planning.” (Hannon,
2003)
This strategy has allowed HD to decrease its shipping time from around a week to next- or
second-day delivery. It has also reduced damage sustained in transport because the products are
only handled twice: once by the factory in loading the truck and once when taken off the truck by
the dealer. HD now has a cost-effective mode of transportation, and the costs associated with
shipping are reliable and no longer subject to cost fluctuations. (Ibid)
When shipping to company-owned subsidiaries in Brazil, Japan, Europe, Italy, Australia,

Turkey, Korea and Russia, HD aims for transportation methods that decrease lead time and
effectively get the product to the dealership with as little handling as possible.
Since HD streamlined its transportation methods with a strong transportation network, it has also
found a way to give its suppliers access to shipping information. This allows for more accurate
inbound logistics since suppliers have streamlined means of accessing information about demand
and other data that relates to raw material shipment needs.
The company ships to independent retailers in different regions using outbound logistics that aim
for timely delivery of JIT orders and low cost management of the associated shipping costs.
These shipments are packaged in returnable containers, which required significant investment
costs but are now yielding a great return on investment. Because HD uses a JIT inventory
system, fewer containers are needed and the turnaround time for container use is extremely quick
– reducing materials needed to ship finished goods and eliminating the waste associated with
non-reusable, outdated packaging methods. As long as HD manages to keep track of its
containers using the same barcode tracking system, this strategy helps reduce waste in outbound
logistics.
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HD is continually searching to perfect its logistics. “[The company is] looking at developing a
transportation management system that will let [them] view freight activity on an enterprise-wide
basis, including inbound, outbound, between plants to help [them] develop an optimal solution…
(Ibid).” In order to remain competitive, the outbound logistic distribution channels must be
developed to be as close to the end user as possible in order to reduce lead times for finished
products. By using material velocity centers, a private and commercial fleet, and reusable
containers, HD is working towards lean enterprise functions that will allow it to remain
competitive within its market.
Marketing and Sales
HD gives its customers a reason to belong. Its products are sold for their lifestyle implications,
their quality and their merits. With the use of almost no advertising, HD relies on its strong brand
recognition to market its product. HD has followed a non-traditional route through history and
focused on its product and the lifestyle that comes with owning a Harley, as opposed to forcing
the product on consumers. When someone enters a dealership to buy a Harley, they are offered
multiple options and variations per product, and can customize their order to be a one-of-a-kind.
Once HD has the attention of a consumer, they keep that person enthralled with the brand
through complementary product sales and aim to keep them a Hog Rider for life.
HD’s strategies include “a clearly defined marketing plan to the goal of capitalizing on the
company's special place in American pop culture, including its retro look (Rifkin, 1997).” The
company spends very little on external advertising –as little as $1,000,000 of a total marketing
budget of 20 million- and instead relies on strong brand recognition and the lifestyle hook to
bring customers into its dealerships and retailers. To HD, a motorcycle is not just hardware but is
a commitment and an emotional attachment. Viewed in this light, sales and reputation are what
the company focuses its marketing strategies upon.
“There's something alluring about being part of an industry that survives not because it has to but
because consumers want it to (Pascale, 2006).” At the marketing and sales level, retailers make
more money from service and the sales of parts and accessories than from sales of the
motorcycles, which explains the lifestyle hook and miniscule need for advertisement. HD
relationships are long, deep and symbiotic. Harley understands that the dealer is the customer's
conduit to the company and is the most crucial aspect of what adds value to the product. It is all
about the customer for Harley-Davidson at this level of the value stream. It is noteworthy that,
for many Harley owners, the local dealership is a second home, a gathering place where they are
not encountering a pushy salesman, but instead a friend that has the same passion as the
customer for the lifestyle that HD embodies. (Rifkin, 2006)
HD sells its product at more than 1,300 Harley-Davidson dealerships in 60 countries worldwide,
and each is more than just a place to buy motorcycles. These full-service Harley-Davidson
dealerships “offer all the new motorcycles, parts and accessories, MotorClothes products, other
34
merchandise and service. In addition, satellite stores located in shopping malls and other high-
traffic locations offer added convenience to anyone in search of Harley-Davidson gear and
collectibles (Investor, 2008).” The spacing of these stores is strategic and spread apart, placed on
main highways and with high visibility. The wide-spread nature of dealerships decreases the
likeliness of cannibalization factors, but also aims to maximize accessibility to Harley customers
traveling on their bikes.
Service
HD Dealer Systems deals with most service needs for customers and dealerships. The wholly-
owned subsidiary “provides software, hardware, training and customer support to meet the needs
of domestic Harley-Davidson dealers (HD USA, 2009).” They also provide “dedicated technical
and software phone support for customers, including after-hours support for high-severity issues
(Ibid.).”
HD continues their online support system in the service aspect of their value chain. “The HDDS
Dealer Management System (DMS) provides functionalities in point-of-sale, accounting, service
scheduling, inventory management, vehicle registration and vehicle warranties, among others.
[Also,] the new TALONes system uses the latest Microsoft technology to leverage efficiency and
future growth. (Ibid.)”
Another aspect of service are training sessions offered for dealers by HDDS. They have the
opportunity to attend training sessions on location in Cleveland or via the internet.
Finally, HD offers extended service warranties, as well as the option to purchase detailed service
manuals for specific models, and a customer service hotline. The dealerships are always places
where a customer can bring their motorcycle for repairs and service, however this area of the
value chain is not a main focus of the company as there are many competitors that can service
the bikes in a more sustainably competitive manner.
Secondary Activities
Firm Infrastructure
HD is mainly a decentralized, flat organization that encourages empowering its customers,

employees and suppliers. Its circles of leadership structure and open door policy encourage direct
input from everyone involved in the making of their product. HD’s Investor Background packet
describes the firm’s infrastructure as maximizing involvement:
“In order to maximize employee involvement, traditional hierarchy and layers of management
have been minimized, and an “open door” policy extends throughout the Company, all the way to
the C.E.O.’s office. Easy access to senior management speaks volumes about our belief that every
employee is expected to communicate and contribute his or her thoughts. Employees aren’t
allowed to check their brains at the door or avoid responsibility or accountability. In fact they are
expected to take the initiative to identify problems and solve them.
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In the late 1980s we created the Harley-Davidson Business Process with the goal of better aligning
employees’ contributions with the Company’s goals. The idea is for the Company to share its
vision so that all of our people can put their efforts into working in the same direction.
To make that possible, salaried and unionized employees are full participants in many key
business decisions at Harley-Davidson. Through our unique Partnering Agreement, important
studies are conducted and decisions are determined jointly between company management and
leaders of our two unions, the International Association of Machinists (IAM) and the Paper,
Allied-Industrial, Chemical and Energy Workers (PACE.) We believe Partnering is one of the
ways we can benefit from the thinking of all our employees, and we know that employee
involvement has been an enabler of our success. We also recognize the contributions of our
employees in a number of ways, including a bonus plan tied to the Company’s performance.”
(Investor, 2008)
HD uses circles of leadership to organize management activities. “Circle leaders jointly manage
their respective circle business and develop strategy. No single individual is the circle leader.
Rather, the leadership role of each circle moves to different members based on the issue being
addressed (Ibid.). In this way, HD seeks to maximize input and decrease idea stagnation or lack
of knowledge.
Human Resources Management
“At Harley, the organization chart is a circle -- three overlapping circles, to be more accurate: a
Create Demand Circle, a Produce Products Circle, a Support Circle, and in the center where the
three circles intersect, a Leadership and Strategy Council. (Imperato, 2007)” This circle guides,
organizes and manages all subsequent HR activities.
As for compensation, HD has a Human Resources Charter Committee, whose purpose is to

review overall compensation plans, both for executives and employees in the company and all of
its subsidiaries and affiliates. This committee also “reviews in conjunction with the CEO the
career development and management succession plans for the Company … [and] makes
recommendations to the Board regarding the selection and retention of officers of the Company
(Harley-Davidson Co., 2008).”
Another major HR organizational management initiative for HD is their Accenture Human

Capital Development Framework. This initiative aims “to assess its human resources processes
and then prioritize the human capital investments needed to support its quest for high
performance (Accenture, 2007).” This framework was put in to place in order to align HD’s
business goals and its culture. It provides insights not only into what needs to be fixed from a
management and structural perspective, but integrates employee and leader input from a
continuous stream of feedback in an attempt to illuminate strengths and weaknesses from the
bottom up.
HD is committed to employee retention, as are its dealerships. The training sessions offered by
the corporation are open to all employees, and HD firmly believes in educating its people in
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order to have them understand and take pride in their job. Not only does HD care about its
employees but works with their unions to ensure pride in workmanship.
“In 1994, the company CEO met with the presidents of the major unions representing their
workers—the International Association of Machinists and Aerospace Workers and the former
United Paperworkers International Union.1 The company and its union representatives agreed to
collaborate and establish a High Performance Work Organization partnership. As part of the
partnership, employees and management make consensus decisions that keep the company
competitive and find efficient methods to produce high-quality products without compromising
production levels, job security, or working conditions. An outcome of this agreement is a
commitment to partnership extending to each and every employee.” (AmericanRights, 2009)
Research and Technological Development
HD does not conduct extensive research and development. The company mainly relies on its
employees and suppliers to produces ideas and develop products (Milligan, 2000). Currently,
there are no dedicated research centers currently in existence that focus on motorcycle
improvements etc… only ones that focus on new product development. However, there is a
possibility that HD will “add a research and development center in a neighborhood shopping
center next to the motorcycle company's Milwaukee headquarters (Alvin, 2008).”
HD focuses on product development at their Product Development Center based in Wauwatosa,

WI.
“The PDC was built to bring together the Original Equipment (OE) Engineering, Styling and
Developmental Purchasing groups in a centralized location to improve the product development
process. The functions represented within the PDC include Styling, Engineering, Finance,
Manufacturing, Information Services, Product Liability, Purchasing, Marketing, Homologation,
Sales, Service and key suppliers. The employees located at the PDC are responsible for new
product development, testing, styling and developmental purchasing.” (HD USA, 2009)
Product Development is crucial in today’s market to ensure that customers are receiving
quality and variety. While HD can rely on strong brand recognition, they continue to
increase their share in the market by constantly producing new models or improvements,
as well as increased options for customization. “Harley-Davidson is now differentiated on
the bases of superior quality, excellent service, and responsiveness to customers' product
desires (Entrepreneur, 1999).”
Procurement
HD’s strongest secondary activity is procurement. The company’s strong relationships with
suppliers and excellent Supply Management Strategies allow them to efficiently and effectively
attract new suppliers and build upon existing supplier relationships. As previously discussed,
HD’s SMS system has four categories of support management circles with whom suppliers and
other vendors deal with: General Merchandise, Maintenance, Repair & Operation, Original
37
Equipment, and Parts & Accessories. Each of these circles adds value and detailed organization
to the procurement of raw materials and other inputs.
General Merchandise (GM) focuses on the supplier’s initial involvement with HD. GM’s
Product Category managers work closely in line with the JIT pull to ensure the continual supply
of raw materials to production. Not only do they monitor the ordering of raw material product
requirements, but also focus on new product development requirements so that HD does not miss
an opportunity to sell to a new customer demand of a shorter life cycle product. (Purchasing,
1999)
Maintenance, Repair and Operating (RMO) focuses on the functional areas of inbound logistics
management, while facilitating interactions between supplier’s outbound logistics and HD’s
inbound logistics. Original Equipment, also known as operations purchasing, acquires materials
needed in the production process such as machines or other equipment needed for product
development. Together, these categories ensure the flow of materials needed to improve or repair
equipment that is needed to transform raw materials into finished products in the manufacturing
facilities. (Purchasing, 1999)
Additionally, Parts & Accessories monitors shorter-life cycle products and service parts. They
maintain inventory levels of materials which fluctuate based on demand, and expend much of
their energy in the area of product development on a horizontal level that will add value to the
company. HD’s inbound logistics pull for non-manufacturing, complementary components flow
through this area.
These four categories allow HD to integrate its shipping, ordering, demand management and
planning across the company and its suppliers. Purchasing and engineering are combined in a
streamlined flow that works its way upstream. They add significant value to HD’s supply chain
because they allow HD’s just-in-time inventory input and processing system to flow smoothly
and move the materials continuously. Through this integration, it can be estimated that Harley-
Davidson has reduced costs of inbound purchased goods and services by about $37 million from
1996 through today (Milligan, 2000). Their supply management of procurement activities not
only creates value through the smooth flow but, in working with suppliers, has also removed
waste by heavily integrating suppliers and their ideas into all of the company's product
development process (Staff, 2003).
“The way it works at Harley, our supply base is pretty tight overall," says Greg J. Smith, director
of development purchasing. "We essentially pre-select our suppliers prior to our design activity
commencing. We do no competitive bidding per se and we refuse to get into reverse auctions
because we believe it puts the very nature of those relationships at risk. And that puts us in a
condition of doing business with an unknown entity. We establish open book costing right from
the get-go and ask suppliers to provide detailed cost breakdowns. We use that as a basis for our
product cost activity." (Kobe, 2002)
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Along these same lines, technology plays an important role in HD’s procurement activities. It
reduces lead times for inbound logistics and decreases any associated transaction costs. HD’s
advanced web supplier network allows vendors to access information about current market
demand needs, fill orders and a variety of other activities that increase communication and add
value to the company.
Margin
HD’s value is focused upon a lean, competitive advantage of access to information and
streamlined flow throughout the value chain. Through integrating suppliers throughout the value
chain, and focusing on producing only what the customer demands through JIT inventory
practices, HD reduces waste and unnecessary costs which in turn increase bottom line profit.
VRIO Analysis
Valuable – What makes the product desirable?
HD motorcycles are valuable because of the lifestyle factor associated with them. HD neutralizes
other competitors in this category because the lifestyle and culture that HD has created cannot be
duplicated. Rivals in the industry all compete for different, yet complementary, lifestyle factors.
Rare – Is the control in hands of a relative few?
HD motorcycles are not rare. However, the reputation and personal value they may hold for a
customer is rare and controlled only by that individual. Motorcycle manufacturers are many, yet
HD has a rare reputation for “Hog” riders that is controlled by the image the company projects.
That image is rare, and the reputation within the niche position that HD holds is only controlled
by the company itself.
Imitability – Difficult to imitate?
HD has a casually ambiguous position within the market, as they do not advertise on a large
scale and are known for their reputation that arose from almost nothing. This market position is
difficult to imitate, as is the culture that customers, suppliers, and employees participate in.
People have a passion for HD that cannot be imitated or substituted. HD also has socially
complex relationships both internally with its employees and externally with suppliers and
customers. The company is viewed to really care about upholding its reputation for quality and
excellence, and everyone appreciates this social complexity in relationships that they can rely on
even when times get rough.
Organization – Ready/Able to exploit/non-substitutable?
Harley-Davidson’s most un-substitutable capabilities are the knowledge, passion and trust that
exist for people within and without of the company. HD does not exploit this, but instead fosters
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and encourages the culture that makes its company special to customers, employees and
suppliers. Without this culture, HD would not survive in today’s market.
Core Competencies
HD’s core competencies are its JIT inventory flow management/SMS system, its reputation and
brand recognition, its relationship with suppliers, its empowered employees, and its
manufacturing capabilities. HD’s VRIO suggests that because its culture and niche market are
hard to identify and penetrate, the company is sustainably competitive within its segment of the
industry. However, HD needs to continue to innovate and focus on developing its market and
cash flow within the current economy and become a larger presence in the global market.
40
Figure 2.1 – Components of a HD Motorcycle and their origins
1) 2)
Tires (New York) Wheels (Australia, China and domestically)
3) 4)
Pistons (Wisconsin) Seats, Powertrain (engine and transmission) (WI)
5) 6)
Engine control modules (Midwest) Shocks (Japan - assembled in OH, shipped to PA)
7)
Wiring (North Dakota, Pennsylvania and Mexico)
41
Figure 2.2 – Physical Assets Net Worth
42
SWOT Analysis: Harley-Davidson
Strengths
Weaknesses
Opportunities
Threats
43
Suzuki Motorcycles Value Chain Analysis
Prepared by Heather Songer
Resources
Tangible
Suzuki’s tangible resources include its production equipment, manufacturing facilities,

