Honeywell Parts Management€¦ · Honeywell’s Parts Management program provides guaranteed parts availability, reduced downtime, and 50%+ overall cost reduction over conventional

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Honeywell Parts ManagementReduce Costs and Minimize Risks to Your Operation


2IntroductionWhy Honeywell offers a Parts Management program

• In today’s competitive environment, managing spare parts inventory at industrial facilities is critical for reducing total ownership costs and achieving the performance required of systems and equipment

• Even the smallest of delays can cost thousands of dollars in lost production and overtime

• Many industrial organizations are exploring ways to get their inventory and maintenance processes under tighter control


3Challenges Facing Plants• For process industry facilities, selecting, purchasing and managing the

correct amount of spare parts is key to maintaining availability and safety

• Unfortunately, the rapid evolution of technology, along with ongoing changes in the global supply chain, makes this task complicated

• Upfront costs of inventory, combined with the high cost and overhead related to onsite storage, and it becomes clear how trying to manage spares can negatively impact profitability


4What is it?Honeywell’s Parts Management program provides users with an alternative to the high cost of purchasing and maintaining a spare parts inventory program themselves. Under the Parts Management program, Honeywell owns the spare parts inventory and guarantees their availability so that users don’t need to make capital outlays for spares, and it ensures users have the right parts on hand when needed.

The Parts Management program is aimed minimizing at system downtime from parts failures as well as lowering the customer’s cost to support and maintain the spare parts required. This all leads to increased productivity, lower spare parts costs, improved asset support, and having the right part at the right time.


5Value PropositionFor customers that need fast access to replacement parts to reduce the risk of process downtime due to a control system part failure, Honeywell’s Parts Management program provides guaranteed parts availability, reduced downtime, and 50%+ overall cost reduction over conventional spare parts strategies, unlike unknown parts availability and delivery times leading to costly process downtime and higher overall costs using conventional spare parts strategies.

We do this by stocking Honeywell owned parts on the customers’ site, maintaining bonded inventories of parts shippable within 24 hours of order acceptance, and managing the customers’ parts inventory to ensure all components are up to the current revision, as demonstrated by the LSS Base Parts Holding spreadsheet and over 700 active contracts worldwide.


6Program OptionsParts Holding P1 – This option provides a Honeywell-owned inventory that is placed on the customer’s site. The customer utilizes the P1 option to have ready access to critical spare parts.

Parts Holding P2 – This option provides the customer with access to parts in a bonded stock inventory at a centrally located Honeywell facility. Upon order receipt and acknowledgement to the customer, the parts are shippable within 24 hours.

Parts Replacement Option – Parts Replacement is an option to a Parts Holding agreement or to an SESP agreement. With this service, a customer will agree up front to the amount and payment schedule for the spare parts they will use due to part failures over the course of the year. This is in lieu of the customer submitting a purchase order for each spare part they will need to maintain their system.


7Parts Holding - Program DetailsP1 Service

Scope Provides immediate access to Honeywell-owned inventory of spare parts held at the customer site

Deliverables Provides 24 hours a day, 365 days a year critical spare parts immediate availability. Honeywell will maintain the Site Stock inventory at a specified minimum revision level that is compatible with the installed system or equipment. Honeywell will audit the Site Stock inventory on an annual basis (at a minimum) and address any issues identified during the audit.

Performance Honeywell will update all Site Stock spare parts inventory to the specified minimum revision level on the next scheduled sitevisit or upon request by the customer based on: • Mandatory or recommended retrofit announcement • System or equipment configuration change

Method of Delivery The Site Stock inventory will be identified and supported based on the customer contract and the specified list of parts in the schedule within the contract.

Tools Honeywell will maintain a list of spare parts by revision level that is compatible with the system or equipment. Honeywell will recommend a list of spare parts and appropriate quantities to be covered under contract based on the system or equipment configuration.

