Reliance on Harley hinders suppliers

//March 2, 2007

Reliance on Harley hinders suppliers

//March 2, 2007

The strike at Harley-Davidson Inc.’s York County plant has dealt a serious blow to several local suppliers that depend on the motorcycle maker’s business.

The fallout at these firms is a

dramatic example of a widespread management dilemma: how much business to accept from a single customer.

“How do you say no to the golden carrot?” said Todd Librandi, president of Librandi’s Inc., a Middletown firm that chrome-plates parts and builds racks for Harley. Librandi estimates that about 35 percent of his sales are Harley-related, less than at several other affected suppliers.

Though the suppliers said Harley has been good to them, losing that big client has forced them to lay off scores of workers.

Suppliers said they were not blind to the risk of concentrating business with Harley.

Leonhardt Manufacturing Company Inc. in Hanover makes engine-guards, saddlebag guards and other components for Harley. Milwaukee-based Harley accounts for about 60 percent of Leonhardt’s sales, down from 70 percent five years ago, said President and Chief Executive Officer Bob Jacobs.

“We have made a determined

effort to work at diversification,” Jacobs said.

Leonhardt reported sales of about $25 million in 2006.

Lynn Stambaugh, owner of Stambaugh Metal Inc. in Hanover, does Harley-related work for Leonhardt. Stambaugh Metal laid off 35 of its 44 workers Feb. 1. Managers have discussed the concentration problem many times, Lynn Stambaugh said.

“But you know, it’s steady work, it’s good work — so it’s kind of hard to break away,” she said.

Companies that take a lot of work from one source must expand business with other customers to stay diversified, Librandi said. His company has a machine shop and other business lines.

Companies should be leery of taking too much work from one source, said Michael Smeltzer, executive director of the Manufacturers’ Association of South Central Pennsylvania.

“Strategically, we try to tell our business leaders, ‘You should never have more than one-third of your business with any one customer,’” he said. “That is like Business 101.”

Heavy dependence on one customer has pros and cons, Jacobs said. One advantage is efficiency.

“When you have one big customer, you are actually in lockstep with them,” he said.

The downside is that a disruption in that customer’s business can hurt. Another problem, Smeltzer said, is that a customer with a big chunk of a supplier’s business has a lot of leverage in negotiating prices and other terms.

For one Canadian company hit hard by the strike, joining Harley was actually a diversification strategy. Kuntz Electroplating Inc. in Ontario does a great deal of work for automotive companies and sought Harley’s business in an effort to reduce its exposure to that troubled industry, vice president of human resources David Germann said. Kuntz laid off about 120 of its 600 workers Feb. 9.

A big contract can be hard to resist.

“It’s all about how you look at your risk/reward,” said Joe Crosswhite, a York-based regional president for Southeast Pennsylvania at M&T Bank. The risk is easier to take if the business has high profit margins, he said. It is important to have a financial plan for a disruption drawn up in advance, he said.

The ripple effects of the strike have consequences for the Harley union, too. Three union members freezing on the picket line at dusk late last week said they see their struggle transcending the Harley plant and reaching more broadly to the rights of American workers.

Companies in industries ranging from air travel to automobiles have made tough demands of their workers in recent years. In York County, workers at Johnson Controls Inc. last summer agreed to concessions that included different benefits and lower wages for new workers.

“Why does it have to be a trend?” Harley union member Rich Danglovitch asked.

At the same time, the Harley workers had to watch others lose their jobs, within Harley and at suppliers. The trio on the picket line expressed sympathy for those workers but did not take responsibility for their plight.

“We didn’t write the bad contract, you know,” said Terry Matthews, a 12-year Harley veteran.

  • Strike fallout

    Several companies that supply parts directly or indirectly to Harley-Davidson Inc. have announced layoffs as a result of the strike at the motorcycle-maker’s York County plant. These firms intend to resume Harley work as soon as possible, so it’s likely that most workers will be invited back when the strike ends.

    Harley on Feb. 12 temporarily laid off 440 workers in Wisconsin as a result of the strike, with another 300 layoffs possible. —David Dagan

    About the strike

    About 2,750 union workers at Harley-Davidson Inc.’s plant in Springettsbury Township went on strike at 12:01 a.m. Feb. 2.

    Members of International Association of Machinists and Aerospace Workers Local Lodge 175 voted to go on strike by a 98 percent margin after overwhelmingly rejecting a three-year contract offer from the company that some called insulting.

    They objected to provisions calling for new workers to receive lower wages and pension benefits, as well as to company demands for health-care changes, which were pegged to a wage-increase proposal.

    The strike was ongoing as the Business Journal went to press Feb. 13, with a meeting between Harley and the union scheduled for Feb. 14. For updates, visit www.centralpennbusiness.com.