distribution equipment, and electronic information systems. For the year ending 2008, Suzuki’s
property, plant and equipment were valued at just under $6 billion. A sign of Suzuki’s
purchasing power, the company ended 2008 with just under $1.3 billion in cash flows. Suzuki’s
plants are located in strategic positions because they are near steel suppliers and are located near
sea ports. The electronic tracking systems used by the warehouses are also a tangible resource.
The fact that Suzuki owns the majority of its value chain is arguably its most valuable tangible
asset.
Intangible
Suzuki’s intangible resources include its knowledge, corporate structure, capacity for innovation,
relationships, brand name, and reputation. For example, since Suzuki is a Japanese company, it
has a strict hierarchical structure. While some Americans would see this as problematic, it works
well for Suzuki because it is efficient. Instead of having to come to a consensus with several
groups on an issue, one person is able to make the decision for everyone. Suzuki also has some
of the brightest minds in the world working in their research and development division. Suzuki
also has a long-standing reputation with its customers. They are well-known within the
motorcycle world for their quality products. Japanese products in general are known for quality,
durability, and reliability.
Capabilities
Suzuki effectively uses its tangible and intangible resources to achieve specific goals. It uses its
large array of manufacturing plants to keep a steady stream of inventory flowing through the
distribution channels. The vast sea of knowledge within Suzuki’s research and development
department understands future market needs and designs products to solve future problems. An
example of this is their drive to continue to create more fuel efficient and environmentally
friendly products. Suzuki also uses its electronic warehouse tracking system to decrease
inventory turnover times and shorten delivery processing times. Suzuki uses its extranet
technology to keep its dealerships better informed and to promote its products. This extranet
allows Suzuki to keep a close eye on its brand image.
Core Competencies
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Suzuki’s most important core competency is that it owns and controls nearly every activity
within the company’s value chain. While Suzuki must purchase raw materials such as steel and
plastic, they manufacture their own parts, assemble their own products, and ship their own
motorcycles to the dealerships.
Valuable
This core competency is valuable because it neutralizes threats within the industry. Suzuki has to
rely on few other companies in order to produce its products. Not having to negotiate with
suppliers saves time and money, thus delivering value for the customer.
Rare
This core competency is not necessarily rare within the industry. Honda has the capability to
manufacture its own parts and distribute its own products just as Suzuki does. However, if you
look at American companies, such as Harley-Davidson, they do not have the manufacturing
capabilities to produce their own components
Costly to Imitate
Suzuki’s core competency is costly to imitate because it requires the ownership of multiple
factories, warehouses, and distribution centers throughout the world. Again, while this would be
difficult for Harley-Davidson to imitate, it is not out of the reach for a large MNC such as
Honda.
Non-substitutable
This core competency is relatively substitutable. It is not absolutely crucial for a motorcycle
manufacturer to own and control its entire value chain in order to turn a profit. Parts and shipping
functions can be outsourced while still operating a productive and efficient motorcycle
manufacturing business.
Primary Activities
Inbound Logistics
The production of Suzuki motorcycles begins with various raw materials and components. The
following are required for the production of a Suzuki motorcycle:
Raw Materials: Components:
Steel Four-stroke engine Pulleys
Aluminum Carburetor Metal Chains
Plastic Choke Sprocket
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Rubber Transmission Battery
Copper Drum Brakes ignition wires/coils
Clutch spark plugs
Crankshaft lamps/lights
Gears
Suzuki and its subsidiaries manufacture the majority of their own parts in the same plants that
they assemble the motorcycles under the subsidiary, Suzuki Toyama Auto Parts Manufacturing
Company, Ltd (GlobalSuzuki.com, 2008). After all, the company got its start in the industry as a
parts manufacturer. This provides Suzuki’s production process with greater stability compared to
its competitors. Since they don’t have to purchase parts and components from other suppliers,
they don’t have to worry about parts manufacturers’ bargaining powers and unreliability. Suzuki
just needs to make sure that their suppliers of raw materials (steel, aluminum, plastic, rubber,
copper) provide them with a steady, uninterrupted flow.
Since Suzuki relies heavily on commodities, it must be aware of the markets and changing
prices. For example, if the price of rubber or steel goes up, Suzuki must determine if they are
going to make up for the increased cost during the production process, or if they are going to
pass it on to the customer. Generally motorcycles manufacturers have little bargaining power
with raw materials suppliers such as steel and rubber because their orders comprise of only a
small fraction of the suppliers’ revenues. However, Suzuki has a competitive advantage because
they manufacture cars as well. Since auto manufacturers are important customers of raw
materials suppliers, they would want to maintain a good relationship with the Suzuki motorcycle
division so that they can continue their supplier-buyer relationship with the auto division.
One of the key factors for the success of Suzuki’s inbound logistics is its “Just In Time” delivery
system (Harps, 2008). American Suzuki Motor Company secures regional parts suppliers
wherever possible in order to speed up delivery times. They believe this not only helps to
improve their competitive edge, but also boosts the local economy. In order to become even
more competitive, ASMC chose to streamline its inbound shipping process and reduce inventory.
The company cited Dell as its inspiration for the new supply chain model. Thomas Willig,
Suzuki supply chain manager said, “Whatever inventory comes in the front door in the morning
goes out the back door in the evening,” and, “My goal is to turn the lights off at 5pm and have no
inventory left in the building.” During the restructuring process, Suzuki opened a warehouse to
handle inbound truck shipments of parts. They also opened a second warehouse to receive
international shipments brought via rail.
In addition to readjusting their warehouse systems, Suzuki also realized that the shipping process
itself needed some upgrading. The company turned to Transfreight for a solution. Transfreight
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specializes in supply chain solution. They suggested that Suzuki take part in integrated shipping
routes. These routes would combine Suzuki shipments with shipments from other Transfreight
customers. One of those customers that Transfreight recommended joining forces with was none
other than one of Suzuki’s largest competitors, Yahama. Transfreight discovered that Suzuki and
Yahama shared common suppliers and informed Suzuki that they can lower their shipping costs
by sharing trucks and routes with Yamaha. Also, teaming up would provide consistent,
standardized pickups.
As a result of the warehouse redesign and the shipping restructure, Suzuki’s inventory turnover
period has dropped from 4-5 days to 1 day. Thomas Willig has reached his goal and has created
one streamlined plant at Suzuki Manufacturing of America.
Operations
Once raw materials are received from the

suppliers, Suzuki motorcycles (and ATVs)
are manufactured in five different assembly
plants around the globe, including two in
Japan, and one each in Thailand, India, and
the United States. Some of these plants
include Thai Suzuki Motor Co, Ltd., and
Jinan Quingqi Motorcycle Co, Ltd. The plant
in India is Suzuki’s latest motorcycle
manufacturing acquisition. Suzuki recently acquired its Indian two-wheeler partner, Suzuki
Motorcycle India Private Limited (Infibeam, 2008). This acquisition has converted it into their
wholly-owned company in India. This plant is earmarked for capacity expansion, new product
launches, and for scaling up its distribution network. The existing plant in India produces
175,000 units annually, but the company plans to invest in order to
ramp up capacity to 450,000 units per year (SteelGuru, 2009).
The Suzuki manufacturing plant in Georgia primarily assembles

ATVs. American Suzuki Motor Company employees build
frames, mold plastic, and assemble ATVs at a rate of more than
200 units per eight-hour shift (GlobalSpec.com, 2009). The graph
to the left shows the motorcycle and ATV production for 2003-
2007.
Outbound Logistics
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Once the Suzuki motorcycles have been assembled, the outbound logistics team takes over. For
Suzuki, outbound logistics activities consist of storing inventory and shipping it to the various
dealers around the globe. Suzuki has implemented a system that allows it to better track their
inventory and increase efficiency. Agility Systems provided them with electronic tracking
capabilities, which have created a paperless warehouse (Solarsoft.com, 2009). This system uses
radio frequency identification technology to scan barcodes on inventory items in the warehouse.
By scanning these barcodes, warehouse employees are able to receive real time updates and
locations for various items. This technology has a return on investment period of fewer than two
years.
Just as Suzuki manufactures its own parts, it also ships its own
finished products under the subsidiary, Suzuki Transportation
& Packing Co., Ltd.
Sales & Marketing
Once Suzuki motorcycles arrive at the dealership, it is time

to sell them to the customers. Unlike competitors
such as Harley-Davidson, most Suzuki motorcycle purchases
are not custom orders and are purchased off the showroom
floor. This requires Suzuki to forecast demand for their
products within the different markets around the world. Suzuki
motorcycles are marketed in the Japanese domestic market by
Suzuki Motorcycle Sales Inc. Worldwide, the motorcycles
are marketed by subsidiaries such as Suzuki International
Europe, Germany, etc (GlobalSuzuki, 2009). Within
Japan, Suzuki motorcycles are sold through eight distributors.
Outside of Japan, there are an additional 121 distributors selling Suzuki motorcycles in 110
countries. Suzuki claims that they are helping balance international trade by shipping to Suzuki
dealers in the U.S. and Canada, and to many other countries worldwide. Their motorcycle
products include the following classifications:
Supersport
Street Scooter Motocross
Sport enduro tourer Dual purpose
Cruiser Offroad
In order to increase profitability within their motorcycle business, Suzuki is continuing to expand
sales of their scooters and large motorcycles in Japan. In Europe and North America, they are
promoting products that enhance a “Sporty, Youthful and Unique” brand image, derived from
48
the regions’ passions for racing activities (Datamonitor, 2008). In response to poor sales of
compact motorcycles in Asia, Suzuki is tailoring their products to meet the needs of the specific
markets. Suzuki is strengthening their sales force, and improving motorcycle quality and
productivity. In response to the sub prime loan crisis and skyrocketing gas prices in the U.S.,
Suzuki is focusing on marketing distinctive and unique large motorcycles, likely to compete with
Harley-Davidson’s American market share.
For the year 2008, the motorcycle division of Suzuki reported net sales of JPY592 billion, which
is an increase of 0.6% over net sales in 2007. The increase in revenues was due to growth in
overseas sales, mostly in Europe and Asia (Suzuki.com, 2008). The graph to the right shows the
sales for Suzuki motorcycles worldwide from 2003-2007 (Suzuki.com, 2008).
Suzuki recognizes the importance of their distribution channels. “Our success is dependent on
our dealer network,” says Bill Taylor, general manager, IT, at Suzuki. The company realized that
they needed to provide sales staff with better and more readily available product information.
Taylor says, “Our solution was to use SDL Tridion to develop an extranet for dealer information.
Going forward, the ultimate aim was to print nothing at headquarters but instead enable the
dealers to view and download the information as and when they needed it from the extranet.”
This system allows Suzuki-branded material including technical manuals, price lists, product
information, service bulletins, installation instructions, safety recall notices and service
checklists to be distributed to the right person, at the right time. Every time a dealer logs into the
extranet, the landing page displays the six most recent items that have been added. This feature is
most valuable and necessary when safety recalls and changes to technical specifications are
released.
This system also comes in handy for marketing. Dealers are able to download and edit special
offer advertisement templates by simply filling in their dealer-specific addresses and contact
details. “It’s important to us that we maintain the flexibility of enabling our dealers to tailor the
information to their clients.” The extranet is a one-stop-shop for various types of relevant
information, and it also hosts an abundance of external links to other Suzuki associated websites,
government agencies and industry links (Branding Online, 2008).
Service
Not only does Suzuki design and manufacture motorcycles, they also provide a 12-month
manufacturer limited warranty.
For those customers who want an extra level of protection, American Suzuki Motor Corporation
offers an extended warranty program called, Suzuki Extended Protection (SEP)
(hinshawsuzuki.com, 2009). This warranty is targeted towards owners whose initial warranties
have expired but still want to protect their purchase. The SEP can be purchased when the
motorcycle is purchased, or from any authorized Suzuki dealer anytime during the coverage
49
period of the Suzuki Limited Warranty. Under the SEP plan, customers can take their
motorcycles into any authorized Suzuki dealer in the U.S. or Canada for service.
The warranty has no deductible, meaning the customer has no out-of-pocket expenses. Suzuki
covers the entire cost of covered parts and repairs. There is also no mileage limitation for this
plan. Suzuki will repair the motorcycle for free, regardless of how many miles are on it. If the
motorcycle breaks down due to a covered event, SEP will repay the costs of transporting the
customer’s motorcycle to the nearest Suzuki dealer. Once the motorcycle is at the dealership,
SEP will pay for out-of-pocket rental vehicle expenses. Perhaps the most competitive component
of the SEP plan is that there is a one-time transferability to the next owner during the life of the
plan. This is a benefit to the customer because it increases the resale value of their Suzuki.
Support Activities
Suzuki understands the importance of a strong workforce. They have even implemented a basic
corporate policy under the slogan, “In order to survive, let us stop acting in a self-styled manner
and get back to the basics” (Datamonitor, 2008). Suzuki is also re-evaluating their practices in all
areas in order to strengthen their management structure. In order to improve communication and
cooperation within the company, Suzuki is promoting cooperation between sections,
strengthening communications, and ensuring compliance under the slogan, “Let’s talk about any
issues together.” This approach should improve employee morale and loyalty because it shows
employees that the company cares about situations that they are facing.
Research and Development
Suzuki’s goal when it comes to researching and development is to create “value-packed