Replenishment Site Stock spare parts that have been used for repair purposes shall be replenished by: • Bonded Stock inventory if the contract includes Bonded Stock coverage of the part and they are entitled to the quantity

being requested. • Standard factory lead-times for any spare parts not backed by Bonded Stock

Prerequisite Customer shall notify Honeywell of any changes in system or equipment configuration that would affect the Site Stock spare parts inventory.

Service Type Renewable contract


8Parts Holding - Program DetailsP2 Service

Scope Provides the delivery of spare parts held at a Honeywell location for Parts Management within a guaranteed response time. P2 holding also supports P1 stock for any part that is covered by both P1 and P2 coverage within a contract.

Deliverables Provides 24 hours a day, 365 days a year spare parts availability. Honeywell will deliver spare parts at a specified minimum revision level that is compatible with the installed system or equipment. Honeywell will maintain the Bonded Stock inventory at a specified minimum revision level that is compatible with the installed system or equipment.

Performance Honeywell will ship the requested spare part if entitled to it from Bonded Stock inventory within 24 hours from order acknowledgement. Inventory compliance to be maintained at the specified minimum revision and compatible with the installed system or equipment. Honeywell will update all Bonded Stock inventory to the specified minimum revision based on:• Mandatory, Recommended, or As-Required Retrofit announcement from Honeywell• Notification from the customer of a change in system or equipment configuration

Note that not all customer locations allow for delivery in the same timeframe. Performance is based on shipment of the parts from Bonded Stock within 24 hours and not on delivery to site.

Method of Delivery The shared Bonded Stock inventory will be identified and supported based on the customer contract and the specified list of parts in the schedule within the contract.

Tools Honeywell will maintain a list of spare parts by revision level that is compatible with the system or equipment. Honeywell will recommend a list of spare parts and appropriate quantities to be covered under contract based on the system or equipment configuration.

Replenishment Replenishment of Bonded Stock will be at standard factory lead-time. Customers have the right to audit the Honeywell Bonded Stock during normal working hours after providing at least 24 hours notice.

Prerequisite Customer shall notify Honeywell of any changes in system or equipment configuration that would affect the spare parts inventory. Customer must be entitled to the quantity they want to access from Bonded Stock within the normal replenishment lead-time.



9Parts Holding - Program Details

Parts Replacement OptionScope Provides, for a fixed annual fee, replacement of parts determined to be no longer functioning as a

result of normal usage, or recommended for replacement by Honeywell during problem troubleshooting or preventive maintenance checks.

Deliverables Provides prepaid spare parts replacement. Honeywell will deliver spare parts at a specified minimum revision level that is compatible with the installed system or equipment. On an annual basis, and prior to contract renewal, Honeywell will provide site-by-site parts usage information.

Performance Delivery of the part will be at standard lead-times as dictated by the customer coverage. If the parts are under P1 or P2 coverage, then the order will be filled from those inventories following standard P1/P2 guidelines for availability and replenishment of stock.

Method of Delivery Parts Replacement is supported contractually by Schedule A of the contract.



10What’s best for me?Customer Segments Key Customer Needs Parts Holding OfferingCritical Uptime Customers No downtime is acceptable and

immediate parts availability is required to replace any failed parts at time of failure

Priority 1 (P1) – Site Stock

Critical Uptime and Total Cost of Ownership Driven Customers

Reduced downtime through parts availability and quick replenishment of local stock at lowest cost

Priority 1 (P1) – Site Stock backed by Priority 2 (P2) – Bonded Stock

Total Cost of Ownership Driven Customers

Minimize parts availability costs while also limiting system downtime due to part failures

Priority 2 (P2) – Bonded Stock

Predictable Cost Sensitive Customers

Ability to set annual maintenance budgets for spare parts usage

Parts Replacement Option


11Customer Benefits• Honeywell’s Parts Management program enables process plants to achieve their goals for improving

asset supportability and managing spare parts obsolescence• Parts Management provides greater predictability of spare parts costs and helps plant managers

maintain their maintenance, repair and overhaul (MRO) expenses within a fixed budget• Minimized downtime with spare parts on hand• Avoid unnecessary build up of parts inventory over time• Fixed fee agreement allows you to plan the system lifecycle support strategy in advance with

complete assurance you can control its cost• When combined with Honeywell’s Lifecycle Management (LCM) or Solution Enhancement Support

