Harley Davidson Case Essay
It is helpful to adopt three different yet complementary views of operations strategy:
The resource view of operations comprises 4 key questions:
• Sizing –Due to the volatility and cyclical motorcycle business, Harley-Davidson attempts to expand capacity without taking on further debt. Thus, it would expand capacity first through internal process improvements and restructuring, and externally only if needed.
• Timing – In 1992, production capacity was increased from 75,000 to 100,000 after an internal expansion project. In 1995, a further capacity expansion was planned in response to the growing motorcycle market.
• Type – Harley-Davidson has …show more content…
3. What factors should HD consider when analyzing the alternatives?
HD should analyze the revenues and costs of each alternative choice to determine the highest net present value for the next 10 years. HD should also be cognizant of alienating customers if they raise prices too much or remove production of the popular Sportster line. HD should consider future demand trends and the possibility of new entrants to the market.
3. What is your recommendation to HD? Assess your plan’s fit with HD’s strategy and assess its financial attractiveness: complement your quantitative analysis with an NPV analysis.
There is a large degree of uncertainty for the greenfield investment, as it is unknown how long construction will take and how long it will take to ramp up to full production. Assuming that the plant takes 2 years to ramp up to full production, the summary is as follows:
Strategy NPV NPV relative to best strategy Capex ROI
Increase price 258,147,449 0.17 - Infinity
Change mix 258,506,972 0.18 20,000,000 12.9
Continuous improvement 605,433,977 0.41 40,000,000 15.1
Brownfield 1,477,143,008 1.00 100,000,000 14.8
Greenfield 1,450,468,678 0.98