products” for the new generation and changeable lifestyles (Datamonitor, 2008). They are
constantly creating new technologies and applying them to the products. Suzuki uses this
philosophy and approach in order to cover a wide range of the latest advances in the areas of
energy, environmental, electronics, communication, information, and control applications.
Procurement
Suzuki utilizes a computerized system for procuring its parts. Suzuki Manufacturing of America
has a contract with OEConnection LLC, which provides them with a web-based parts
procurement and analysis tool (Reuters, 2008). Suzuki uses this system to connect its U.S.
network of over 500 dealerships, as well as to provide corporate parts decision-makers with the
tools they need to analyze situations. OEConnection also provides Suzuki with LinkIQ, which is
a web-based intelligence tool that can provide 100% visibility, movement, and analysis of all
dealer in-circulation parts.
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Responding to threats of new entrants, Suzuki and competitor, Kawasaki announced in August
2001 that they had entered into a cooperation agreement whereby they would jointly develop
new motorcycle models and would unify their parts procurement and production operations to
cut costs (Hoover’s, 2008).
Firm Infrastructure
Suzuki’s corporate profit has weakened recently, and business recovery is at a standstill due to
the sub prime loan problem in the U.S., rapid changes in currency exchange rates, and price
increases for raw materials (GlobalSuzuki.com, 2008). Suzuki is no different than any other
company trying to survive right now. If Suzuki cannot get business loans, the company cannot
continue to grow and thrive.
In order to improve internal processes, Suzuki has implemented Actuate’s Enterprise Reporting
Application Platform to centralize financial, inventory and sales data for the company’s North
American division (Actuate.com, 2008). The Actuate applications have enabled Suzuki to
increase profitability by providing web-based operational reports to the field and corporate
offices. These features improve dealer performance and inventory management. Steve Chavez,
credit manager at Suzuki, says, “We needed a way for our field and corporate offices to receive
reports that consolidated inventory, financial and sales information. All of our team members
now have an easy-to-use, web-based tool to access inventory management data and dealer
performance. Now our management team can proactively address underperforming dealerships
by shifting inventory or consulting with dealers on areas for improvement.”
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Honda Motor Company Value Chain Analysis
Prepared by Carl Seaburg
Tangible Resources
Financial Resources
Honda’s Powersport division saw decrease in unit sales of motorcycles, all terrain vehicles
(ATVs) and personal watercraft. Although overall sales figures were 9,320,000 units, a 10.1%
decrease from the previous fiscal year, revenue increased 13.7%. Operating income rose 50.4%
over the previous fiscal year, as a result in higher sales volume in Asia and South America,
primarily because of the rise of the Brazilian real as well as changes in the modeling mix. These
positive factors make up for expenditures relating to research and development (R&A) as well as
selling, general & administrative expenses (SG&A) (Annual Report, 2008). Although Honda
does not release exact figures, the company states in their annual report that the company has
“sufficient” borrowing capacity to meet their long-term needs and goals.
In its manufacturing and sales business, Honda uses operating capital mainly to purchase parts
and other materials required for production, as well as to preserve inventory of finished products
and cover receivables from dealers. The company also requires funds for cost of capital, mainly
to introduce new models, and to upgrade production facilities, as well as to further expand sales
and R&D facilities (Annual Report, 2008).
Honda states that it meets its operating capital needs primarily through funds generated by
operations. Honda funds its financial programs for customers and dealers primarily from
“corporate bonds, medium-term notes, commercial paper, and securitization of finance
receivables” (Annual Report, 2008).
Honda’s short- and long-term debt are often rated by major agencies such as Moody’s Investors
Service, Inc., and Standard & Poor’s Rating Services. Based on major current ratings, which are
shown below, “Honda will be able to raise funds even if it requires more capital than its present
level of liquidity would allow” (Annual Report, 2008).
Honda is able to achieve a fast and flexible in infrastructure to meet customer needs through the
efficient exchange of products, components and the expertise of Honda people between Honda
operations worldwide. Honda employs Newview Technologies Inc. to supply the company with
information technologies needed to control its every part of its supply chain, which will be
explained in further detail, later.
Physical Resources
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Manufacturing Plants: Part of Honda’s strategy is to have manufacturing plants in centralized
locations for each region. However, as of April 2009, the company will no longer produce
motorcycles in the US. The Marysville Auto Plant and Hamamatsu Factories are to be
consolidated at a newly expanded plant in Kumamoto, Japan. The move is being made in
response to the evolution and development of product and production engineering as well as
increases in global motorcycle demand. Honda also possesses factories in Belgium, Brazil, and
Peru, as well as a one pre-existing and one new plant in Vietnam. With the second motorcycle
plant, Honda Vietnam is determined to build the most advanced and friendly with the
environment in Vietnam. Thus, Honda Vietnam will continue to produce and introduce high
quality, fuel saving and environmental friendly products to create value for Vietnamese
customers. Honda’s Guangzhou, China plant is a joint-venture operation in coordination with
Wuyang Motors. The plants in Brazil and Peru serve the needs of a growing demand for
motorcycles in Latin and South America (Honda Vietnam, 2008).
Raw Materials: Easy access via supply chain management state of the art solution software
created by Newview Technologies, Inc. Fully integrated solutions provide the opportunity for
Honda and its suppliers to work together in a real-time environment, making it easy for Honda to
meet its manufacturing projections. Since Honda implements a pull-system of operations, it is
important that raw materials are present at the right time, in the right amount. (Newview.com)
Honda owns or otherwise has rights to a vast amount of patents and trademarks relating to the
products it manufactures, which have been obtained over the company’s lifetime. These patents
and trademarks have been of value in the growth of Honda’s business and may continue to be of
value in the future. Honda does not regard any part of its operations as being dependent upon any
single patent or related group of patents. However, “an inability to protect this intellectual
property generally, or the illegal breach of some or a large group of Honda’s intellectual property
rights, would have an adverse effect on Honda’s operations” (Annual Report, 2008).
Intangible – Human Resources
In modern times, teams are becoming very important in every company. Team building
symbolizes a process of elaboration and development with a greater sense of cooperation
between team members. Honda’s organizational culture helps to unite team members and
provide them the opportunity to be a part of something much larger than themselves. Team
building is used in work organizations and is the essential part of a leader’s work. Team building
skills are necessary for an ideal leader, such as Honda. These skills are required for effective
work of a company and better understanding of teamwork can help members become more
effective in the corporation. The essential element of teamwork success is the ability of a team to
direct their efforts toward a certain a common goal (Annual Report, 2008).
Innovation Resources
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Honda has always been a company for reliability and innovation. With a new and improved
R&D structure, Honda continues to be a leader technology. Expansion of Honda's global
production and R&D operations now includes more than 124 plants in 28 countries with growing
R&D centers in each of the six regions (Annual Report, 2008).
Existing R&D centers including Asaka R&D Center, Wako R&D Center, and Tochigi R&D
Center, which are currently organized, based on geographical location, are to be reorganized into
five centers based on specific functions (Annual Report, 2008). This enables each center will
have separate offices for planning, product development, technology development and
administration. Operational decisions made by the primary authority, currently held by the head
of each center, will be delegated to the head of each office within each center to achieve an
autonomous operational structure through which each office can make more decisions. A flat,
less hierarchical organizational structure will be engaged to ensure smooth and direct
communications between the managers and associates (JCN Newswire, 2006).
This change in hierarchy is a part of Honda's continuous effort to strengthen the core
characteristics that keep Honda unique and innovative, and its purpose is to “continue creating
advanced and creative technologies and products that are unique to Honda, which in turn will
enable Honda to continue to be a company that society wants to exist” (JCN Newswire, 2006).
Honda’s reputation for its products stands among the top brands for quality. According to an
overall brand analysis by consumer reports, Honda finished in the top five in six out of seven
categories. It is common knowledge that owning a Honda will produce value for the customer
long into the future. In a survey of the top 100 global brands by BusinessWeek magazine ranked
Honda at number 20 in overall brand value (BusinessWeek, 2007).
Value Chain Analysis

