by Paul V. Arnold

It didn’t take much for newspaper editor Horace Greeley to declare "Go west, young man" in 1841. While dramatic, they were merely words. It took pioneers like Daniel Boone, Davy Crockett and Jim Bowie to travel into the unknown and brave adversity to create change in the form of western expansion.

These days, plenty of manufacturing companies declare, "We must partner with our suppliers." In large part, though, those are just words. Many say, but few do.

Again, you need real pioneers to bring change and growth.

Albert Keal is part Horace Greeley, but all pioneer.

In 1997, in his early days as the top MRO purchasing executive at Harley-Davidson, he coined the departmental slogan "heading west."

Keal figured MRO purchasing, and the motorcycle manufacturing company in general, had to move forward and expand their relationship with suppliers. 

To bring change and growth, he said, they had to all head in the same direction, head west together. "All" included Harley-Davidson’s MRO suppliers.

"You can accomplish a lot when everyone is heading west," says Keal. "The problem comes when somebody is standing still or heading in the opposite direction."

Keal recognized the importance of such a bold move. But unlike Greeley, he donned his coat (single-breasted sport jacket) and hiking shoes (polished leather loafers) and led the troops.

His work, structured as the Harley-Davidson Indirect Materials initiative, or HIMA, went beyond words and into groundbreaking action. This strategy — forming true partnerships with a small but critical circle of suppliers — has this MRO purchasing department heading west, and toward a five-year cost savings goal.

"We do consider ourselves pioneers in working with suppliers," says Harley-Davidson supply chain lead Tony Wenzel.

This tale is one for the history books.

In the beginning
When Keal came to Harley-Davidson in mid-1996, the company’s MRO purchasing department wasn’t seen as a trailblazer. There was a real disparity between it and original equipment (OE) materials purchasing.

"As at most companies, the MRO side wasn’t treated with the same priority as OE," he says. "OE was where the volume was. It’s the ‘important’ purchases. MRO wasn’t seen as critical to the operation."

Harley dealt directly with more than 3,500 indirect materials suppliers and was just beginning to understand how much money it spent on MRO products. This arrangement didn’t allow for effective management of the supply base. However, the seeds of success were being planted.

Since the early 1990s, several industrial distributors had an on-site presence at Harley’s plants in the Milwaukee area. They didn’t assume traditional "transactional" integrated supply functions like running the tool crib or taking over materials procurement. Instead, they served as product application specialists, providing expertise on consumable products such as cutting tools and abrasives.

Such supplier support on the MRO side, and on the OE side, intrigued new vice president of materials/product cost Garry Berryman in 1995.

"We began looking at suppliers not only from a procurement perspective, but in terms of integrating them into our organization," says Keal.

At the same time, Harley began seeking ways to drive cost out of goods and services purchases. In examining the frontier, it realized the opportunity that existed on the MRO side. In late 1997, Berryman gave Keal the task of fully implementing a supplier support/cost savings plan for MRO procurement.

A plan must be flexible
HIMA, Keal’s solution, was actually Plan B. 

A consultant advised Keal in 1998 that, to strategically manage MRO procurement, Harley needed to hire 18 corporate purchasing managers — one for each of its commodity groups.

"I knew we weren’t going to get 18 additional bodies. I asked the company for three to six, and that wasn’t possible," Keal says. "I thought about it a while and said, ‘What if we use our suppliers?’"

Keal’s plan called for a small group of suppliers to manage assigned commodity categories, provide a wealth of on-site technical support, and find ways to improve quality, cost and timing.

Four seemed the ideal number. It’s difficult to create and manage 25, 50 or 100 tight supplier relationships. And while it’s nearly impossible to find one distributor with expertise in 18 commodity groups, finding one with expertise in five or six is very possible.

But how do you choose four out of thousands of current suppliers, and a host of other companies hungry for Harley’s business?

Harley-Davidson sought suppliers willing to approach integrated supply in a very different way.

"The traditional integrator approach is more of a transactional relationship," says Wenzel. "We wanted to go beyond that, into operational integrity (increasing company profitability through productivity, efficiency and quality enhancements). A transactional relationship is very short term. Operational integrity is continuous."

Rules of engagement
The final criteria for consideration included the following:

• A willingness to work within Harley-Davidson’s supply management strategy.

