SECTION 4 Parts Management Honeywell s Parts Management program is a way to balance the cost of maintaining a spare parts inventory against the risk of process downtime. Honeywell works with the customer to ensure that the parts are available to maximize system uptime.
Framework Alignment Parts Management aligns with Maintain in our framework defi nition. Parts Management helps in the execution of day-to-day tasks. Value to the Customer The right part, in the right place, at the right time Customers can save substantially by cutting inventory and reducing exposure to risk because: Honeywell owns the parts; which allows the customer s capital budget to be invested elsewhere. Honeywell dynamically manages the spare parts for the customer; avoiding the cost of obsolescence, damage or shrinkage, etc. Honeywell supports greater uptime for the customer by having the right part, in the right place at the right time. Customers need the right combination of on-site and bonded stock to ensure uptime. Honeywell will work closely with the customer to defi ne precise needs. Parts Management Specifics Honeywell s Parts Management Program is a comprehensive, cost-effective alternative for Customers in lieu of purchasing and inventorying spare parts. The three programs available for Parts Management are: Site Stock / Priority 1 Bonded Stock / Priority 2 On-Site Hot Spares Site Stock / P1 The spare parts covered by this category are listed in a Schedule within the customer s contract with Honeywell and are identifi ed as Site Stock that will be stocked at the customer s site. The term P1 (Priority 1) and the term Site Stock are equivalent. Spares in this stock are specifi cally for maintenance of Equipment listed in the above mentioned Schedule. As a part is used from the Site/P1 Stock, a replacement will be ordered from normal Honeywell depot stock unless the part is also identifi ed as being in Bonded/P2 Stock. If the part is identifi ed as Bonded/P2 Stock and the Customer has purchased the Bonded/P2 Stock option, then the part will be ordered from that inventory. The last three bars represent different annual inventory carry costs (ICC) over a 5-year period, plus the initial spare parts investment. Compared to the Honeywell Parts Management Program for the same period, conventional strategies cost two to three times more. Also, they do not give the customer the same high degree of protection. Bonded Stock / P2 Honeywell-owned spare parts are listed in a Schedule within the customer s contract with Honeywell and identifi ed as Bonded Stock or P2 Stock will be stored in sealed packages in a Honeywell facility. Access to this stock will be restricted to those Customers who have purchases the Bonded/P2 Stock option. Access for ordering parts from the Bonded/P2 Stock will be within 24 hours of the time the order is received. Version 1.0-01/2009 Honeywell Internal Use Only Page 30
Quick Review of Customer Benefits... Financial Protection, Year After Year Honeywell owns all spare parts, so your cash resources can be invested elsewhere Critical parts are stocked on-site, available to you immediately, as needed Backup spares-exclusively for Parts Management customers-are available to ship within 24 hours from Honeywell s bonded stock Parts Management gives you warranty protection that begins when a part is opened, not when it is purchased Quarterly audits ensure that spare-parts inventory levels and printed circuit boards are maintained at the proper revision level-increasing uptime and eliminating scrap Parts replacement allows you to use all the parts needed without overrunning your budget A comprehensive fi nancial analysis allows you to assess the program s fi nancial and operational value Part Management s fi xed fee ensures budget predictability and complete fi nancial protection year after year On-Site Hot Spares Honeywell-owned, functional hot spare system(s) will be stocked at the Customer s site. These systems will be used to test suspected defective parts from the Customer system. If the functional hot spare systems become incorporated into the Customer s control system, then the Customer will be invoiced at the current list price as established in the published Honeywell price book. Inventory Management Responsibility Management of Honeywell-owned spare parts and functional spares is Honeywell s responsibility. Management responsibility is described as: On a routine basis at least annually, Honeywell will audit the Site/P1 Stock and the functional hot spares system(s). Honeywell will make sure that the inventory level is appropriate, the boards are up to the correct revision level, and recommend any changes to the current stocking level. Honeywell reserves the right to change the optimum replaceable Unit for equipment listed in the Schedule mentioned previously. Additionally, Honeywell will monitor the usage and storage/handling procedures. If misuse of the inventory is found due to poor maintenance