Primary Activities
Inbound
Honda purchases raw materials, and certain components and parts, from numerous external
suppliers. They rely on key suppliers for items and the raw materials it uses in the manufacturing
of its products. Honda's ability to continue to obtain these supplies in an efficient and cost-
effective manner is subject to a number of factors. These factors include the ability of its
suppliers to provide a continuous flow of supplies and Honda's ability to compete with other
users in obtaining these supplies. Loss of a key supplier may negatively affect our production
and increase costs. However, since Honda claims to use smaller, more independent suppliers,
they have high bargaining power to counter-act risks associated with suppliers (Newview, 2006).
54
The gathering of raw materials that support the manufacturing process is a major part of Honda’s
supply chain. That is where its subsidiary, HTA America Corp. (HTA) come into play. Greg
Norval, a senior manager for HTA, states, "Our role is primarily support for Honda
manufacturing operations directly, and also for a lot of their first and second tier parts suppliers,"
(Newview, 2006)
Regardless of manufacturing location, HTA is always present to procure raw materials and to
facilitate the lower levels of the company's supply chain management. In the US, HTA offices
are found in Marysville, Ohio and Torrance, California (Newview, 2006).
By centralizing procurement, HTA has the ability to control quality, guarantee availability of
product, accurately determine delivery schedules, and establish consistent costs for Honda, as
well as pricing for its major suppliers. “That's the difference between our system and the systems
the other automobile manufacturers have," says Lisa Gimeson, manager of the steel division at
HTA. “We actually manage that inventory, which allows us to control the raw material price and
associated costs at a greater level of detail than outsourcing" (Newview, 2006).
Managing Honda’s vast supply chain is a costly and tedious process, as parts management alone
is usually done up to four months in advance. In 2006, Honda contracted Newview Technologies
Inc.’s to use its Coordinated Network Procurement solutions to manage their product flow within
its network. The system “provides inventory management, tracks the various types of materials
in the system and their locations, maintains databases of customers, provides accounting and
profitability profiles, and delivers timely reports” (Newview, 2006).
The supply chain process begins with the purchasing group at Honda America Manufacturing
(HAM). The unit forecasts production quota determine parts needed, and then issues purchase
orders to suppliers to meet the demands for up to three months (Annual Report, 2009).
Once suppliers receive the purchase orders from HAM, they determine the amount of raw
materials they will need to produce the parts. The suppliers then deliver their own purchase
orders to HTA, which handles procurement of raw materials. “Stamping facilities, for example,
order coiled steel to produce a wide range of materials. Die cast companies, meanwhile, need
raw aluminum ingots to produce engine parts” (Newview, 2006).
Next, HTA consolidates all material requests from various suppliers. Such consolidation allows
for leverage of economies of scale purchases. It calculates what is needed and sends out purchase
orders to steel mills, plastic producers, and aluminum manufacturers. Mills receive the orders
and deliver the aluminum, steel, and plastics to the parts suppliers. Once parts are manufactured,
they are delivered to Honda assembly plants. HTA also picks up raw scraps from suppliers for
recycling. "Keeping all of these materials consolidated under one purchase order allows us to
assure every manufacturer that needs to make a part for Honda has access to materials," says
Gimeson (Newview, 2006).
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Honda Purchasing issues purchase orders to parts suppliers based on projections. The parts
suppliers determine the materials that are needed and issue purchase requests to HTA. HTA then
gathers the requests and issues purchase orders for raw materials. “It also means that quality can
be assured down to the smallest part (Newview, 2006).” Additionally, HTA determines the
release dates when each quantity is needed and how it is to be delivered.
Manufacturing & Operations
Large amounts of materials are then sent to processing plants where they are cut to size to meet
the needs of individual parts suppliers. “The correct portions are then delivered to the parts
manufacturers. These manufacturers take ownership of the raw materials upon delivery, paying
Honda the value of the materials” (Newview, 2006). Of course, the suppliers may also choose to
buy their materials on the spot market, but costs are higher than that provided by Honda. The
large-volume purchases also allow Honda to provide accurate forecasts of its own costs. "We
give the suppliers annual pricing for their raw materials," says Norval. "That way we can fix the
cost for parts that will go into each model. It's a win-win for parts makers and for Honda”
(2006). After products are manufactured at the parts suppliers, HTA gathers all remaining scraps
and rejected units for recycling (2006).
Honda’s final product manufacturing is a well-kept secret. But it is known, however, that Honda
possesses a highly ergonomic design to help worker productivity and ensure a free-flowing
production line. Regional manufacturing enables Honda to distribute, through their pull system,
specific amounts of finished product as needed by sales, production predictions, and special
volume orders. The orders are then shipped via rail or truck, or freight. Freight is rarely required
and mostly use to ship orders to the US, as only one type of motorcycle is still produced at their
facility in Ohio (Marysville Motorcycle, 2008).
Through the introduction of Honda’s flexible manufacturing system, Honda continues to cut time
and resources necessary to launch new models into production and there by improving the
efficiency of manufacturing operations that meet regional needs. Moreover, the grouping of
production processes into cohesive units has improved the working environment, raised product
quality, and further accelerated production (Newview, 2006).
Marketing and Sales
In the US, Honda markets its products through a sales network of approximately 1,250
independent local dealers for motorcycles. In Europe, Honda’s products are distributed through
approximately 2,000 independent local dealers. Further in Asia, the company operates 13,100
independent local dealers for motorcycles. The wide distribution network across the globe would
help the company to achieve stronger growth in its operations (Annual Report, 2008).
Since the US motorcycle industry saw a recent decline in the 1990s, Honda, along with other
manufacturers, have since implemented what companies call “fun events.” Although Honda still
develops commercial advertisements, most advertising in their motorcycle division is done either
56
on-site (at dealerships, motorcycle events, public showcases) or through interactive These stray
from the brick and mortar method of commercials and other traditional advertising to a more
hands-on and interactive approach. These “fun events” include driver-training schools, safety
clinics and other group activities. The idea is to reach people who are not familiar with
motorcycles or who may actually need driving lessons before deciding to buy. Honda also
advertises via commercial advertisements and through extreme sports sponsorships (Honda
Powersports, 2009).
To help boost revenue and to encourage buying, Honda offers financing for nearly every product
it sells. Honda’s website implements a Web 2.0 type approach complete with financial
calculators to determine what models customers are able to afford, as well as monthly payments
due. Furthermore, customers can also apply online for pre-approval of financing options (Honda
Powersports, 2009).
Service
Honda, itself, does not service motorcycles. Instead, Honda recommends having products
serviced at an authorized Honda dealer, who employs Honda “certified” technicians. If a the
consumer decides to maintain it themselves or have it maintained by an independent repair
facility Honda requires the use of Genuine Honda Parts and also requires all receipts should a
warranty concern arise (Honda Powersports, 2009).
Support Activities
Human Resource Management
Honda uses, to train employees, advanced programs provided by solutions such as Certpoint's
VLS software. VLS is a multi-lingual software that helps provide 40 thousand employees,
distributors and dealers throughout the world with a mixture of e-learning, classroom training,
and product information (Certpoint, 2007). According to datamonitor, one of Honda’s
weaknesses, however, is the production level of employees (Datamonitor, 2007).
Firm Infrastructure
Honda management style is the decision taken some years ago by the management of Honda to
locate themselves in the middle of the headquarters building rather than the traditional practice of
occupying the top floor, as this allowed them to remain more in touch with their employees
(Annual Report, 2008).
VRIO
Honda Motor Co., along with its Powersports division, produces quality motorcycle, ATVs, and
PWCs. Among core competencies, Honda finds strength in its supply chain management. The
company maintains a real-time relationship with parts suppliers and manufacturers. Honda has
57
partnered with Newview Technologies Inc. to help secure a powerful supply chain from start to
finish.
Honda possesses rare capabilities in its R&D department. Due to its stockpile of patents and
trademarks, Honda has access to technology and innovation that many companies do not possess.
Honda’s production is very costly to imitate. The company has extremely centralized production
facilities on almost every continent. This, along with their IT infrastructure, enables smooth and
fast distribution to all dealers and ensures order accuracy.
Honda’s motorcycles are substitutable, as they do not have a specific culture associated with
their brand. Honda Powersports’ products are very similar to brands such as Kawasaki and
Yamaha.
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59
Polaris Industries, Inc. Value Chain Analysis
Prepared by Patrick Beach
Primary Activities
The Polaris supply chain network includes product development, manufacturing and distribution
facilities—located in five different places. First there are high end product development facilities
in Roseau, Minnesota and Wyoming, Minnesota. They also have manufacturing plants on three
campuses, one in Roseau which includes vehicle assembly, engineering and R&D, one in
Osceola, Wisconsin for component production, and Spirit Lake, Iowa which is for final
assembly.
Inbound Logistics
During 2008, 2007, and 2006, purchases of engines and related components totaling 9, 10 and
11 percent, respectively, of Polaris’ cost of goods sold were from a single Japanese supplier.
Polaris and the supplier have agreed to share the impact of fluctuations in the exchange rate
between the U.S. dollar and the Japanese yen.
Current products Polaris purchases from third party vendors are fuel tanks, tracks, tires,
instruments, and certain other component parts. Polaris manufactures a number of other parts for
its snowmobiles, ORVs, ATVs, and motorcycles. Raw materials or standard parts are readily
available from multiple sources for the components manufactured by Polaris. Osceola,
Wisconsin plant was acquired in 1994 to manufacture more of the parts Polaris would have
purchased from third party sources. Certain operations, including engine assembly and the
bending of frame tubes, seat manufacturing, drive train and exhaust assembly and stamping are
conducted at this facility. This has decreased the amount of outside resources needed for
production.
Fuji Heavy Metals is one of Polaris third party sources for engines on snowmobiles and ATV’s.
Fuji has the ability to develop engines to the specific requirements of Polaris. This has become a
strong relationship for Polaris. They have a 40% investment in Fuji’s subsidiary Robin
Manufacturing, USA which builds engines for recreational and industrial products. Currently
many of their engine products come from Robin unless they are developed at one of Polaris’
plants.
Polaris also has other supply or development agreements. One is with a Taiwanese manufacturer
to co-design, develop and produce youth ATVs. Since the original agreement this deal has
expanded to include the design, development and production of value-priced smaller adult ATV
models and to include a youth side-by-side vehicle, the RANGER RZR 170. Polaris has an
agreement with a German manufacturer to co-design, develop and produce four-stroke engines
for snowmobiles. Additionally, Polaris has a long term supply agreement with KTM Power
Sports AG (KTM). KTM supplies four-stroke engines for use in certain Polaris ATVs. Currently
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Polaris anticipates no significant difficulties in obtaining substitute supply arrangements for
other raw materials or components that it generally obtains from limited sources. Contract
carriers ship Polaris’ products from its manufacturing and distribution facilities to its customers.
Polaris Industries Inc., shifted its parts, garments, and accessories business by installing an
integrated supply chain execution solution from RedPrairie in 2004. This was their initial step
into lean manufacturing. RedPrairie's warehouse management and slotting applications were put
in to improve the replenishment of operations, optimize pickface slotting and enhance warehouse
space utilization. When combined with RedPrairie's visibility tool, LENS(R), the technology will
enable Polaris to improve customer service with up-to-date order status information
Their plants have been working to establish a program with suppliers located four to six hours
away by driving distance or closer. These organizations will be the main suppliers to the plants
with raw stock. By working with as many local suppliers of raw materials as possible Polaris
creates a competitive advantage with low freight costs. Al Hogen, director of operations for the
Osceola manufacturing plant says “We don’t want to have to increase our raw stock inventory in
this facility. We’ll work with our suppliers to make sure we’re not taking waste out of one part of
the value stream and adding it somewhere else. Our main suppliers help administer the inventory
flow. They’ve integrated into our operating system in a way that they can actually allocate raw
stock before it leaves their facilities. We tell them these are the orders we’ll be starting in a few
hours, and they’ll identify those items…When we receive it we’re very close to allocating it to a
work center so we can begin processing it.” (Andel 2008)
Operations
Polaris has 1,700 dealers in the United States, 275 in Canada, and more than 1,000
internationally. Consumers go to dealers to custom-order bikes, ATVs, Snowmobiles, or Rangers
by selecting from a variety of options, they also have the ability to buy stock items. “In addition,
non-refundable deposits made by consumers to dealers in the spring for pre-ordered
snowmobiles assist in production planning. The anticipated volume of units to be produced is
substantially committed to by dealers and distributors prior to production” (Polaris Annual
Report 2008). Since many products Polaris manufactures are made to order dealers enter product
specifications into a system. The details of the order go to a production plant where, “the plant
will balance that input against the mix of models the production line was designed for. Multiple
models of motorcycles are built on one line each day. The plant will then identify potential ship
dates. After that, it becomes a planned order”(Andel 2008). When an order is placed in the
system the individual unit is placed into the master schedule for assembly. Material requirements
are then sent out to Polaris’ supply chain. The Spirit Lake and Roseau plants received the
components and complete the final product. “Polaris is vertically integrated in several key
components of its manufacturing process, including plastic injection molding, stamping,
welding, clutch assembly and balancing, painting, cutting and sewing, and manufacture of foam
seats” (Polaris Annual report 2008)
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Each plant has its own manufacturing resource planning (MRP) operating system to plan out
material use by creating a bill of materials. The MRP system manages inventory levels based on
current Polaris order-planning policies. The bill of materials installs appropriate lead times for
receiving orders. Once a schedule is set Polaris tries to keep it intact without making any changes
within the period of time for that given schedule. Even with good planning and budgeting of
resources there are exceptions. Transportation times for products are calculated into the lead time
of the system. Ed Heffernan, director of operations manufacturing at the Spirit Lake plant says
“We design our products to fit our manufacturing template for the assembly lines. The
complexity of our model lineup requires us to carry low levels of inventory on individual
components and replenish parts based on consumption. Our philosophy is to source
differentiated and larger components locally and look globally for the best value to source
common parts that can pack densely. We currently have approximately 200 suppliers supporting
the Spirit Lake operation” (Andel 2008). This further shows Polaris’ dedication to lean
manufacturing and focus on creating value at each step of the operation. Below is the layout of
the Spirit Lake plant. There are distinct organized areas for assembly of final products, storage,
welding, and plastics.
The challenge of Polaris’ production process is in the volume of parts it must move and
distribute. The Osceola plant “ships approximately 700,000 parts a week” (Andel 2008). A high
amount of labor goes into managing the raw stock that comes into each plant, inventory is
standardized as much as possible. Currently they have more than 2,000 stock keeper units
(SKUs) to manage through each week per plant. Plants have the capacity to do roughly 60 setups
in a 24-hour day. To make the system more effective Polaris has used a variety of tools. They
have “tuggers deliver parts to assembly cells. Tuggers decreased lift truck traffic and downtime
while increasing productivity on the production lines. Overhead power-and-free queues are also
used” (Andel 2008). The Osceola plant created additional space by narrowing aisles and finding
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lift trucks that could do the job and fit the spaces. In the Spirit Lake plant, they utilize electric
vehicles. They implemented a system to charge these vehicles faster to create more opportunity
for them to be used. This helped reduce overall batter usage and additional production space was
created because the battery room could be eliminated.
To improve the supply chain process Polaris went to SmartOps Corporation. They are the
leading provider of enterprise-class supply chain optimization solutions, and Polaris chose to
license their software for Enterprise Inventory Optimization (EIO). Bill Fisher, Vice President,
CIO/GM Service of Polaris said "We selected SmartOps as a key element in our ongoing focus
on operational excellence. The SmartOps approach will allow Polaris and our dealerships to
focus both on continued cost efficiency and increased customer responsiveness" (ThomasNet
2009). By taking this step Polaris hopes to achieve the advantages of using the EIO software, “a
rapid return on investment and a long-term competitive advantage by determining the best
possible inventory and product availability plan” (ThomasNet 2009).
Outbound Logistics
Once products are assembled at Spirit Lake, they are shipped directly to dealers. Polaris uses a
cross-docking method when shipping products to dealers who are not local. This allows products
to be moved at one time. The company’s logistics director, Joel Zeller works with third-party
warehousing providers to centralize and consolidate product for overseas orders and to deliver
raw materials to its plants.
Polaris maintains distribution facilities in Vermillion, South Dakota; Winnipeg, Manitoba; Passy,
France; Askim, Norway; Ostersund, Sweden; Gloucester, United Kingdom and Ballarat,
Victoria, Australia. These facilities distribute PG&A products to our North American dealers and
international dealers and distributors.
The delivery of snowmobiles to consumers and dealers begins in autumn and continues during
the winter season of each year. Orders snowmobile production is placed by the dealers and
distributors in the spring. Orders for Victory motorcycles are placed by the dealers in the
summer. Units are built to order each year depending on changeability in market conditions and
supplier lead times. Polaris monitors retail sales at the dealer level for snowmobiles, ORVs, and
motorcycles to focus on creating the best possible scheduling for product manufacturing and
shipment to dealers. “Beginning in 2008, Polaris began testing a new dealer ordering process
called Maximum Velocity Program (MVP) with select dealers in North America. Under MVP,
dealers place ORVorders in approximately two week intervals driven by retail sales trends at the
respective dealer. If successful, the new MVP process will be rolled out to additional dealers
over the next several years” (Polaris Annual Report 2008).
Polaris products are sold through a network of 1,500 independent dealers in North America, and
through seven subsidiaries and 43 distributors in approximately 130 countries outside of North
America. Polaris sells snowmobiles directly to dealers in the snow-belt regions of the United
States and Canada. Polaris dealers frequently sell or are involved with multiple Polaris products.
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Currently there is approximately700 Polaris dealers located in areas of the United States where
snowmobiles are not traditionally sold. Compared to competitors Polaris uses unconventional
methods to sell its ORV products. Polaris has decided to sell some of its ORV products through
lawn, garden, and farm implementation dealers in order to reach a broader customer base.
Internationally, with the exception of France, Great Britain, Sweden, Norway, Australia, New
Zealand, Germany and Spain, sales of Polaris’ products in Europe and other offshore markets are
handled through independent distributors. Polaris acquired assets of its distributors in Great
Britain, Sweden, Norway, Australia and New Zealand and now distributes its products to its
dealer network in those countries through wholly-owned subsidiaries. Polaris acquired its
distributors in France, Germany, and Spain to distribute its products to its dealer network in these
countries through a wholly-owned subsidiary.
Marketing and Sales
Polaris Industries is the largest manufacturer of snowmobiles in the world and the second largest
manufacturer of off-road vehicles (ORVs), behind only Honda Motor Co., Ltd. ATV sales
represent roughly 67% of Polaris revenues today. In 1998 Polaris took an innovative step and
started to make motorcycles. Their motorcycle brand is titled Victory Motorcycles. In 2004 they
exited from the personal watercraft sector of the Recreational Vehicles industry. Polaris invested
in a partnership with Austrian motorcycle firm KTM Power Sports AG in 2005 by purchasing
24% of its stock. Motorcycle sales are the fastest growing part of Polaris industries even though
the only represent about 5% of net sales. Originally the company was a snowmobile
manufacturer and that is what it is best known for, but currently Polaris only generates about 14
percent of its revenues from that line. The rest of total revenue is generated by sales of parts,
clothing, and accessories. About 20% of total revenue come from outside of North America.
Polaris was one of the first to enter and bring innovation to the snowmobile industry. They have
taken that attitude as they start to branch out into their relatively new Professional Series line of
products.
A marketing strategy employed by Polaris throughout its history was its intense promotion of
new product releases. For example, to publicize its move into ATVs, Polaris asked the governor
of Minnesota, Rudy Perpich, to ride the firm's first ATV as it exited the assembly line. When the
firm unveiled its first motorcycle, the Victory, it hired famous race car driver Al Unser, Jr. to
ride the first Victory into Planet Hollywood at the Mall of America.
In 2005 Polaris hired Ceridian, a leader in managed human resource solutions that maximize the
value of people, to give Polaris Industries Inc. a basis for its Human Resources and payroll
system. This agreement extends a 20 plus-year relationship between Polaris and Ceridian. “One
of the business processes that we have counted on over the years is the tremendous support and
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teamwork of Ceridian,” said Tom Rooney, assistant treasurer, at Polaris Industries Inc. “We’ve
come up with some challenging requests, and in all cases Ceridian stepped up to the plate
without interruption in service.” (Kreinbring 2005)
Research and Technological Development
Polaris employs around 400 people in its Roseau and Wyoming, Minnesota facilities, with a
purpose for the development and testing of existing products as well as research and
development of new products or improved production techniques. Polaris boasts innovation and
development in wide commercial use products such as “independent front suspensions for
snowmobiles, long travel rear suspensions for snowmobiles, liquid cooled snowmobile brakes,
hydraulic brakes for snowmobiles, the three cylinder engine in snowmobiles, the adaptation of
the MacPherson strut front suspension, “on demand” four-wheel drive systems and the
Concentric Drive System for use in ORVs, the application of a forced air cooled variable power
transmission system to ORVs and the use of electronic fuel injection for ORVs” (Polaris Annual
Report 2008). Polaris utilizes internal combustion engine testing facilities to create and optimize
engine configurations for its products. Polaris has specialized facilities for matching their
engines with the right exhaust system and clutch performance parameters in its products to reach
desired fuel consumption, power output, noise level and other objectives. Polaris’ engineering
department is equipped to make small quantities of new product prototypes for testing by
Polaris’ testing teams and for the planning of manufacturing procedures. In addition, Polaris
maintains numerous test facilities where each of the products is extensively tested under actual
use conditions. In 2005, Polaris added the Wyoming, Minnesota plant for research and
development to its plants. This plant focuses on Polaris’ line of engines, power-trains, ORVs,
and Victory Motorcycles.
Margin
In 2008 Polaris had a gross revenue of $1.97 billion, a gross profit of $466.91 million, and a net
income of $117.39 million. These numbers are just shy of there goals for revenue of over $2
billion. This gives them a net profit margin of 5.9% also under their goal of over 8%. The
Recreational Vehicles Industry has a net profit margin of 7.0%. This means that on its
operations Polaris is earning less then its competitors in terms of percentage even though they
are a leader in revenue and market capitalization, which is 646.45 million.
At the end of 2008 Polaris had 27.13M in cash and total debt of $200 million. Their current ratio
is 1.096 which is very low especially compared to competitors such as Harley Davidson whose
current ratio is 2.065. Although bad compared to their competitors, a current ratio above one is
respectable. They have an Operating Cash Flow of $175.75 million and a Levered Free Cash
Flow of $82.15 million. Polaris has a beta of 1.55 which means its stock price moves faster then
the industry. Currently their stock price has dropped over 50% in the past year, with a high of
$54.26 in September of 2008 and a low of $14.53 on March 9, 2009.
Core Competencies
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Polaris is a manufacturer of snowmobiles, off-road vehicles, motorcycles, rangers, and various
other outdoor power products. They are an innovator in technology for these products and
producing them. They have built their company by acquiring new parts and investing in their
supply chain to create a better flow for production operations. Their goal is to create value at
every point of the value chain and eliminate waste wherever it is found.
“At Polaris, making great products is not just a job; it is a way of life. That is why our creed is
etched in steel at the entrance at each of our locations. Our employees are not only building and
designing our machines, they are also enthusiastic riders. This gives us the competitive edge
because we are working together to make the riding experience better in order to find The Way
Out” (www.polaris.com)
VRIO Analysis
Valuable
Polaris is the largest manufacturer of snowmobiles in the world, and the second largest
manufacturer of ORVs. The value in Polaris sits with its ability to evolve and create new
innovative products, whether they are original or enhance their current products. Polaris has a
production plant dedicated to research and development in Roseau, Minnesota. They have also
been active in acquiring new pieces to grow their company such as Victory Motorcycles in 1998.
They have also not shied away from forming partnerships with third party suppliers to create
long lasting business relationships. By doing this Polaris has built a relationship with many of
their key suppliers which is one of the reasons why there recreational vehicles are so reliable. To
enter new industries Polaris has teamed up with Bobcat in a strategic alliance so they can both
grow there customer base, improve technology, and develop more products for their Professional
Series. “Polaris has strong core competencies in motorized products, durability, reliability, and
performance," said Bills. "Where else do these core competencies apply? In the commercial
vehicle market” (BNET 2002). Polaris’ positive attitude toward growing their business by
working with other companies, or investing in their supply chain is a great strength.
Rare
The products Polaris manufactures can also be manufactured by other manufacturing

