Best Practices -- Driven By Cost

Harley-Davidson's design-cost management strategy is enterprise wide and leverages supplier relationships.

Harley-Davidson Motor Co., Wauwatosa, Wis., has become known for translating process innovation into business revival. The payoff: Product demand has grown five-fold, and the company now commands nearly 50% of the U.S. market for motorcycles. Annual revenue growth percentages continue in the double-digit range. A significant contributor to maintaining this growth into the future is a new-product cost-management strategy based on design for manufacturability, says Dan O'Callaghan, director of product cost. While Harley-Davidson recognizes that 70% or more of a product's cost is determined at the design function, the cost strategy goes far beyond the function of product development. The plan is an enterprise strategy that extends to suppliers. O'Callaghan outlined the approach at the 2002 International Forum on DFMA (Design for Manufacture and Assembly) in June. "In early 2000 the company instituted a department for product-cost management to study the new-product development process." To integrate the needed cultural changes, Harley-Davidson involved functional leaders as advisers during strategy development. Two elements evolved, a business planning process and a target-based performance model. The first links cost management to corporate objectives and the second sets, validates and measures progress towards cost targets. To set targets, Harley-Davidson uses concurrent costing software from Boothroyd Dewhurst Inc. (BDI), Wakefield, R.I. O'Callaghan says cost management is responsible for supporting all projects in product development as well as providing budget and forecast support to all of the company's production facilities. "Cost management also provides product cost for motorcycles and, for the first time, has the ability to understand the cost for all destinations, options and colors. Materials management and cost management work closely to integrate BDI into our supply base. BDI [software] facilitates data-driven discussions." Cost analysts work with the development teams similar to the way a plant controller guides a company to maintain financial viability, O'Callaghan says. By providing early cost data, the development teams can manage necessary trade-offs. "Design engineers are encouraged to work with manufacturing personnel since cost understanding must be developed in conjunction with an understanding of how things will be made. And the cost information is linked to the corporate profit plan, which allows the financial community direct understanding to the direction of the company's financial future years in advance." To meet those objectives, cost systems at Harley-Davidson are transitioning from a plant focus to a product focus. The shared use of BDI's DFMA software is how Harley-Davidson integrates suppliers into the product development cycle. Leveraging trust accumulated from unique working relationships, the company makes a convincing case that the software is only a tool to promote discussion and provide documentation. [DFMA] "is not a tool to force cost reductions on them," insists Cheryl Wood, new product cost engineer. The DFMA Payoff: In 117 published case studies involving 56 companies, the categories below were cited as benefits of DFMA.

Benefit Times cited Average change (%)
Part count 100 -54
Assembly time 65 -60
Product cost 31 -50
Assembly cost 20 -45
Assembly operations 23 -53
Weight 11 -22
Labor costs 8 -42
Manufacturing cycle time 7 -63
Part costs 8 -52
Assembly tools 6 -73
Annual cost savings 11 $1.4 million
Source: Boothroyd Dewhurst Inc. Send submissions for Best Practices to Editorial Research Director David Drickhamer at [email protected]
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