Harley Davidson Highlights the Downside of Offshoring
Ironically, U.S. motorcycle maker Harley-Davidson began its offshore production just as pioneers of the strategy raced to relocate back to their home base.
The company only recently moved some of its production overseas and built up a roster of foreign suppliers. Boston Consulting Group and other analysts are quick to point to supply chains required by overseas sourcing for unforeseen inventory expenses, quality control problems and unanticipated delays. For Harley Davidson, the supply chain turned their foray into a catastrophe, as their recently released second quarter earnings demonstrated.
Until this year, all Harley-badged motorcycles were built in the United States using parts that were almost exclusively sourced domestically. That changed due to the introduction of the Street, the company’s first new motorcycle platform in over ten years and its first Harley-badged lightweight bike since the 1970’s.
Street motorbikes meant for the North American market would be built at the company’s plant in Kansas City, Missouri. But in order to keep prices low, the company said the U.S.-built bikes would feature more foreign-made content and components than any motorcycle in Harley-Davidson’s history. Street motorbikes bound for other parts of the globe were to be built in India.
Harley-Davidson intended to begin shipping Street motorbikes to dealers within the U.S. in the spring. But the company recently admitted that the launch had not gone as planned: instead of arriving in showrooms en masse last May, the bikes only began to stagger in at the end of June. Harley-Davidson blamed foreign parts makers whose components failed to get to the Kansas City facility on time.
According to Reuters, Bob Klein, a spokesman for Harley-Davidson, said the problems forced the company to “slow-walk” the startup of Street production. He said the issues have been addressed, that the company is “catching up on parts deliveries to the U.S.” and that Harley-Davidson's “ability to supply the U.S. dealer network will improve” later in the year.
Harley-Davidson’s decision to move production overseas came about just as many North American manufacturers were doing the opposite and bringing their businesses back home, particularly in Canada.
BCG first flagged the reshoring trend in 2011. Analysts at the company say that a number of factors are driving the return of manufacturing to the United States. Harley-Davidson had to learn that lesson the hard way.
"This is the first time we're manufacturing product internationally, and with that, a majority of the supply chain is international," Chief Financial Officer John Olin told investors during a conference call. “And not only is it a much longer supply chain, but it's with a lot of new suppliers. We're going through a learning curve.”
Gartner: Leaders Lack Skilled Smart Manufacturing Workers
With organisations rapidly adopting industry 4.0 capabilities to increase productivity, efficiency, transparency, and quality as well as reduce cost, manufacturers “are under pressure to bring their workforce into the 21st century,” says Gartner.
While more connected factory workers are leveraging digital tools and data management techniques to improve decision accuracy, increase knowledge and lessen variability, 57% of manufacturing leaders feel that their organisations lack the skilled workers needed to support their smart manufacturing digitalisation plans.
“Our survey revealed that manufacturers are currently going through a difficult phase in their digitisation journey toward smart manufacturing,” said Simon Jacobson, Vice President analyst, Gartner Supply Chain practice.
“They accept that changing from a break-fix mentality and culture to a data-driven workforce is a must. However, intuition, efficiency and engagement cannot be sacrificed. New workers might be tech-savvy but lack access to best practices and know-how — and tenured workers might have the knowledge, but not the digital skills. A truly connected factory worker in a smart manufacturing environment needs both.”
Surveying 439 respondents from North America, Western Europe and APAC, Gartner found that “organisational complexity, integration and process reengineering are the most prevalent challenges for executing smart manufacturing initiatives.” Combined they represent “the largest change management obstacle [for manufacturers],” adds Gartner.
“It’s interesting to see that leadership commitment is frequently cited as not being a challenge. Across all respondents, 83% agree that their leadership understands and accepts the need to invest in smart manufacturing. However, it does not reflect whether or not the majority of leaders understand the magnitude of change in front of them – regarding technology, as well as talent,” added Jacobson.
Technology and People
While the value and opportunities smart manufacturing can provide an organisation is being recognised, introducing technology alone isn’t enough. Gartner emphasises the importance of evolving factory workers alongside the technology, ensuring that they are on board in order for the change to be successful.
“The most immediate action is for organisations to realize that this is more than digitisation. It requires synchronising activities for capability building, capability enablement and empowering people. Taking a ‘how to improve a day in the life’ approach will increase engagement, continuous learning and ultimately foster a pull-based approach that will attract tenured workers. They are the best points of contact to identify the best starting points for automation and the required data and digital tools for better decision-making,” said Jacobson.
Long term, “it is important to establish a data-driven culture in manufacturing operations that is rooted in governance and training - without stifling employee creativity and ingenuity,” concluded Gartner.