or troubleshooting practices by Customer personnel, then the Customer will be notifi ed in writing that immediate action must be taken to bring the site storage/handling back to acceptable levels. If, as a result of misuse, any boards need to be repaired or if returned boards are found not to be defective, Honeywell reserves the right to invoice the Customer at the current published list price for the boards. Inventory Adjustments In the event that the level of the on-site inventory is adjusted, due to mutual agreement between the Customer and Honeywell, the price will be adjusted accordingly for that site immediately if it is a large change, or at annual renewal for small changes (less than 10% overall value). Termination The costs to provide the Parts Management Program, as well as the subsequent price to the Customer are based on a minimum fi ve-year contract. In the event that either party cancels the agreement prior to the fi ve-year period, then the Customer will be invoiced for the Site/P1 Stock and functional hot spares system(s) at the then current Honeywell list prices. Version 1.0-01/2009 Honeywell Internal Use Only Page 31
Parts Management At-a-Glance Parts Management P1 P2 QCS Extended Parts Warranty (EPW) PARTS EXCHANGE (USA only) Annual inventory assessment Annual parts usage assessment Availability 2 6 weeks Availability 24 hours Availability on-site 2 6 weeks Factory lead time Revision control Displaced hardware returned to Honeywell Parts upgraded as system changes P1 Priority 1 Service Performance Method of Delivery Tools Provides the delivery of spare parts within a guaranteed response time. The inventory is held on site for immediate availability. Provides 24 hours per day, 365 days per year critical spares availability. Honeywell will maintain the spare parts inventory at a specifi ed minimum revision level that is compatible with the installed system or equipment. Honeywell will audit the inventory annually. Honeywell will update all spare parts to the specifi ed minimum revision on the next scheduled site visit or upon request by customer based on mandatory or recommended retrofi t announcement, or a system or equipment confi guration change. P1 inventory will be identifi ed and supported contractually to a customer specifi ed list. Honeywell will maintain a list of spare parts by revision levels that is compatible with the system or equipment. Honeywell will recommend a list of spare parts based on system or equipment confi guration. P1 parts that have been used for repair purposes shall be replenished by P2 in 24 hours, or up to 2 weeks by mutual agreement. Customer shall notify Honeywell of any changes in system or equipment confi guration that would affect the spare parts inventory. Renewable Version 1.0-01/2009 Honeywell Internal Use Only Page 32
P1 Hot Spare Service Performance Method of Delivery Tools Provides on-site availability of spare parts maintained under power that provides to the customer the assurance that the spares will operate as intended when installed in the supporting system or equipment. Provides 24 hours per day, 365 days per year CRITICAL spares availability. Honeywell will maintain the bonded spare parts inventory at a specifi ed minimum revision level that is compatible with the installed system or equipment. Honeywell will review the inventory annually with the site. Honeywell will update all spare parts to the specifi ed minimum revision on the next scheduled site visit or upon request by customer based on mandatory or recommended retrofi t announcement, or a system or equipment confi guration change. P1 Hot Spare inventory will be identifi ed and supported contractually to a Customer specifi ed list. Honeywell shall maintain a list of spare parts by revision levels that is compatible with the system or equipment. Honeywell shall recommend a list of spare parts based on system or equipment confi guration. P1 parts that have been used for repair purposes shall be replenished by P2 in 24 hours or up to 2 weeks by mutual agreement. Customer notifi es Honeywell of any changes in system or equipment confi guration that would affect the spare parts inventory. P1 Hot Spare Parts are not to be connected to the process or used for hardware maintenance training. Renewable P2 Priority 2 Service Performance Supports P1 by providing the delivery of any part in an agreed P2 holding, to site, within a guaranteed response time. Also provides the delivery of spare parts within a guaranteed response time, which are held in bonded stock in addition to the P1 holding. Provides 24 hours per day, 365 days per year CRITICAL spares availability. Honeywell will deliver spare parts at a specifi ed minimum revision level that is compatible with the installed system or equipment. Honeywell will maintain the bonded spare parts inventory at a specifi ed minimum revision level that is compatible with the installed system or equipment. Honeywell will deliver the