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Punda
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Agenda
Company Background
Situation Analysis
Issues
Recommendation
Financial Justification
3 Divisions:
Heavyweight Motorcycle
•few competitors
•current market share = 55.7%
Holiday Rambler
•Intense competition
•low market share
Performance Motorcycle
•few competitors
•acquired 49% of shares in ‘93
Situation Analysi
owever,
• Stock price has slumped 7 percent
• Inability to meet demand may be jeopardizing
relationship with customers
Issue Identificatio
Issue I
Strategies:
Issue II
Strategy:
Managing Resources
Allocation To Maximize
Overall Performance Portfolio Management
I. Harley-Davidson
I. Capacity Expansion
Production Capacity
Year 1999
Current Plan
Growth plan = 7% annually
Market Growth = 15% annually • Reduce lead time by
Decrease in Market Share 4 months
• Reduction in excess
Proposed Plan
demand
Increase Capacity
1995-1997 = 20%
1998-1999 = 17%
Result
Justification for Price Increase
•Still excess demand after expansion
• Reduce Lead Time by
•Demand Inelastic
“Capture Opportunity” 1 month
• Net Income Increases
Proposed Plan: by 9%
Price
10% Increase
Predicted Demand
5% Decrease
I. Harley-Davidson
Price Increase + Capacity Expansion
Goal: Reduce Lead Time and Increase Market Share
Excess Demand
Without 1995 1996 1997 1998 1999
Recommendatio
ns 96,200 119,830 140,362 163,789 190,487
With
Recommendatio
ns 85,640 92,736 92,824 98,995 105,161
Lead Time
Without 1995 1996 1997 1998 1999
Recommendatio
ns 10.04 11.69 12.79 13.95 15.16
With
Recommendatio
ns 10.04 8.06 6.73 6.24 5.76
Market Share
Without 1995 1996 1997 1998 1999
Recommendatio
ns
With 55.70% 51.83% 49.51% 47.30% 45.19%
Recommendation
s 55.70% 58.12% 62.27% 63.94% 65.65%
II. Portfolio Managemen
Analyzing SBUs
Market Attractiveness
High Medium Low
High
Grow
Competitive Strength
Harley-Davidson
Medium
Buell Hold
Low
Rationale:
1. Not core business
2. Large capital Investment
3. Low Market Share
4. At a disadvantage relative to competitors
• Economies of Scale
• Lack of management expertise
in market
5. Limited Human Resource Must allocate
to best maximize the company’s profitability
Strategy:
Divest to use capital and focus
management’s attention on more promising
projects
II. Portfolio Managemen
Harley Davidson
Harley-Davidson
“Investment Priority”
•Main issue: unmet demand
Trademark Licensing
•High Margin
•Stimulate Demand For Motorcycles
•Lay Ground For International
Growth
“Continuous Expansion”
Time Line
Activities 1995 1996 1997 1998 1999 2000
Harley Davidson
Portfolio
$70,000,000
Holiday Rambler Selling Process
Grow @ 20%
Trademark Licensing Trademark Licensing
Financial Justificatio
Growth Rate
Net Sales
3,500,000
3,000,000 3,065,905
2,605,025
2,500,000
2,357,326
2,216,418
2,000,000
1,805,023
1,500,000 1,541,796
1,000,000
500,000
0
1994 1995F 1996F 1997F 1998F 1999F
Financial Justificatio
Growth Rate
1994 1995F 1996F 1997F 1998F 1999F
26.64% 17.07% 30.60% -5.98% 17.53% 17.69%
Net Income
600,000
546,800
500,000
457,498
400,000
378,637 373,131
300,000
200,000
104,272 119,463
100,000
0
1994 1995F 1996F 1997F 1998F 1999F
Financial Justificatio
Cost Estimation
1995F 1996F 1997F 1998F 1999F
Capacity Expansion
(100,000,000. (100,000,000. (100,000,000. (100,000,000.
Factory and machinery 00) 00) 00) 00)
Human resource and other (20,000,000.0 (20,000,000.0 (20,000,000.0 (20,000,000.0
related costs 0) 0) 0) 0)
Sales of TVD
Sources of fund
Internal generated fund
Financial Justificatio
Cost Estimation
1995F 1996F 1997F 1998F 1999F
Capacity Expansion
(100,000,000. (100,000,000. (100,000,000. (100,000,000.