• Technical competency to create a linkage to production, productivity and quality.

• A demonstrated ability to generate and achieve sustainable cost savings.

• Proven leadership and a track record within Harley-Davidson.

• The ability to proceed in this direction and grow with H-D.

• A critical level of spend.

Where did product pricing fit in?

"We took a different approach. We didn’t look at pricing, per se," says Keal. "We had a cost savings objective. Based on your expertise and product knowledge, what can you save us? How can you use that knowledge to increase manufacturing uptime or integrity?"

Four suppliers made the cut. One pulled out late in the process, leaving three to care for Harley-Davidson’s needs. All three had long-standing relationships with the company prior to the selection process. In today’s HIMA setup:

One supplier handles abrasives, electrical products, gauging, hardware, material handling/shop equipment, perishable tooling, plumbing supplies and power transmission products.

The second handles janitorial products, office equipment/supplies, packaging materials and safety products.

The third handles chemicals and gases, facilities supplies, welding supplies, raw materials and outside services.

Don’t call it ‘supplier reduction’
HIMA seems like a calculated supplier reduction initiative. However, Keal cringes when he hears that label attached to it.

"Consolidation was not the driving force," he says. "It was a residual benefit."

In truth, hundreds of suppliers are still involved with the Harley plants. However, they act as Tier 2 suppliers to the Tier 1 HIMA members. If the HIMA supplier responsible for cutting tools, for instance, doesn’t stock a specialty drill, it finds a Tier 2 that carries the item. The HIMA supplier buys the item and brings it to the plant. Harley-Davidson doesn’t pick up a catalog or phone.

"Some suppliers have actually gotten more business this way," says Keal. "Many created relationships with the HIMA suppliers that carry over to their other clients."

Open arms
The word "relationship" is used often in this story. OK, you ask, just how close is Harley-Davidson to its HIMA suppliers?

Consider the following:

Open understanding: Based on Keal’s emphasis of "relationship before issues," the initiative was implemented without a written contract.

"If you can create something mutually beneficial, then you can do it without a documented contract," he says. "What we do have is a statement of work, which outlines what’s going to get done, what each party expects and what each party will deliver."

The agreement covers five years, through the end of 2003, but the goal is for ongoing cooperation.

Open doors: Each supplier has a dedicated team of employees available 24 hours a day to Harley plants. But Harley employees spend time at the suppliers’ sites, too. Purchasing, engineering and plant-floor workers spend time providing training on inventory management, supply chain management and quality topics.

Open dialogue: Keal meets once a month with executives from the three suppliers.

"We find out how much savings have been generated. We ask how much sales have been generated," he says.

And . . .

"We ask them if they’re making their targets (sales, profit, savings, etc.)," he says. "If they aren’t, let’s examine what’s the issue. If the supplier isn’t profitable in the relationship, the supplier won’t be there to help."

Open shop: An outsider may have a hard time distinguishing Harley and supplier employees on the shop floor.

"There’s no walls. We work side by side," says Wenzel. "Actually, many (supplier employees) wear a Harley T-shirt."

Open minds: At least once a month, supplier application engineers share cost-saving visions with representatives from MRO purchasing, engineering, finance and production. The meetings review the status of projects and approve the start of new projects.

Says Wenzel, "We all have to sign off on the project."

From afterthought to leader
The entire process is working as planned.

HIMA suppliers reached their hard-dollar cost savings goals for 1999 and 2000, and are targeting even more aggressive goals this year, and through 2003. The initiative’s five-year cost savings goal is in the eight-digit range.

Many times, cost savings come by spending more money. A HIMA project may involve changing a cutting tool’s brand, coating or composition. The switch may raise the per-tool cost 10, 20 or 30 percent, but if it substantially drops cycle time and cost per part, it generates total life-cycle savings.

The bottom line? Everyone is happy.

Production and maintenance workers like the increased uptime. They also get fringe benefits by getting to test prototype products (hand tools, power tools, etc.) brought in by suppliers.

Application engineers take some of the load off Harley engineers. 

And HIMA’s success benefited MRO purchasing pros, who now receive the same recognition as their OE counterparts. In fact, OE is now looking to adopt a program similar to HIMA.

"It’s good to be perceived as a change agent," says Keal.

And, as a pioneer.

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