What would be the impact if any on their break-even point and other financial measures?

Harley-Davidson Inc. has made some remarkable changes as related in the attached article. From a pe Show more Harley-Davidson Inc. has made some remarkable changes as related in the attached article. From a perspective of management accounting what do you believe were their most important changes? What would be the impact if any on their break-even point and other financial measures? Changes at Harley-Davidson From the Wall Street Journal 9-22-12 If the global economy slips into a deep slump American manufacturers including motorcycle maker Harley-Davidson Inc. that have embraced flexible production face less risk of veering into a ditch. Harley-Davidson has fine-tuned its operations for smooth riding should the economy slip back into a slump. Until recently the companys sprawling factory here had a lack of automation that made it an industrial museum. Now production that once was scattered among 41 buildings is consolidated into one brightly lighted facility where robots do more heavy lifting. The number of hourly workers about 1000 is half the level of three years ago and more than 100 of those workers are casual employees who come and go as needed. This revamping has allowed Harley to quickly increase or cut production in response to shifting demand. This is a big bang transformation said Ed Magee a Louisiana-born ex-Marine officer who runs the York plant one of the Milwaukee-based companys three big U.S. production facilities. The efficiency gains mean Harley should be able to raise its operating profit margin for the motorcycle business [excluding financing operations] to nearly 16% this year from 12.5% in 2009 said Craig Kennison an analyst at Robert W. Baird & Co. in Chicago. Harley no longer needs peak production levels to achieve strong profits he said. Overall U.S. manufacturers generally are in better shape after slimming down and rethinking sloppy practices during the brutal 2008-09 recession. Total profits at domestic manufacturing companies which were running at an annual rate of $363 billion in this years first quarter are up from $290 billion five years ago before the recession according to government data. Companies often say they learned the lessons of the past only to get blindsided by some unexpected twist in the economic cycle. But companies generally are in much stronger financial shape than they were a few years ago. There is a focus on performance and remaining profitable no matter what the business environment is said Daniel Meckstroth chief economist at the Manufacturers Alliance for Productivity and Innovation an economic research group in Arlington Va. Like Harley and others Caterpillar Inc. a maker of construction machinery now relies more on flexible workers including part-timers and people working for outside contractors. Caterpillar generally doesnt have to pay severance costs when it lets such workers go during slow periods. Flexible workers accounted for about 16% of its global workforce as of June 30 up from 11% at the end of 2009 when many of those workers were cut because of slumping orders. Harley got more serious about cutting costs when Keith Wandell became chief executive in 2009 amid a severe slump in motorcycle sales. On his first visit to the York plant Mr. Magee recalled Mr. Wandell declared the layout and working methods unsustainable. Harley began scouting sites for new plant to replace York and settled on Shelbyville Ky. The company notified the International Association of Machinists and Aerospace Workers or IAM which represents York workers that the plant would close and move to Kentucky unless they approved a new contract giving Harley more control over costs. Union members voted overwhelmingly to make concessions and Harley stayed in York. Instead of 62 job classifications the plant now has five meaning workers have a wider variety of skills and can go where needed. A 136-page labor contract has been replaced by a 58-page document. Kim Avila 49 years old who has worked here for more than 17 years said she saw the concessions as the only chance to preserve jobs. The pace of work is faster now but she said managers and workers have more mutual respect and work together more smoothly. In the paint department where she works people used to do the same chore all day but now rotate through several tasks to avoid body strain and boredom. They are encouraged to fix some minor flaws in the finish themselves rather than kicking them to another department. Some items formerly made in York such as brackets and screws come from outside suppliers. Production fluctuates depending on day-to-day sales so the company doesnt have to stock up well ahead of the spring peak-selling period and guess which models and colors will be popular. Similar changes are in the works at Harley plants in Kansas City Mo. and near Milwaukee Wis. In all the restructuring will cut costs of doing business this year by at least $275 million Harley estimates. Theyve done a phenomenal job in reducing costs said James Hardiman an analyst at Longbow Research in Cleveland who nonetheless has a neutral rating on the stock due partly to uncertain demand. The transformation has been trying at times. Harleys Mr. Magee likened it to having open-heart surgery as we were running the marathon in that Harley had to maintain production in York as it rebuilt the plant. New software installed recently to guide production temporarily left the plant constipated one manager confided. Robots now do most of the welding and metal slicing. They slide flat sheets of steel into an 80-ton press that molds metal into fenders. A computer takes snapshots of each frame or gas tank moving along the line relaying that information to the painting equipment so it can prepare needed hues. Automation has its limits. People some wearing biker garb such as muscle shirts or U.S. flag head scarfs still do quality-control and assembly work. To check for leaks workers plunge gas tanks into water basins and watch for bubbles. Its the same method used for a century at Harley. Mr. Magee shrugged. It works he said. Show less


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