requested spare part within twenty-four (24) hours from receipt of ORDER unless specifi ed as a site exception. Inventory compliance to be maintained at the specifi ed minimum revision and compatible with the installed system or equipment. Honeywell will update all bonded spare parts to the specifi ed minimum revision based on: Mandatory, Recommended, or As-Required RETROFIT announcement Honeywell change to the specifi ed minimum revision level, or Notifi cation by Customer of a change in system or equipment confi guration Method of Delivery Tools The Customer Shared P2 cold spare inventory will be identifi ed and supported contractually to a Customer specifi ed list. Honeywell will maintain a list of spare parts by revision levels that is compatible with the system or equipment. Honeywell will recommend a list of spare parts based on system or equipment confi guration. of bonded stock will be at factory lead time, which is normally within 2 6 weeks. Customer shall have the right to audit the Honeywell bonded stock at 24 hours notice during NORMAL WORKING HOURS. Customer shall notify Honeywell of any changes in system or equipment confi guration that would affect the spare parts inventory. Renewable Version 1.0-01/2009 Honeywell Internal Use Only Page 33
Performance Extended Parts Warranty (EPW) Provides, for a fi xed annual fee, replacement of parts determined to be defective as a result of normal usage, or recommended for replacement by Honeywell during problem troubleshooting or preventive maintenance checks. Provides prepaid spare parts replacement. (±15 % band or rolling average) Honeywell will deliver spare parts at a specifi ed 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. Where upgrade parts are available and at Customer request, parts eligible for replacement within the scope of this service will be replaced with the upgraded parts, Customer will pay the difference in price between the price for the upgraded part less any SESP discount and the price of the replaced part less any SESP discount. If there is no P1or P2 included in the site contract, Honeywell shall deliver the requested spare part at factory lead time, normally within 2-6 weeks from receipt of ORDER unless specifi ed as a SPARE PART EXCEPTION. Method of Delivery Parts replacement will be supported contractually by SCHEDULE A. Tools Honeywell shall maintain a: Database of spare parts by revision levels that is compatible with the system or equipment. Database of hardware confi guration for each site/system or equipment. The Parts Replacement Fee is calculated over a 3 year average with a +/- 15 % yearly risk on both sides. (If more or lesser than 15 %, customer will pay extra or Honeywell will credit). Renewable Parts Exchange Service (for Specific Hiway Parts Only USA only) Performance Method of Delivery Tools Provides a discount on replacement of defective parts. The discount will be applied to the replaced part providing Customer returns the defective part within 60 days. Provides a discount off spare part list price after the defective part is returned under the PARTS EXCHANGE Program If the returned part is damaged beyond normal usage, or not included in the PARTS EXCHANGE Program, the replaced part shall be provided at List Price with the appropriate pricing incentives. Honeywell shall supply written documentation that the spare part was damaged beyond repair with invoice. Honeywell will deliver the requested spare part within 2 weeks from receipt of ORDER unless specifi ed as a SPARE PART EXCEPTION. Customer will return the defective part within 60 days in the appropriate packaging. If Honeywell does not receive the defective parts transportation prepaid within 60 days after receipt of the replacement parts, Customer will pay Honeywell s then-current list price less any applicable SESP discounts for those parts. If any returned parts are damaged as a result of Customer negligence, Honeywell reserves the right to invoice Customer at the list price less any applicable SESP discounts. Program applies only to specifi c repairable Hiway products. Non-Renewable Version 1.0-01/2009 Honeywell Internal Use Only Page 34
Parts Management FAQs Frequently Asked Questions 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. Q. What happens to on-site inventory if either party desires to cancel before the five year term? A. The costs to provide the Parts Management Program, as well as the application price to the customer, has been determined on a minimum fi ve-year basis. In the event either party cancels the agreement prior to the fi ve-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, then quantities and revision levels are documented and placed in a computerized tracking system at the Branch. An a routine basis at least annually, the technician will receive a revision update list and compare that to the list they have for the customer. Additionally, the 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 