Factory and machinery 00) 00) 00) 00)
Human resource and other (20,000,000.0 (20,000,000.0 (20,000,000.0 (20,000,000.0
related costs 0) 0) 0) 0)
Operational
Quality
Efficiency
Efficient
Supplier
Distribution
Relationship Of Resources
Issues Are Solved
Current Issues
Issue I
Strategy I:
Issue II
Strategy II
Managing Resource
Allocation To Maximize Portfolio Management
Overall Performance • Divest Holiday Rambler
•Heavyweight motorcycle
-Investment Priority
- Licensing expansion
THANK YOU
Historical Ratio Analysi
Ratios Analysis
1992 1993 1994
Liquidity ratio
current ratio (times) 1.57 1.75 1.88
Quick ratio (times) 0.81 0.86 0.94
Leverage ratio
Debt ratio (%) 44.30% 68.93% 41.39%
Interest coverage (times) -19.79 -84.00 3643.34
Profitability ratio
Net Profit Margin (%) 4.87% -0.98% 6.76%
Return on asset (%) 10.30% -2.04% 14.11%
Return on equity (%) 16.04% -3.66% 24.07%
Activity ratio
Account receivable (times) 11.86 14.15 10.75
Average collection period (days) 30.77 25.79 33.95
Inventory turnover (times) 8.57 6.28 6.46
Average sale period (days) 42.61 58.11 56.50
Fixed asset turnover (times) 4.31 4.88 4.62
Total asset turnover (times) 2.12 2.09 2.09
Sales by Division
Balance Sheet
1,994 Avg.%of sales Avg.%changed 1995 1996 1997 1998 1999
A/R 143,396.00 8.27% 29.50% 9.50% 9.50% 10.00% 10.00% 10.00%
Inv. 173,420.00 10.43% 36.08% 11.25% 11.25% 11.25% 11.25% 11.25%
Prepaid expense 9,424.00 0.76% -1.01% 0.76% 0.76% 0.76% 0.76% 0.76%
Other current asset 20,111.00 1.72% -8.38% 1.72% 1.72% 1.72% 1.72% 1.72%
Liabilities & Equity 0.00%
A/P 63,988.00 4.68% 5.35% 4.10% 4.00% 4.00% 3.90% 3.90%
Salaries Payable 62,882.00 3.26% 56.75% 3.00% 3.00% 3.00% 3.00% 3.00%
ST debt/current LTD 18,303.00 1.49% 5.81% 1.00% 1.00% 1.00% 1.00% 1.00%
Other CL 71,105.00 5.57% 1.81% 4.00% 4.00% 4.00% 4.00% 4.00%
Pro Forma Financial Statemen
Leverage ratio
D/E ratio (%) 70.63% 33.33% 24.75% 21.01% 15.75% 13.86%
Interest coverage (times) 3643.34
Profitability ratio
Net Profit Margin (%) 6.76% 6.62% 16.06% 16.83% 17.56% 17.83%
Return on asset (%) 14.11% 14.41% 30.59% 22.60% 21.87% 20.40%
Return on equity (%) 24.07% 21.61% 40.66% 28.60% 25.97% 23.68%
Activity ratio
Account receivable (times) 10.75 12.32 13.75 10.34 12.93 12.95
Average collection period (days) 33.95 29.62 26.55 35.29 28.23 28.19
Inventory turnover (times) 6.46 7.54 7.60 5.98 7.42 7.43
Average sale period (days) 56.50 48.38 48.04 61.08 49.21 49.14
Fixed asset turnover (times) 4.62 5.25 6.07 4.68 4.66 4.76
Total asset turnover (times) 2.09 2.18 1.90 1.34 1.25 1.14
NPV Analysis
NPV ฿3,597,519.00
Net Sales and Net Income
Price Promotion
• Harley-Davidson: premium • Dealer promotions
• Holiday Rambler: midrange- • Customer events
premium • Magazine ad
• Buell Motorcycle: premium • Public Relations
Long Term Issue
nternational Expansion
Where? Management’s Misunderstanding
?
Taiwan
#’s of motorcyclist
=
Potential Customers
Purchasers = Recreational oriented
Key Considerations
Focus on Europe •Culture
And Australia •Income
•Vision
International Expansion Criter
Criteria
• Market Research
– Existing Customer
– Potential Customer
• New Marketing Scheme
– PR, Licensing
Why Keep Buell?
DECREASING
GE Matrix
Justification for Divestin
Pros Cons
-high operating costs
-have presence in RV + - scarce human resource
Status Quo commercial vehicle market is allocated away from
core business (more
-high potential)
investment cost
that may not give
profitable returns
Keep Brand -take away management
-attempt in capturing a focus on core business
(continue portion of several vehicle
markets - requires a lot of
expansion) marketing expenses in
order to compete with
existing market leaders
-let go opportunities to
capture several markets
-funding for more brand BUT,
Divest from with with INTENSE
Portfolio higher potential competition, SMALL
-more focused portfolio market share, and LACK
of expertise, chance of
Success is very LOW
Summary of Management Pla
ley-Davidson
rice Increase
Justification to Consumers
However, not as prevalent because nature of product (recreational oriented + premium)
ce relatively inelastic
apacity Expansion
Select optimal location (close to DCs)
Trainings crucial—product known for quality
Work closely with suppliers
Must also expand human resource to ensure high quality
tfolio Management
vesting Holiday Rambler
Allocation of fund to other brand (especially Harley-Davidson)
Finding prospective buyers: Existing Play vs. New Entrants
rademark Licensing
Find prospective licensee
Selection very important—portrays brand image
Consider International Market—build ground for entering motorcycle market
Especially useful in countries with no presence of Harley-Davidson
elling point of H-D = “American Culture”
Effects of Price Increase and Capacity Expans
Capacity Expansion
• Increase Supply to Match Demand
• Increase Market Share
• Reduces Lead Time
• Increase NPM (in value)
Price Increase
• Increase Margin
- inelastic demand
- demand greatly > supply
• Reduces Demand
- help balance supply and demand
- customer’s willingness to buy at current price exceeds company’s
ability to supply
• Reduces Lead Time
Why Not Increase Capacit
to Fully Match Demand?
uality Issue
increase too fast, can jeopardize
uality of product.
0% represents highest practical rate