organizations, but what those organizations can’t create is the established brand name Polaris has
as the world’s top snow mobile manufacturer and second largest ORV manufacturer. This
distinction gives them a lot of respect in the industry. They are also known for creating reliable
and durable products. In an industry where consumers are tough on their products this is a strong
distinction to have. Polaris has an advantage over the competition in technology and innovation
for their products as well. This is an advantage they strive to keep, which usually makes the
competitions products a step behind. They have multiple options for customers to get the exact
specifications engine specifications they are looking for in their recreational vehicles.
Innovations such as front suspensions for snowmobiles, long travel rear suspensions for
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snowmobiles, liquid cooled snowmobile brakes, hydraulic brakes for snowmobiles, and the three
cylinder engine in snowmobiles are what keep Polaris rare.
Immitability
Polaris was started in Roseau, Minnesota, one of the north most points in the continental United
States. There original appeal was to outdoorsmen who wanted to be able to get to remote fishing
and hunting locations, while carrying all of there gear, without having to cross country ski great
distances. This was how the power sled was born in 1954. Polaris has created a culture based on
outdoorsmen and thrill seekers. They originally had arctic origins but have evolved over the
years to include ORVs, motorcycles, and personal watercraft (even though that line is currently
disbanded) but the company has never forgotten their roots. When Americans think of
snowmobiles they think of Polaris. At its core Polaris is an ORV and snowmobile manufacturer
and they have a focus on keeping this part of their business strong. They believe in order to
branch out they must keep the core of their brand as strong as possible. It is not easy to imitate
the arctic origins they have created. Their brand appeals to adventure seekers everywhere.
Non Substitutable
Polaris has created a culture for the adventure seeker or outdoor thrill seeker that is not
substitutable. Their products allow customers to reach places they could not naturally get to.
They strive to keep this culture alive by creating products that are less harmful on the
environment. Polaris creates power vehicles for outdoor exploring and they rely on the elements
to do their job in order to keep nature’s playground alive. Keeping there culture means creating
products that do less damage to the environment. Polaris’ sustainability depends on the
sustainability of the areas their customers like to ride in. Without the snow, deserts, dirt, sand, or
forests there is no market for Polaris’ products.
Properties
The following sets forth the Company’s material facilities as of December 31, 2008.
Location Facility Type/ Use Owned or Leased Square Footage
Spirit Lake, Iowa . . . . . . . . . . . . . . . . . . . . Whole Goods Manufacturing Owned 258,000
Spirit Lake, Iowa . . . . . . . . . . . . . . . . . . . . Warehouse Leased 90,000
Medina, Minnesota . . . . . . . . . . . . . . . . . . Headquarters Owned 130,000
Roseau, Minnesota. . . . . . . . . . . Whole Goods Manufacturing and R&D Owned 635,000
Roseau, Minnesota. . . . . . . . . . . .. . . . . . Injection Molding manufacturing Owned 76,800
Roseau, Minnesota. . . . . . . . . . . . . . . . . . . Warehouse (various locations) Leased 39,600
Vermillion, South Dakota . . . . . . . . . . . . . . Distribution Center Owned 385,000
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Osceola, Wisconsin . . . . . . . . . . . . . . . . Component Parts Manufacturing Owned 188,800
Osceola, Wisconsin . . . . . . . . . . . . . . . . . . Engine Manufacturing Owned 97,000
Ballarat, Victoria, Australia . . . . . . . . . . . . Office and Distribution facility Leased 9,200
Winnipeg, Manitoba, Canada . . . . . . . . . . Office and Distribution facility Leased 31,000
Passy, France . . . . . . . . . . . . . . . . . . . . . . . Office and Distribution facility Leased 10,000
Askim, Norway . . . . . . . . . . . . . . . . . . . . . Office and Distribution facility Leased 10,800
Ostersund, Sweden. . . . . . . . . . . . . . . . . . . Office and Distribution facility Leased 14,300
Birmingham, United Kingdom . . . . . . . . . . Office and Distribution facility Leased 6,500
Griesheim, Germany . . . . . . . . . . . . . . . . . Office and Distribution facility Leased 3,200
Wyoming, Minnesota . . . . . . . . . . . . Research and Development facility Owned 127,000
Eagan, Minnesota . . . . . . . . . . . . . . . . . . . Wholegoods Distribution Leased 35,000
Brooklyn Park, Minnesota . . . . . . . . . . . . . Wholegoods Distribution Leased 25,000
E. Syracuse, New York . . . . . . . . . . . . . . . Wholegoods Distribution Leased 40,000
Ontario, California . . . . . . . . . . . . . . . . . . . Wholegoods Distribution Leased 112,000
Nashville, Tennessee . . . . . . . . . . . . . . . . . Wholegoods Distribution Leased 37,500
Irving, Texas . . . . . . . . . . . . . . . . . . . . . . . Wholegoods Distribution Leased 46,300
Spencer, Iowa . . . . . . . . . . . . . . . . . . . . . . Wholegoods Distribution Leased 45,000
Tacoma, Washington . . . . . . . . . . . . . . . . . Wholegoods Distribution Leased 15,000
Melbourne Australia . . . . . . . . . . . . . . . . . Retail store Leased 9,600
Barcelona, Spain . . . . . . . . . . . . . . . . . . . . Office and Distribution facility Leased 4,300
PRINCIPAL SUBSIDIARIES
Polaris Real Estate Corporation of Iowa, Inc.; Polaris Real Estate Corporation; Polaris Industries
Ltd. (Canada); Polaris Acceptance Inc.; Polaris Sales Inc.; Polaris Industries Manufacturing
LLC; Polaris Insurance Services LLC; Polaris Direct Inc.; Polaris Sales Australia Pty Ltd.;
Polaris France S.A.; Polaris Britain Limited (U.K.); Polaris Norway AS; Polaris Scandinavia AB
(Sweden). (BNET 2009)
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PRINCIPAL COMPETITORS
Honda Motor Co., Ltd.; Yamaha Motor Co., Ltd.; Suzuki Motor Corporation; Arctic Cat Inc.;
Bombardier Recreational Products Inc.; Harley-Davidson, Inc.; Kawasaki Heavy Industries, Ltd.
(BNET 2009)
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Winnebago Industries, Inc. Value Chain Analysis
Prepared by Neil Colombini
Primary Activities
Inbound Logistics
Operating in a company that produces high quality transportable living quarters demands
comfortable and entertaining traveling within one vehicle. Winnebago Industries, Inc. strives to
the highest quality, best designed, best tested, best built and safest motor homes available. In
order for a company to be able to make an entertaining ‘home’ on wheels, many appliances are
needed and countless materials are used. This is where Winnebago takes the lead in quality,
technology and speed with their complex but highly sophisticated inbound logistics.
Winnebago Industries manufactures most of the components in their motor homes to better
control quality and fit. This required the construction of several manufacturing facilities
(Winnebago, 2008). CAPCO manufactures and supplies the company extruded aluminum,
obtained from major US aluminum mining companies, to produce windows, ladders, screen
doors, etc. The Rotocast facility develops aluminum molds for water tanks, holding tanks,
luggage compartment, heat ducts, and wheel wells (Rotocast, 2008). The plastic division
manufactures shower stalls, dashboards, and housing for tail lights.
Stichcraft makes comfortable and quality indoor upholstery including chairs, sofas, cushions,
draperies, shades, foam mattresses, bedspreads, carpets and trim panels. The Sawmill/Cabinet
Shop produces all the wood workings including, doors, cabinets, laminated panels, and
countertops. The Metal Stamping facility supplies structural steel components for motor homes
and company buildings obtained from US Steel. The Fiberglass facility produces the vehicles
front grilles, roof caps, wheel well trim pieces and many other items (Winnebago, 2008).
The company’s ability to produce most of their raw materials from ‘scratch’ allows inbound
management to focus more on integrated scheduling with warehouse management and planning,
inventory control, and advanced scheduling throughout the entire company and its suppliers.
The production of the raw materials allows management to primarily focus on the company’s
external suppliers needs to make sure their products are arriving according to schedule. A great
advantage of supplying most materials themselves, Winnebago is able to receive primary
products when needed and in a relatively quick amount of time.
More importantly, Winnebago’s inbound logistics are focused primarily on the few components
that are produced by only a small group of quality suppliers that have the capacity to supply
large quantities on a national basis. This is especially true in the case of motor home chassis,
where Ford Motor Company, Freightliner Custom Chassis Corporation, Workhorse Custom
Chassis, Chrysler LLC and General Motors Corporation are Winnebago’s major suppliers
(Winnebago, 2008). As the chassis are the foundations of motor homes, Winnebago’s
dependency on the product forces them to manage inbound logistics effectively and efficiently,
allowing clear communication between productions, warehouse, and manufacturing facilities to
control inventory levels.
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Despite Winnebago’s immense ability to produce most of the supplies needed to manufacture an
RV, in order to make the RV experience completely enjoyable, countless external suppliers send
Winnebago a wide range of high end, state of the art appliances. Norcold, Inc, supplies
Winnebago with double door refrigerators/freezers. Sylvania, Inc contributes by supplying
microwave convection ovens, accompanied by Magic Chef three burner range (Rosen, 2004). 3
Position Controls supplies Winnebago with hydraulic jacks and systems. BenchMark sends
dining innerspring cushions and GPgo supplies GPS systems, while SleepNumber and Ideal Rest
offers superior mattress. One Place supplies the RV’s with an integrated electronic button home
base. PowerLine energy management system prevents power shortages and QuickConnect
coupling valve makes hookups a snap. Television sets are supplied by Sony, offering a wide
range of sizes and performance.
The QuickPort service connection hatch replaces hard-to-use service compartment access holes.
RV Radio Company provides radios specifically constructed for RV drivers, making radio
surfing more convenient, while, Sirius satellite radio offers over 120 channels of digital
entertainment. Smart Storage and StoreMore provides bulky systems, leaving more room for
basement storage (Winnebago, 2008). The amount of suppliers and products implemented
proves that Winnebago keeps their inbound logistics organized and keeps all facilities flowing
with minimal constraints as many products will be shipping from countless suppliers.
Winnebago owns a total of 42 facilities dispersed across Forest City, Charles City, and Hampton,
Iowa, commonly known as the “American Heartland.” 38 of Winnebago’s facilities are
dedicated to manufacturing, whereas the remaining four buildings are principally warehouses to
store finished products and supplies. There are 14 truck docks for receiving and shipping
materials at the largest building on the Forest City plant site. The Ware-house staff routinely
handles 25 truckloads of material a day (Winnebago, 2008). The enormous sizes of the plants
and warehouses allows Winnebago’s manufacturing and final production operations to be mass
produced, allowing more opportunities for the company to grow not only in revenues, but also in
inbound logistics development.
Finally, Winnebago implemented a new e-mail operating system to provide stability for essential
scheduling functionality, such as calendar-sharing (IBM, 2008). Thus, IBM installed a new
technological advancement to improve e-mail management and ultimately allowed greater
communication between suppliers and inbound management. Clear and constant communication
between suppliers and Winnebago
Operations
“From the very beginning, Winnebago and Itasca motor homes have been built with innovations
unique within the motor home industry” (Winnabego, 2006). Winnebago strives to be the
leading manufacturers of RV’s across the nation by utilizing their production facilities to provide
a vertically integrated production line. Their facilities are the largest and most technologically
advanced production site with more than 200 acres to work with. The immense size of
Winnebago’s plants allows the manufacturers to utilize the latest computerized manufacturing
equipment.
Productions of the motor homes are ordered to dealers. A steel frame cab structure is used and is
electro-coated so they do not rust over time. The structure is then aligned to the chassis base
using state of the art laser equipment to ensure a perfect fit. The process, which the company
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calls SuperStructure construction, incorporates precision engineered ThermoPanel roof and
sidewalls with pressure bonded layers of exterior skin, EPS foam block insulation, aluminum
framework, and Luan backing (Rosen, 2004). Strength and durability is assured as the unique
sidewalls are interlocked meaning the weight of the coach is carried by the metal substructure.
Finally, the final production takes place in three 900ft. moving assembly lines where employees
and machinery simultaneously construct the final product. Next, Winnebago takes pride in their
final product testing, to ensure safety and high quality. The electrical system, LP system, holding
tanks and water systems are fully tested for optimum functionality. “Every unit also goes
through a severe water test. Each coach gets five minutes of concentrated water spray from 160
spray heads that deliver water at a rainfall rate of 50 inches per hour” (Winnebago, 2006).
“Higher quality also is the result of ongoing testing. A state-of-the-art, 40,000-square-foot testing facility
was completed in 1989. The computerized road simulator (nicknamed "The Shaker") and the half-mile test
track can simulate the effects of years of normal driving in just a few days. Components are checked under
hot, cold, wet and dry conditions and every Winnebago Industries motor home goes through a high-
pressure water tunnel and is checked for leaks before shipping” (Winnebago, 2008).
Outbound Logistics
The location of Winnebago’s plants has optimized their distribution of final products
substantially. The plants located in Iowa sit directly next to the Avenue of the Saints, a
transportation corridor.
“Avenue of the Saints is the emerging transportation corridor in the Midwest, and is becoming one of the
most important corridors in the country. The Iowa Avenue of the Saints Logistics Corridor touches 13
counties, a population of 320,000, and a labor force of 180,000. It also connects with transcontinental
corridors I-80 and I-35” (Inbound Logistics, 2008).
This distribution channel connects all of Winnebago’s factories in one road, allowing
transportation between factories and dealerships. “We move about 15 truckloads of product
among our three campuses every day,” says Ron Berry, Winnebago’s warehouse and distribution
manager. “The most efficient way to get these products where they need to go is through the
Avenue” (Inbound Logistics, 2008). This is extremely helpful for Winnebago as they annually
handle approximately 50 million pounds of freight. Winnebago uses 60 plus LTL and truckload
carriers for shipments that include raw materials, purchased appliances, and final products. They
also use a smaller private fleet for the intra-plant moves.
Marketing and Sales
Winnebago markets not only their final products, but also an image, a lifestyle, and overall,
superior performance. The company sells their motor homes strictly on a wholesale basis to
numerous independent dealer organizations throughout the entire United States.
“During Fiscal 2008, seven dealer organizations accounted for approximately 25 percent
of motor home unit sales. No single dealer organization accounted for more than ten
percent of our motor home unit sales during Fiscal 2008” (Winnebago, 2008).
Winnebago’s website offers a wide variety of product information, including diagrams of RV