Program (SESP), Parts Management provides even greater economic results• Customers get expert engineering assistance to help leverage system capabilities to optimize

productivity, and also receive enhanced software releases and system updates• Honeywell works with you to ensure parts are available 24x7x365 to maximize system uptime • Honeywell owns and manages the parts inventory either at your site or in our location – you make no

capital outlay for spares• Parts Management reduces your investments in spare parts while ensuring the right equipment is

available in Honeywell Proprietary the right place at the right time


12How the Program Works• Honeywell’s Parts Management program has a fixed annual fee for availability,

which you can expense on a monthly basis along with the Parts Replacement option to cover the parts actually used

• Spares inventory is placed in a combination of on-site and off-site (or bonded) stocking

• On-site stocking guarantees immediate parts availability, while bonded parts ship within 24 hours from our centralized warehouse locations

• Agreement also includes an in-service warranty, where the customer’s warranty period does not begin until the part is placed into service

• Honeywell works closely with you to define your precise parts management needs to provide the highest level of operational security

• We get to know your system and plant operations, and based on historical trends and failure statistics for all system components, establish an initial benchmark for spares carried on-site

• Honeywell provides quarterly audits of the on-site stock and checks every circuit board to make sure it is at the proper revision level


13Typical ExperienceOil & Gas Refinery

• A major refinery had nearly 10,000 I/O points and was faced with maintaining a large population of field assets

• Thanks to Parts Management, the refinery was able to reduce its spare parts inventory carrying costs by 42% per year

• Refinery also improved asset reliability, reduced process downtime, and minimized maintenance expenses.


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Chemical Plant

• A leading chemical company was dealing with issues associated with a significant inventory of spare equipment at its production facilities

• The company reduced its spare parts inventory carrying costs by 63% per year by leveraging Honeywell’s Bonded Stock inventory

• Bonded parts ship within 24 hours from a centralized Honeywell warehouse location

Typical Experience


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Pulp & Paper

• In the pulp & paper industry, a medium-size mill achieved a 59% reduction in ICC from the bonded stock inventory approach by doing away with the need to own and manage spare parts

• Bonded stock also provides the mill with protection from downtime, as well as confidence that the right parts are always readily available

Typical Experience


16Parts Management Program

Reliability Risk Planning Capital Efficiency

Ensure faster mean time to repair

Eliminate unnecessary downtime

Increased availability and uptime

Increased overall plant availability

Establish an accurate benchmark for parts stocking

Manage spare parts obsolescence

Predictable costs

Reduce inventory carrying costs

Eliminate capital outlays

Keep annual expenses under control

50%+ cost reduction over conventional spare parts strategies


17The Value of HPM

• Increased overall plant availability and uptime

• Improved control of inventory assets

• Reduced inventory carrying costs

• Improved inventory integrity

• Faster mean time to repair

• Immediate availability of critical spares (site stock)

• Alternatives to unexpected spare parts and capital outlay costs

Industrial operations around the world have

found Honeywell’s Parts Management program

delivers significant benefits that have a

direct impact on their business performance


18Conclusion

By allowing Honeywell to assume responsibility for your facility’s parts management and relying on our around-the-clock support services, you’re able to focus on productivity, keeping processes running smoothly, and maximizing uptime by getting the parts you need in the shortest amount of time based on the Parts Management contract.


19Parts Management FAQQ. What’s the difference between Parts Management and Parts Replacement?Parts Management is a Honeywell Managed Parts Availability program.The Parts Management program consists of two options:1. Parts Holding P1 – This option provides a Honeywell-owned

inventory that is placed on the customer’s site. The customer utilizes the P1 option to have ready access to critical spare parts.

2. Parts Holding P2 – This option provides the customer with access to parts in a bonded stock inventory at a centrally located Honeywell facility. Upon order receipt and acknowledgement to the customer, the parts are shippable within 24 hours.

