St. Louis, MO
Posted - 02/03/2011 : 8:09 AM
HDI was called a "supply chain icon" in Jan. 2005 in Chief Supply Chain Officer Magazine because, in part, "Harley is moving away from the traditional push approach to replenishment. This is where the supplier pushes components to the manufacturer based on pre-set forecasts. It sounds simple, but long-term forecasts and anticipated production are not always the whole story and push can never truly help vendors closely match supply to demand. Pull is the opposite, and expresses the true beauty of JIT: order what you need because you are about to run out."
But in the category of "Do what I say not what I do", HDI pursues the opposite policy with their dealers pushing them to take bikes the dealers don't need when dealers had been operating on the very same pull policy that HDI has now adopted. And that push has become shove when it comes to many dealers.
There have been many reports HDI has exerted massive pressure on dealers, threatened to cut allocations of popular motorcycles, adjust territories, and so forth if they don't cooperate.
As a result, even as H-D was moving to the pull strategy to save costs, they were forcing dealers to the accept the push strategy in terms of supply and demand to make more profit. Profitability increased because H-D was saving money by the pull strategy and making money by the push strategy.
While this seems like good business strategy, it didn't work out that way more bikes didn't translate into significantly higher dealer sales. Market pricing, however, did disappear. While the push strategy may make good sense in the first, second and third quarter, it led to inventory build up during the off-riding season too many bikes to be kept at the dealership.
Too many bikes on hand would be really bad for dealers except H-D had a plan to take care of that. According to a 3/8/06 MarketWatch article by Herb Greenberg, J.P. Morgan, analyst Dean Gianoukos had reported in December 2005 that H-D had for a long time been "providing independent, third-party warehouse space to dealers in high rent districts and others with limited floor space." This practice is called warehousing.
H-D counts the bikes as sold as long as it's shipped *somewhere*. The Company appears to be growing and that impresses analysts and stockholders. But shipping the bikes from the plants didn't mean the motorcycles had to be delivered to the dealership itself.
It turns out that H-D paid for the storage facilities for the extra motorcycles, and that relatively small investment in rent paid bigger dividends in stock and drove up the stock price and, consequently met performance targets. This may or may not be legal, but when analysts found out about it they were concerned. As Greenberg pointed out, "Harley might have found a convenient way to stuff its dealers with bikes."
While this, when it first began, gave the instant effect of higher demand and faster growth, it's illusionary unless demand continues to grow the following year.
H-D, however, maintained that purchases reflect demand. And it's true that the dealers did, in fact, buy the bikes, so it seemed as if H-D was right no matter where the bikes were temporarily stored.
But the reality is, as we shall see, many of those bikes that were warehoused were bought in the off-season. And this makes no sense to riders, however, since we know demand is very low in the winter in most of the country and not high even in sunbelt states. It's difficult to believe H-D is telling the truth and suggests there was another reason for the warehousing.
This also raises questions about those drooping Custom sales and the surge in Sportsters shipped. If they weren't paying for storage space, dealers could buy about 2.5 Sportys to one Custom and H-D's sales reflect two units shipped instead of one. As long as the Sportsters would eventually sell, it could be good for the dealer and good for the Motor Company.
Since 2.5 Sportys still cost the dealer several thousand dollars, and dealers can't afford to buy bikes they don't think will sell, so it appears the Company must be right and purchases must reflect demand.
Not really. Dealers don't really *buy* the bikes cash on the barrelhead. They do what we do they finance them. In the ordinary course of events, though, they still want to sell any bike as soon as they possibly can to avoid those interest charges. Back when market pricing was the norm, this wasn't an issue the bike was sold before it arrived at the dealership. With the inventory build up, it would be. Or rather it would've been.
But H-D had a plan for that as well...