models and specific key features. Their website contains a list of their independent dealers as
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they do not sell from their website. Winnebago advertises their RV’s through national RV
magazines, product brochures, the Go RVing national advertising campaign, and direct-mail
advertising campaigns (Winnebago, 2008). They also utilize a wide range of trade shows,
auctions, television commercials, radio, magazine, and newspaper advertisements. These
advertisements are distributed accordingly to the dealership’s location.
Service
Winnebago encompasses a unique servicing component. All the replacement parts to the RV are
kept on hand for an availability advantage. Dies and molds are always kept in storage. If a
customer wants to get a 15 year old bathtub, Winnebago will supply them with it. This gives
them superior customer s and other companies support.
Winnebago’s website states a recommendation that customers contact the headquarters through
phone in order to optimize the communication. Their brand new e-mail system allows the
employees to receive fast, frequent e-mails, allowing them to respond in a respectable amount of
time. Their website is a powerful tool to learn about what the company is founded one, what they
believe, and how they conduct their business. This proves that Winnebago is a valid competitor
as they value the input from customers.
Technology Development
As previously stated, Winnebago takes advantage to increase their value within their company’s
infrastructure by continually updating e-mail systems and personalized web-based environment
for dealers, employees, board members and the media (Genus Technologies, 2008). Genus
technologies implemented a new technology system that creates customer loyalty by producing
dealer portals. This system was to provide easier access to information and certain applications
through a personalized web-based environment for dealers, employees, and board members.
“The Winnebago Dealer Portal (WINportal) directly interfaces with Winnebago’s back-end systems to give
users single sign-on access to applications, data and content specifically relevant to their jobs. Four defined
roles—service personnel, sales personnel, sales management or financial—further personalize the
experience” (Genus Technologies, 2008).
This new system allowed Winnebago to automate processes and controls, addition of portals,
advanced search capabilities, easier access to information. It also decreased many training
requirements which, in turn, increased productivity for dealers and employees.
Winnebago employed approximately 2,250 persons as of September 1, 2008 (Winnebago, 2008).
The current conditions of the American economy have taken its toll as employee reductions took
place to match market demand and to utilize factory performance. Winnebago has extensive
employee training services, especially for factory workers. They pride themselves as making
perfect products with employees managing appropriate working conditions.
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Resources
Tangible
Financial Resources
An analysis of Winnebago’s tangible resources will provide a simple quantified outlook into the
firm’s performance. Winnebago’s financial resources are a clear indicator that the company is
struggling monetarily, proving that RV sales are strongly linked with discretionary spending,
which is declining due to the forces of the economic recession. The company’s 2008 annual
revenues plunged 30.5% in the period that ended on August 30, 2008. Net revenues dropped
from $870.1 million to $604.4 million, largely affected by a decrease in product delivery by
approximately 32.3%. In accordance to the reduction of product delivery, production of RV’s
was significantly cut back resulting in a decrease in gross profit margin from 11.4% to 5.8%.
Additionally, Winnebago’s net income decreased by 93.3% from $41.6 million to $2.8 million in
2007 and 2008 respectively.
However, despite the loss of net revenue and net income, Winnebago is still maintaining a strong
cash flow within the company with an increase from $6.8 million in 2007 to $17.8 million in
2008. However, Winnebago’s ability for investments is grim. “Until February 2008, the ARS
market was highly liquid. Starting the week of February 11, 2008, a substantial number of
auctions "failed," meaning that there was not enough demand to sell all of the securities that
holders desired to sell at auction” (Winnebago, 2008).
“On September 17, 2008, we [Winnebago Industries, Inc.] entered into a Credit and Security Agreement
with Wells Fargo. The Credit Agreement provides for a $25.0 million maximum revolving credit facility,
based on certain accounts receivable and inventory accounts, expiring on September 17, 2010, unless
terminated earlier in accordance with its terms. Interest on loans under the credit agreement will be a rate
equal to either LIBOR plus 1.5% to 2.5% or prime rate plus (0.75)% to 0.25%. No borrowings have been
made under the credit facility through October 29, 2008. The credit facility provides increased financial
flexibility and, if needed, will be used for working capital and for other general corporate purposes”
(Winnebago, 2008).
Stated previously in the Technological Development section, Winnebago has increasingly

improved their coordinating systems using the Linux based e-mail solutions and utilizing the
following products: Insight Server Enterprise Edition 4.2, BM System z9 Business Class, and
IBM SUSE Linux Enterprise Server 10 operating system. Management organization and
customer communication have the potential to rise dramatically.
Physical Resources
 31 buildings in Forest City, Iowa – Manufacturing, maintenance, service and office

