Strategic Initiative Paper (Harley Davidson) – FIN 370 Week 3

Introduction

Strategic planning and financial planning are two distinctly different tasks designed to optimize business performance. The purpose of strategic planning is to outline the mission, vision, and tactical goals of a firm. A strategic plan will include expectations for the use of all company resources, including financial capital, human resources, intellectual property, etc. In contrast, financial planning sets specific goals related to the structure and availability of financial capital. The following paper will identify the similarities and differences between strategic and financial planning as they related to Harley Davidson (NYSE: HOG). Using the Harley Davidson’s 2013 annual report to investors, the paper will locate a key strategic initiative and discuss its impact on financial planning, the supply chain, and ethics.

FIN 370 Week 3 Instructions

Find the company selected for the Week 2 assignment’s annual report  from SEC.gov or the investor relations section of the company’s website. Be careful not to use quarterly reports.

Write a 1,050- to 1,400-word paper in which you describe the relationship between strategic and financial planning. Include the following:

  • A strategic planning initiative for the organization identified in the Week 2 assignment –
  • Identify an initiative discussed in the organization’s annual report.
  • How the initiative affects the organization’s financial planning
  • How the initiative affects costs and revenues of the supply chain
  • Ethical concerns related to the initiative

Strategic Planning Initiative

As a vertically integrated motorcycle production company, Harley Davidson must keep a constant focus on innovating its manufacturing processes. To reach peak efficiency, it is essential that that manufacturing process is closely aligned to the seasonal demand for motorcycles throughout the world. In the 2013 annual report, the company outlined the following strategic initiative; “Flexible manufacturing hit the ground running at Harley-Davidson in 2013. With the seamless launch of surge production at our York, PA. plant early in the year, we were able to ramp up production heading into spring and build motorcycles closer to seasonal sales patterns” (Harley Davidson, Inc 2014). In addition to the York, PA plant, the company has plans to implement surge production practices throughout its U.S based manufacturing locations.

The implementation of this plan has several notable implications on the company’s strategic direction. Shareholders, employees, suppliers, and consumers will need to be prepared for how surge manufacturing will affect their stake in the company. Ideally, the ability to manufacture products based on seasonal demands will provide efficiency to production and a higher return on shareholder equity.

Affects on Financial Planning

First, the company’s bottom line is highly dependent on the efficiency of the manufacturing process. When investing in new plant and equipment assets, it is essential that they reduce the variable costs needed to produce each motorcycle. A useful metric for this area is the Return on Assets Ratio (ROA), which determines how much revenue is produced based on the company’s asset total. New advancements in information technology and robotics have provided Harley Davidson with plethora of choices for upgrading plant assets. From a financial standpoint, upgrading to new plant assets will create a higher degree of leverage and thus more risk for shareholders. However, if new assets can reduce variable costs they will improve operational profitability when demand is high. A breakeven analysis can be used to measure the precise amount of revenue that must be generated for new plant assets to provide higher returns.

Second, the implementation of new manufacturing processes will require detailed working capital plans and new purchase demands on suppliers.  Working capital is the difference between the company’s current assets and current liabilities. Purchasing sufficient materials to meet customer demands for motorcycle requires Harley Davidson to maintain enough liquid assets throughout the year. In addition, working capital is necessary for the payment of wages to employees. When employees work longer hours during the peak production season, the company must be prepared to pay overtime wages from working capital.

Third, the supply chain will be affected by the variable demand for materials needed to produce motorcycles. A detailed financial plan will be required to accommodate the surge in demand for motorcycles that occurs seasonally. For instance, the company will need to have a higher amount of material on hand during the peak demand seasons of spring and summer as compared to the winter months when demand is comparatively low. It may be beneficial for the company to lease certain equipment in the supply chain in order to reduce costs when it is not being used during the peak season.

Ethical Concerns with the Initiative

The main ethical concerns with this initiative are related to Harley Davidson’s employee relations. A long-standing reputation of positive workforce satisfaction and loyalty has been established within the firm. Because this new manufacturing process is designed to reduce costs and increase efficiency, it may be necessary to cut jobs or reduce working hours. These choices will save money on paper, but would not be in the best interests of employee stakeholders. It will be important for Harley Davidson to maintain a strong code of ethics and attempt to make decisions that support the welfare of loyal employees.

A second potential ethical concern is environmental sustainability with the new surge production capabilities. Larger energy inputs will be needed during peak production cycles and this presents a good opportunity for the company to implement renewable energy sources at its manufacturing plants. A solar array at a manufacturing plan will have a high initial cost, but it will reduce variable energy costs over the long-term. Avoiding a myopic viewpoint on renewable energy will benefit shareholders and reduce risk exposure to the rising costs of fossil fuels.

Summary

A new strategic initiative announced by Harley Davidson in 2013 is to implement season surge manufacturing processes at its U.S. based plants. This direction will require a higher attention to detail when it comes to financial planning due the variable nature of seasonal motorcycle demands. If implemented successfully, the initiative will reduce manufacturing costs, while meeting the product demands of the motorcycle customer base. In summary, Harley Davidson’s strategic initiatives highlight the importance of financial planning, supply chain management, and ethics.

References

Harley Davidson Inc. (2014). Harley Davidson Annual Report.

Arnold, P. (2012). Born to be… Predictable.

 

 

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