Parts Replacement is a contract entitlement that funds Honeywell replacement parts purchases based on a contracted funding level, predefined by the Honeywell/Customer agreement. This contract entitlement can be used to pay for replacement parts purchases during the contract year in lieu of making a PO/credit card transaction each time a part is purchased. (i.e. it can fund P1, P2, or ad hoc replacement parts purchases).

Q. What’s the difference between Parts Replacement and Parts Usage?A. Parts Replacement is a contract entitlement that funds Honeywell replacement parts purchases based on a contracted funding level, predefined by the Honeywell/Customer agreement. This fixed price contract entitlement can be used to pay for Replacement Parts Purchases during the contract year in lieu of making a PO/Credit Card transaction each time a part is purchased. I.e. I can fund P1, P2, or Ad Hoc Replacement Parts Purchases.

B. Parts Usage is a similar contract entitlement that requires a "true up" at the end of the contracted period.

Q. What happens to on-site inventory if I decide to cancel before the five year term is complete?A. The costs to provide the Parts Management program, as well as the application price to the customer, has been determined on a minimum five-year basis. In the event the customer cancels the agreement prior to the five-year period, the customer will be invoiced for the on-site parts and functional spare systems at the current list price.

Q. How do you assure that the on-site stock is up to the correct revision level?A. When the inventory is placed on the customer’s site, the quantities and revision levels are documented and placed in a computerized tracking system. On a routine basis (at least annually), a Honeywell technician will receive a revision update list and compare that to the list they have for the customer. Additionally, the Honeywell technician will verify board types, quantities and revision levels during the on-site audits.

Q. When a part is used from the on-site inventory, how do I get a replacement from the bonded stock?A. If there is a bonded stock part under contract for the part used during normal working hours, the customer will call the Honeywell office and request the part. The part will be ordered from the Bonded stock. After normal working hours, the customer will call the Bonded stock area via a toll free number and place the order directly.

Q. If I already have an extensive inventory, how do I transition it to the Honeywell Parts Management program?A. The existing stock will remain under customer ownership until used. Once used, the replacements for those parts that are deemed critical on-site parts will be incorporated under the Parts Management program and the price adjusted.

Q. If I sign up for Parts Management at the time I purchase my system will my price be lower the first year since parts are covered under warranty for one year?A. Not for a Parts Management contract without the Parts Replacement option also purchased. The price to make the parts available for quicker access through Site Stock (P1) or Bonded Stock (P2) and the management of that inventory remains the same whether those parts get used under warranty coverage in the first year or purchased when used in the later years of the contract.

Q. If I sign up for the Parts Replacement option of a Parts Management contract at the time I purchase my system, will my price be lower the first year while the parts are covered under warranty?A. Absolutely. You will receive a proposal containing pricing for the program in years two through five, which will cover both the parts availability and parts replacement portions of the program. Because the customer is covered for Parts Replacement during warranty, the year one price will only cover the fees for making the parts available and managing the inventory in Site Stock (P1) or Bonded Stock (P2).

Q. Why do I need to spend additional money to have parts on-site?A. To minimize the risk associated with system downtime. In order to accomplish this, spare parts and/or hot (functional) spares can be purchased, or alternatively the customer can commit to Honeywell’s Parts Management program. Parts management is a cost-effective alternative for having parts readily available when needed.

Q. If I sign a five-year agreement, is the price fixed for the five years?A. No, the annual price increase will be tied to the Cost Index Formula outlined in our agreement. The Cost Index Formula is made up of three indices of labor, material, and transportation.


20Parts Management FAQ (cont)Q. How do I benefit from having Honeywell own and manage my inventory, instead of owning and managing it myself?A. The Parts Management program offers both operational and financial benefits.Operational Benefits are:• Increased process uptime as parts are readily available when

needed, and at the correct revision level• Parts Management offers flexibility. If changes in the system

occur, we work with the customer to adjust the on-site and Bonded stocking levels to meet their changing support needs.

• Quarterly audits by Honeywell ensure that agreed to on-site stocking levels are correct and the boards are at the correct revision level.