(1,593,000 sq. ft)
 4 buildings in Forest City, Iowa – Warehouse (680,000 sq. ft.)
 2 buildings in Charles City, Iowa – Manufacturing (161,000 sq. ft.)
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 3 buildings in Charles City, Iowa – Idled Class C Motor Home (Manufacturing) (191,000
sq. ft.)
 2 buildings in Hampton, Iowa – Manufacturing (135,000 sq. ft.)
o Buildings are made of steel and concrete
o Protected from fire with high-pressure sprinkler systems
o Dust collector systems
o Automatic fire doors and alarm systems.
Winnebago owns a number of registered trademarks that brand their company. Their registered
trademarks are: Adventurer, Aspect, Cambria, Destination, Ellipse, ERA, Horizon, Impulse,
Itasca, Journey, Latitude, Meridian, Navion, Outlook, Sightseer, Spirit, Suncruiser, Sunoca,
Sunrise, Sunstar, Tour, Vectra, View, Vista, Voyage, and Winnebago. Winnebago Industries
states that their company is not dependent, by any means, upon any amount of patents or
technology licenses in order to conduct profitable business. However, the 2008 Annual Report
states that Winnebago spend $4.1 million on research and development.
Intangible
This company offers what is commonly considered the foundation of leisure traveling as many
other recreational vehicles are frequently associated with RV travel. This allows Winnebago
Industries to be a valid competitor in the Recreational Vehicle Industry, often recognized as a
symbol of the standard American RV. Winnebago has maintained a strong reputation with
dealers, drivers, employees, and even communities. “Charles City has been an excellent partner
to Winnebago Industries,” notes Winnebago Chairman, CEO, and President Bruce Hertzke. “We
couldn’t be more pleased with the success of our facilities, our excellent workforce, and the great
relationship we have with the Charles City community.”
As Winnebago RV’s hold the lead in innovation, quality, and production, the final products are
very often associated with other recreational vehicles, such as, Harley Davidson Motorcycles,
Jet-ski’s, boats, and snowmobiles. Winnebago offers superior customer satisfaction as sales are
strictly predicted by the economic status and customer loyalty.
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Capabilities and Core Competencies
Winnebago’s best suited capability is manufacturing and production. The company has
definitely expanded over the years, allowing subsidiaries to bought, factories improved, and
cutting the middle man out of raw materials. The company takes pride that they manufacture
and produce the entire product in one area.
Winnebago’s relationship with their suppliers has given them an innovated advantage over other
vehicles, as their RV’s are more technologically advanced. Producing the final product
themselves allows the company to fully utilize their creativity and uniqueness. This makes their
products entirely unique and gives the company an exceptional advancement in competitive
advantage.
VRIO
In the current economic state, Winnebago, unfortunately, has lost their valuable factors when
considering the final consumer. Demand for RV’s are plummeting as RV sales are directly
linked with discretionary spending. Even though their RV’s offer many aspects of value for
travelers, the customer ‘want’ has significantly diminished, which explains the firm’s loss in
income and revenue.
Winnebago’s RV’s are a rare product in terms of manufacturing and technological advancements
and more importantly, their reputation. Winnebago RV’s have been labeled as the standard
American RV for years. It allows customers to experience the American Dream within the
unique Winnebago lifestyle. The company’s relationship with its appliance suppliers is strong
and supplies Winnebago with key features that other competitors have a difficult time to match.
Winnebago RV’s can be considered luxury vehicles, especially considering the amount of
innovation and production time goes into each product.
Winnebago’s RV’s are not non-imitable. The firm has competitors that produce high end RV’s
as well, even though the two leading competitors have recently filed for Chapter 11 bankruptcy
protection. Nonetheless, to produce a standard RV is not a secret.
Winnebago is not non-substitutable, as other brands of RV’s are available for sale.
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Strategic Recommendations and Implementation
Introduction to Strategic Framework
This is where we talk about how we came to our recommendations………..
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Strategy 1
Weakness: Poor sales due to aging over relied upon customer base
Recommendation: Create a network for motorcycle enthusiasts to connect
Harley Davidson is America’s motorcycle giant. For years the baby boomers have
carried the Harley brand to success but in these tough economic times have tightened the belts of
America. No longer are people spending money on leisure transportation vehicles like boats,
ATVs, RVs, and motorcycles. The large problem with all of these products is that they are not
made for daily transportation, they are vacation and thrill vehicles. The market for buyers who
can afford these products is shrinking because a buyer must have a high disposable income to
buy recreational vehicles. Most buyers must already be established in society, the average age of
a Harley Davidson owner is 47.3 years old. This number has continually gone up throughout the
years, even with Harley’s Iron 883 bike that was a success in the younger crowd. Most Harley’s
have a base price of around $25,000 while the Iron 883 starts at around $8,000, which is more
appetizing to the younger audience.
Harley recently announced their new market strategy that is targeting women and
minorities. They are doing this to expand their market base and grow the company to help
survive the current economy. The problem with part of this approach is that part of it does not fit
the Harley culture. Women are either into the biker lifestyle or they are not, they tend to not
have a craving to find something risky to get into that men do in the middle of their lives. This is
an investment in production that may come back to haunt Harley. If they are to grow the
business Harley, must do so without needing in to invest too much capital in new operations and
production. Harley needs to go back to their core and expand by finding new riders who could
become part of the biker lifestyle and culture.
Throughout America there are hundred to thousands of different Harley Davidson

Motorcycle clubs and riding groups. There is no social network that is connecting these groups,
if one was created a large amount of social capital would be created. There would also be an
opportunity to organize rides, stir up attention for rallies, introduce new products, and mostly
connect riders. A social network connecting bike clubs would also have the opportunity to
attract new riders. On Harley’s web site they have the technology to in place for riders to plan
trips, locate dealers to test ride, places to take lessons, and other riding necessities. What they
don’t have is a system in place for people to create accounts and profiles. The ride planner
technology on their site is an under used asset. With this application they could they could
capture America’s classic rides and set up more events for riders to participate in. Athletic
enthusiasts participate in famous marathons, triathlons, bicycle rides, swims, and tournaments
that allow them to be involved in activities with people of similar interests to them. Harley could
copy this format and organize large motorcycle rides for their community to participate.
Harley already has a program that teaches people how to ride their bikes with a certified
and trained staff. This program should be advertized as much as any new products they come
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out with because motorcycles interest and intimidate people at the same time. They also require
a large initial investment. Teaching people to ride Harley Davidson bikes is a great opportunity
to get people more familiar with their products and become comfortable riding bikes. This
training program sets Harley in a nice position that doesn’t harm their strongest attribute, brand
culture and lifestyle.
The culture of Harley Davidson does not promote itself through large scale commercial
marketing campaigns. It inspires people who witness its lifestyle. The culture of Harley either
runs in your blood or rubs you the wrong way. During this tough economic time Harley
Davidson should not try to grow their business, but rather find a way to sustain and endure. In
this economy people are holding onto money, purchasing little more than necessities. Since easy
rider motorcycles are a luxury, recreation, or vacation style item they are not a daily necessity.
Making a bike for daily transportation does not fit well with Harley’s brand defining culture.
The strategies I have proposed use the assets Harley Davidson already has to help them endure
these tough times. If Harley tries to spend there way out of the economic downturn with over
production of new products they will not likely find success. With a new CEO Harley is getting a
fresh look from investors. They need to use any money they receive wisely and reinvigorate
there classic market while attracting new riders to the Harley Davidson lifestyle that has been
them an American trademark.
Strategy 2
Weakness: A lack of market expansion leads to few opportunities
Recommendation: Reorganized international management and expansion into India
The Harley Davidson motorcycle has been an American icon since 1903. Harley has
built one the most unique reputations within the American motorcycle business. The
motorcycles have transformed into a lifestyle, rather than mere transportation. Utilizing the
motorcycle’s image, Harley Davidson became a market for recreational vehicles; constituting a
sense of ‘freedom’ and ‘leisure’ to transportation. Often complementary to other recreational
vehicles, such as motor homes, boats, ATV’s, snowmobiles, etc., Harley Davidson has taken
advantage of their exceptional culture and have used it to create sales.
However, regardless of Harley’s reputation and heritage, an economic downturn has shown that
Harley Davidson, Inc. needs to restructure their market. Financial crisis’ has slowed consumer
spending, ultimately leading to low sales motorcycles and recreational vehicles. Due to the
economic conditions, Harley Davidson’s 2008 profit fell 30 percent, decreasing shipments by 8
percent (Yahoo! Finance, 2009). The demand for heavyweight motorcycles has dropped
dramatically, not only in the US economy but also worldwide.
During the first quarter of last year’s quarter, Harley’s worldwide retail sales decreased 12
percent while US sales fell 9.7 percent (Clutch and Chrome, 2009). A slow domestic economy
then forces one to direct a focus on international prospects to open future long-term
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opportunities. The “American dream,” associated with Harley’s, needs to be changed to fit in
other dynamic cultures to increase market size. Also, increasing market size will allow more
investment in research and development to apply competitive advantages within the market.
Harley Davidson already has an upper hand in terms of brand uniqueness and clearly stands out
from the ordinary motorcycle. An already attractive product will allow R&D to function at an
optimal rate.
Harley Davidson, Inc. currently operates internationally in approximately 30 countries. The

demand in foreign countries has forced management to apply their leadership and marketing
skills to international markets. The economic slump has forced Harley Davidson to restructure
its international management team and outlook. More experience and expertise into a country’s
culture and legal requirements are essential. A global management team needs to be comfortable
and confident when operating with or in foreign countries. Understanding international business
practices and ethics is a crucial quality when trying to expand. Harley needs to create country
based teams that are determined to make wise cultural decisions.
Closely executing legal dimensions, geographic barriers, cultural obstacles, and investments will
positively position Harley Davidson, Inc. for future prospects.
Harley Davidson, Inc.’s former CEO stated, “International markets are a great opportunity, we
need to grow them to diversify our revenue base” (Rovito, 2009). A new CEO has been
appointed and is expected to bring global and manufacturing experience. Keith E. Wandell is
well attuned to international sales as well as manufacturing experience. These two qualities are
exactly what Harley Davidson needs in order to reconstruct their international markets. This
could be a turning point for Harley’s selling approach.
Building manufacturing plants in bigger foreign markets will help relieve shipping expenses,
taxes, tariffs, and will be able to accurately respond to the specialized demand. Starting
manufacturing plants in other countries could create numerous job opportunities. Properly
trained managers would provide a domestic leadership style that is optimally adjusted to the
proper culture. Not only would this create more jobs for US management, but also generate
more revenue for foreign economies as locals will be needed for production. Although a long
term goal, the production of manufacturing plants would be a plausible and positive future
management decision as markets expand over time.
The CEO has already made changes to the management structure, already appointing new
leaders to bring a new vision for international growth. A newly created role within the company
has been created for directing management within Harley’s European market. Harley Davidson,
Inc. recently purchased an Italian motorcycle company called MV Agusta Group. This type of
leadership is what Harley Davidson needs in order to strategically and competitively compete in
new markets. The new management direction holds a lot of room for future developments, such
as foreign manufacturing plants, but steps need to be taken in order for future growth to occur.
Harley Davidson should look into the Indian market with more consideration and force.
The country of India populates approximately over 1 billion people and the world’s second
largest motorcycle market. Less than one third of the working population operates within India’s
service market, which is the major source of their economy. This made India very attractive to
Harley. Harley Davidson has already looked into moving into India, but there are some political
factors that serve as a barricade for Harley’s arrival. “Harley-Davidson’s efforts to sell
heavyweight motorcycles in India have been hindered by stringent emission requirements and
80
high tariffs and taxes” (Rovito, 2009). The emissions requirements issue was carefully
considered and essentially created a deal with the Indian government. The government allowed
Harley Davidson to sell their motorcycles for the exchange exporting mangoes to the US.
However, Harley still faces high tariffs and taxes, which blocks a successful path.
India’s tariffs for heavyweight motorcycles are approximately 60 percent giving their product
twice the price to sell. Harley needs to invest time and persistence in order to successfully
operate in India. The Office of the United States Trade Representative essentially negotiates
with international governments to solve disputes between a company and a government.
Working closely with this organization will properly allow Harley to enter India. Being involved
with the government will usually help with dealing with other governmental issues. Joining the
World Trade Organization could possibly aid in the lowering of tariffs, giving Harley a better
advantage to enter. Entering India will be a long term strategy, due to the government’s decision
to keep competitive products out of the market by issuing high tariffs.
The size of the market alone should be a determining factor for Harley to maintain a presence.
Larger markets usually offer higher potential returns which can significantly reduce the risk
associated with investments. These new investments are essential when operating in such a
dynamic market. Making their products unique to a new customer base will require more
investments to make their motorcycles more attractive to the Indian culture. The rise of India’s
“Bollywood” (equivalent to the US’s Hollywood) has put a great emphasis to Western
materialism, but also strengthens India’s normative way of life. India’s annual economic rate is
currently eight percent, which shows that more buying power is being presented to customers,
with even more disposable income. Therefore, the high market and increasing economic growth
rate, greatly foresee Harley’s presence in the future.
With the current domestic economy the way it is, Harley Davidson, Inc. cannot afford to not
increase their market size. Harley needs to restructure their international management team and
start focusing on long term goals to increasing market size. With a decreasing market, Harley
will begin to see diminishing opportunities. International growth is a key component to Harley’s
survival and needs to be implemented as soon as possible. US sales are declining, giving
international sales a better source of revenue.
Careful consideration is needed within management leadership as it creates the structure of