• Parts Replacement offers customers can take advantage of a fixed annual fee that is easy to budget for and a cost effective alternative to buying parts as needed.

Financial Benefits are:Honeywell owns the parts therefore:• There is no upfront inventory investment, freeing up capital funds

for other uses• There are typically no tax liability or depreciation costs• Other inventory carrying costs are reduced (obsolescence,

physical handling, clerical and inventory control, deterioration, etc.)

• Parts are professionally managed by Honeywell to ensure the material is stored, handled, and maintained to correct levels and to free up the customers personnel to run the plant.

Q. Can Honeywell Certified Recycled Parts be placed under P1/P2 contract?A. No. While Honeywell Certified Recycled Parts are a great choice when new factory spares are unavailable, by definition Certified Recycled Parts are not considered “new” and do not meet the specific criteria required for the Honeywell Managed P1/P2 parts availability program.

Q. Who determines what parts will be located at my site?A. A Honeywell service professional reviews the recommended spare parts list with the customer based on Mean Time Between Failure (MTBF) statistics. Taking into account the customer’s system availability requirements and cost of system downtime, Honeywell and the customer mutually agree to the appropriate stocking levels. Together, Honeywell and the customer will generate a list of those spare parts that will be in the Bonded Stock, shippable within 24 hours of order acknowledgement. Finally, they will generate a list of those parts that will come out of the normal depot stock with standard lead-times.

Q. What happens if I add to my system? Can we adjust my stocking levels?A. Yes, Honeywell will work with the customer to adjust both the on-site stocking levels as well as the list of items carried in the Bonded stock.

Q. If we adjust our stocking levels, does my price change?A. We will adjust the price of the agreement once a year, at the anniversary date, unless the change is more than ± 5%, in which case, we will adjust the price when the change occurs.

Q. Why do I have to commit to a five year contract?A. Honeywell makes an investment in the spare parts as well as incurring costs to manage the inventories properly. Our costs have been determined on a minimum five-year basis. If we were to accelerate our write-off, our costs would be higher, and you would have a higher annual fee.

Q. Are 3rd party hardware allowed to be placed under P1/P2 contract?A. Not in all cases. Honeywell will allow common 3rd party hardware used in process control systems to be carried under parts management, but with some additional limitations around the continued availability over extended periods of time. These would be third party parts that Honeywell has tested, qualified, or published with a Honeywell model/part number assigned to the deliverable.

Q. Why is there a difference between 3rd party hardware and what may be placed under contract?A. As more systems move into the open systems world the ability to connect large numbers of different of end devices or leverage non-Honeywell supplied hardware has become more common. Since Honeywell has no control over the lifecycle or quality control of the 3rd party hardware which does not go through Honeywell processes and is published as a standardHoneywell deliverable, they may not be added to a standard parts management contract. These products are often unique to a single site and are best handled by purchasing for customer owned stock or handled through a separate support agreement with your local Honeywell office.

Q. Should I put my Honeywell Managed Spares in an Onsite P1 Inventory or an offsite Bonded P2 Inventory?A. Honeywell recommends that you consign critical spares to your onsite P1 inventory and less critical spares to P2 Inventory, guaranteed to ship from the Honeywell Depot within 24 hours of order acknowledgement. While you will pay a slightly higher fee to include replacement parts in an onsite P1 inventory, your primary consideration must be the cost to your operations for not having the right replacement part immediately available, when you experience a disruption in your Honeywell system.

Q. May I use my Onsite P1 Inventory for troubleshooting purposes?A. Once a Honeywell owned P1 part has been opened, it is no longer new and cannot be returned to Honeywell or the Honeywell P1 inventory as a new part. Although not recommended, you are permitted to use your P1 inventory for troubleshooting and failure replacement purposes. However, by removing a part from the P1 inventory, opening the Honeywell box and breaking the factory seal on the static protective parts bag, you are agreeing to purchase a new replacement for that part at the current published list price.

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Honeywell Parts Management€¦ · Honeywell’s Parts Management program provides guaranteed parts availability, reduced downtime, and 50%+ overall cost reduction over conventional