foreign operations. Keeping persistence with the Indian government could eventually lead to
their entrance into India, thus providing a huge market, with an increasing economy, leading to
more international sales. Carefully transforming the American image of the Harley Davidson to
the proper culture will be a challenge but will ultimately create more opportunities for domestic
and international growth.
Strategy 3
Weakness: Weak performance in the United States
Recommendation: Release a limited edition motorcycle, co-created by consumers
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Many consumer behavior research studies indicate that consumers are very likely to
purchase products that are offered as limited editions. One strategy Harley-Davidson can use in
order to foster growth is to release a limited edition motorcycle, co-created by consumers as part
of the promotional mix. Harley-Davidson can use this promotional strategy to get consumers
involved, appeal to their desires for rarity, and increase sales.
Implementation:
While Harley-Davidson has released several limited edition motorcycles in the past, this
promotion can be adapted into a new strategy. The new limited edition motorcycle would require
the involvement of consumers to help co-create the product. Harley-Davidson’s research and
development department would design three different motorcycles and then they would be
uploaded to the HD website. Then, consumers would be able to log on and vote for their favorite
motorcycle. The winning motorcycle would then go into limited production. Those who voted
would have first priority to purchase the motorcycle. Owners would then get an all-inclusive trip
to the Harley Davidson Sturgis Rally. This promotion would be relatively inexpensive, yet
highly effective. The designers could design the motorcycles in a way that reuses as many
existing parts as possible, while still creating a unique style. This design process would lower
production costs for the limited edition motorcycle.
Justification
A limited edition motorcycle release of this nature would be an effective strategy because
consumers are flocking to brands that are “playing hard to get.” Now more than ever, rarity is
important for the high-end luxury sector, affluent 30-40 year olds, baby boomers, generation X
and Y, and ‘creative class’ consumers (Kasriel, 2007). This trend has shown that successful
selling involves building a niche market rather than appealing to the masses. The world is
becoming saturated with products that are very similar to each other, and the quest for rarity has
been driven by the feeling that certain products will help us to stand apart from the masses. A
limited edition Harley-Davidson motorcycle is the perfect way for consumers to do just that.
This consumer quest for rarity has allowed for many commercial opportunities.
Companies can use special editions to sell similar products to the same consumer multiple times,
or they can hold back products in order to maintain a market for that product in the future. In
addition to offering their new mass market motorcycles, Harley-Davidson should increase their
competitive advantage by giving consumers more personalized products and experiences.
Harley-Davidson does not need to “reinvent the wheel” in order to achieve rarity. In fact, limited
edition products can simply be newly presented motorcycles with innovative add-ons. Small
adjustments are often all that is needed to make consumers feel like they “have to have it.”
Adding small touches such as special emblems, colors and accessories to the motorcycles can
help HD create rarity.
Limited edition releases that involve consumers in the creation process would counteract
the tension between the mainstreaming of luxury and the retaining of its exclusivity. Many
82
products that have previously been known for their exclusivity are now becoming more readily
available to the general public. People buy things for what they represent. Nobody buys
commodities in themselves anymore, other than in the developing world (Kasriel, 2007).
According to Kasriel, the generic product doesn’t have a future. In the past, exclusivity has been
reserved for he wealthy, but now mass-exclusivity is what the majority of consumers are seeking
from products. Consumers want products that make them feel special and differentiate them from
the crowd. Harley-Davidson can create an alter-status for their consumers by tweaking their
widely available motorcycles and creating a sense of exclusivity.
Consumers respond differently to products that convey a sense of urgency as well as

rarity (Kasriel, 2007). Again, rarity doesn’t necessarily come from the offer of a brand new
motorcycle, but rather a motorcycle that is offered in a new way. Other examples of this are
limited edition cars- such as the Harley-Davidson F-150- and ‘Directors’ Cut’ DVDs- with
additional/remastered material.
Harley-Davidson should join other luxury manufacturers who are turning to planned
scarcity in order to meet the needs of buyers who are on a quest for exclusivity. The traditional
signs of wealth have filtered down the market with emerging markets such as Brazil, Russia,
India and China. Luxury brand extensions are now appearing over-available. With competitors
releasing cruiser-style motorcycles similar to HD models, Harley-Davidson must give consumers
a reason to pay a premium for their products.
With increased globalization and technological innovations, consumers are demanding

mass customization. They want to make adjustments to the base product in order to make it their
own. Increasingly, consumers want to be a part of the design process. A limited edition
motorcycle that is co-created by consumers would fulfill this need for mass customization. Other
companies have already utilized this concept in order to induce growth. For example, Starbucks
lets customers create their own coffee drink with thousands of possible combinations (Kasriell,
2007). The phenomenon of consumer vertigo, stemming from the excess of consumer choices,
can also be solved with the release of a co-created limited edition motorcycle. Consumers don’t
have to spend as much time and effort sorting through the options.
According to Kasriel, consumers are flocking to the deliberate creation of a buzz around
brands creating an illusion of scarcity. Therefore, this limited edition motorcycle release would
have to include elements that create hype and buzz around it. Harley-Davidson can create hype
around the release by effectively promoting the launch date and creating a viral Internet video.
Apple’s iPhone is a great example of a campaign that used hype to create excitement
surrounding the launch date. By advertising how scarce the motorcycle will be, HD can appeal to
consumers’ wants and desires. Consumers want to be the first to own the scarce motorcycle, and
they are also concerned that the product is going to run out. This motivates consumers to
purchase the motorcycle as an impulse buy rather than going through the traditional cognitive
buying steps. The following companies are just some of the many who prospered from
generating hype: H&M, Vera Wang, Starbucks, 2K Games and Hershey Foods (Kasriel, 2007).
83
Harley-Davidson is not new to the limited edition market scheme- the strategy just needs
to be adjusted to today’s consumer. One of Harley-Davidson’s previously successful limited
edition motorcycles is the 50th Anniversary Nightster. This model was popular because it made
people want what they couldn’t have. This model was embellished with a gold anniversary
emblem and the year “1957” embroidered on the seat. The motorcycle also was aligned with the
traditional masculinity of HD, including the traditional colors, chrome pipes, and rugged-look.
Only 2,000 of these were manufactured and they retailed at only $10,000- now that’s buzz-
worthy. Even Harley-Davidson representatives say they don’t know of a single dealership with
one in stock (Kasriel, 2007).
Even in the declining economy, Harley-Davidson can still grow their company by
altering their promotional mix. HD can create hype and buzz by releasing a limited edition
motorcycle, co-created by consumers. Consumer behavior research shows that consumers
respond positively to product campaigns focused on rarity and scarcity. The buzz created due to
this product release will help to increase brand awareness, and more importantly, brand
resonance. These two factors ultimately result in more sales for the company.
Strategy 4
Weakness: Positive cash flow, but negative income from operations and investing activities
Recommendation: Need to focus investing activities in order to augment working capital

structure
Financial Weakness
HD stock price is at its lowest average price market value in years. HD working capital is
constantly decreasing, while although HD cash flow is increasing on a yearly basis, they still
cannot find financing to support company growth from American institutions.
Opportunity
With foreign operations increasing in volume, as well as capital investments and relationships
with suppliers overseas HD can invest its excess cash into relationships with strategic partners in
Europe and/or Asia as well as investing in and building upon relationships with franchises and
other retailers in those countries. Since HD does not have the working capital to finance growth,
yet they do have a positive cash flow, HD must put their excess the cash flow to work in order to
generate capital.
Recommendation and Implementation
Due to strong currency trends in these countries and weakening values of the American Dollar
and an available cash flow, HD should pursue other short-term investments and long-term
84
partnerships in the European Union and China. In this way HD can possibly augment its cash
flow exponentially during the current economic recession and increase its current ratio while also
increasing its working capital.
“Companies need a logical and intelligent process that can mitigate the risk, while allowing them
to identify the real opportunities and pursue them as aggressively as possible” (Growth
Imperative). While the American Dollar is still in decline, it makes little sense for HD to invest
in American funds. With overseas opportunities primed in the EU and in Asia –specifically
China- HD should invest in local dealers with their local currencies. However, historically HD
has not had success in its investing activities. In order to be successful in increasing their
working capital through good investments, decisions within the company need to be made
differently. The new CEO, Jim Ziemer may make this possible and needs to focus on smarter
investment decisions.
In the past year, HD did not invest any of its cash flow into short term investments, instead
choosing to re-invest money in the brand. In the long-run, brand reinvestment holds strong value-
creating trends for HD. However, in order to continue sustainable growth, HD needs to fund its
endeavors and therefore needs a larger amount of working capital.
Cash Flow is currently positive, but in order to remain so HD needs to refocus on opportunities
which are currently weak points for the company.
The amount of cash reported for 2008 is an overall positive number ($593,558,000) however,
that includes the negative amounts of cash from operating and investment activities (Net cash
used by operating activities -$684,649,000 & investment activities -$393,247,000 from Figure
2). This shows that HD is losing money in all of their core business activities except for their
Financing Division, which is also the business area that is lacking in funding on a long-term
basis. In order to turn this weakness around, HD needs to focus on the restructuring and investing
opportunities provided them by the current economical recession, as per our recommendation.
Operations may be a core competency for HD, but it is still losing them money. They need to
refocus this activity in order to make it sustainably competitive and profitable, focusing on the
global scene.
In order to remain competitive within the industry and seize the opportunity the economy is
presenting on a financial, global basis HD will need to adequately “adjust to fluctuations in
foreign currency exchange rates, interest rates and commodity prices.” (Milwaukee 2009). If HD
manages their cash correctly in order to increase their cash flow over the coming months, they
will have enough cash to re-purchase the remaining number of the shares outstanding for their
company or finance a number of other strategic options and recommendations.
Risks
HD risks making poor decisions in its activities and falling victim to needing more debt
financing instead of financing through short term assets. When focusing more globally, the
85
American core culture of HD may be at risk and employees may feel left behind and/or
disenfranchised of their American dreams.
The bottom line implications
Cash Ratio
Current Ratio
Liquidity Ratio
WACC
See Currency Trend Charts
Synergy and Conclusion
Based on our group efforts of analysis we conclude with the following findings: Harley
Davidson does not have the capital means or financial structure to support future growth in the
current economy. As previously stated HD is not a daily use product, but instead a lifestyle
product that relies on its loyal customer base and their levels of disposable income. HD along
with the rest of the recreational vehicle industry is a premium lifestyle product. The products
offered by the industry are meant to bring thrills to their owners. Harley Davidson’s most
valuable asset is there brand culture created by their strong focus on the customer. Instead of
focusing on growth HD should look to sustain their brand image while restructuring their
product offerings to better fit with current market demand. Harley needs to look for ways to
keep business operations running without betraying the brand legacy they have built. With their
current loyal customer base aging, the average age of a Harley rider is over 47 years old, HD
needs to focus on a product differentiation strategy that falls under its current capacity for
production. The biggest future problem Harley Davidson faces is a lack of capital to run business
operations. They must be conservative about expenditures while finding the right places to invest
and push their products. The customer is king for HD and operations need to continue to reflect
that.
Currently HD is in the middle of a restructuring process for there production systems.
After this is complete HD needs to find the production capacity level that fits the movement of
products in the market. HD has created an atmosphere of customization and individuality for its
riders. Limited edition motorcycles have been a hit among the riders. They are quick to sell out
in stores or auctions. Coming out with these lines creates a buzz for Harley Davidson that no
commercial or advertizing campaign can because people want to get there hands on these
exclusives. This also allows HD to use the assets they already have instead of investing to create
new ones. Other Assets Harley has that are under utilized are there rider training courses and
trip planning accessories. The training courses eliminate the intimidation that may come along
with the HD culture and allows newcomers to become familiar with the new smooth riding bikes
in HD’s arsenal. This must continue as each rider has their own personal style.
86
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Running Head: HARLEY-DAVIDSON, INC.

& THE GREAT RIDE INTO THE SUNSET

Pacific Lutheran University

In partial fulfillment of the requirements for BUSA 499-02

 Resources and Capabilities...............................................................................14

Suzuki Strategic Profile................................................................................................23

 Resources and Capabilities...............................................................................14

Honda Strategic Profile.................................................................................................33

 Resources and Capabilities...............................................................................14

Polaris Strategic Profile................................................................................................45

 Resources and Capabilities...............................................................................14

Winnebago Strategic Profile.........................................................................................45

Strategic Recommendations and Implementation.........................................................50

Overall, supplier power is moderate.

Threat of New Entrants

Overall, this threat is moderate.

Furthermore, Coachman Industries, a recreational vehicle manufacturer, has been eliminated

An important aspect to keep in mind when analyzing Harley-Davidson’s external economic

Outside of the Motorcycle segment, Harley-Davidson continues to perform as a leader. The

Harley-Davidson’s competitors are all in continuous processes of innovation in order to remain

Summary of the P.E.S.T. Analysis

Animal Farms  Leather Manufacturers

Textile RM Farms  Cloth Manufacturers

Rubber Plantation  Rubber Manufacturer

Operations and Manufacturing

Logistics and Distribution (Inbound & Outbound)

Transportation Networks & Contracts

Sales and Marketing

Sell company-manufactured products to customers and communicate demand in real time in

Individually Owned Dealerships

Service and Aftermarket

Repair and Maintenance – Privately owned

Breakdown of Profit and Market Capitalization –See Figure 1.2

Harley-Davidson uses a Supply Management Strategies system, integrated and organized by

Harley-Davidson has many programs in place to maximize communication, monitor

When shipping to company-owned subsidiaries in Brazil, Japan, Europe, Italy, Australia,

Marketing and Sales

HD is mainly a decentralized, flat organization that encourages empowering its customers,

Human Resources Management

As for compensation, HD has a Human Resources Charter Committee, whose purpose is to

Another major HR organizational management initiative for HD is their Accenture Human

Research and Technological Development

HD focuses on product development at their Product Development Center based in Wauwatosa,

Rare – Is the control in hands of a relative few?

Imitability – Difficult to imitate?

Organization – Ready/Able to exploit/non-substitutable?

Suzuki’s tangible resources include its production equipment, manufacturing facilities,

Raw Materials: Components:

Steel Four-stroke engine Pulleys

Aluminum Carburetor Metal Chains

Plastic Choke Sprocket

Copper Drum Brakes ignition wires/coils

Clutch spark plugs

Once raw materials are received from the

The Suzuki manufacturing plant in Georgia primarily assembles

Sales & Marketing

Once Suzuki motorcycles arrive at the dealership, it is time

Street Scooter Motocross

Sport enduro tourer Dual purpose

Research and Development

Suzuki’s goal when it comes to researching and development is to create “value-packed

Intangible – Human Resources