for the bonded stock? A. During normal working hours, the customer will call the Honeywell offi ce and request a board. The board 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. For those spare parts that Honeywell determines are usable and/or questionable, Honeywell will offer a buyback of from 10-15% of the current list price of the parts. The buyback will be offered as a credit toward the Parts Management contract price. Another alternative is that, for those parts that are deemed critical on-site parts, they will remain under customer ownership until used. Once used, the replacement 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 and I am covered for the parts replacement while in warranty, will my price be lower the first year? A. Absolutely. The customer will receive a proposal containing pricing for the program in years two through fi ve, 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 fi rst year price will be less. Version 1.0-01/2009 Honeywell Internal Use Only Page 35
Q. Why do I need to spend additional money to have parts on-site? A. Our Process Control customers desire to minimize the risk of system downtime. In order to accomplish this, they can purchase spare parts and/or hot (functional) spares or alternatively, commit to Honeywell s Parts Management Program. We re not asking customers to spend additional money, but instead offering them a cost-effective alternative for having parts readily available when needed. 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 our customers both operational and fi nancial benefi ts. Operational Benefits are: Increased process uptime as parts are readily available when needed and at the correct revision level Parts Management offers our customers fl exibility. 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. Replacement parts are available for a fi xed 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, so there is no up front inventory investment. 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. Who determines what parts will be located at my site? A. A Honeywell service professional and the customer review the recommended spare parts list 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, 24 hours away. Finally, they will generate a list of those parts that will come out of the normal depot stock, generally three to ten days away. 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. Version 1.0-01/2009 Honeywell Internal Use Only Page 36
Q. Why do I have to commit to a five year contract? A. First of all, many of our customers are looking for a long term parts support strategy, and, therefore, will understand and desire a multi-year contract. However, for those who do not, you may want to point out that 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 fi ve-year basis. If we were to accelerate our write-off, our costs would be higher, and the customer would have a higher annual fee. Q. How do I handle non-honeywell manufactured parts in on-site inventory? A. Since the costs of managing non-honeywell parts is somewhat higher than for Honeywell parts, a separate listing of non-honeywell parts to be covered should be prepared in the checklist and priced accordingly. The FSL should determine if he/she has an appropriate mix of Honeywell and non-honeywell parts to adequately cover costs before agreeing to include non-honeywell parts in on-site stock. In general, this should be limited to functional spares for devices like GUS and APP. Tools to help with Parts Management The following tools are available to assist with developing a Parts Management agreement with the customer. Parts Management Assessment Tool http://acsnet.honeywell.com/sites/hps_library/services/parts%20management%20 Assessment%20Tool.xls Parts Management Checklist http://acsnet.honeywell.com/sites/hps_library/services/parts%20management%20 Checklist.doc Parts Management Return Process http://acsnet.honeywell.com/sites/hps_library/services/parts%20management%20 Return%20Process.pdf Customer Presentation http://acsnet.honeywell.com/sites/hps_library/services/parts%20management%20 Customer%20Presentation.ppt#286,20,Slide 20 Parts Replacement Overview Parts Replacement is optional to a Parts Management agreement or to an SESP agreement. With this service, Honeywell will provide the Customer with all replacement parts used in preventive and corrective service provided by Honeywell at no additional charge. Unserviceable parts will be replaced, at Honeywell s option, by new parts or parts equivalent to new in performance. Replacement parts will be furnished on an exchange basis and replaced parts become the property of Honeywell. Version 1.0-01/2009 Honeywell Internal Use Only Page 37
Not included are parts used as a result of other than normal wear and tear, including, but not limited to, accidents, fi re, water damage, negligence, misuse, or repairs, alternations, or modifi cations performed by persons not authorized by Honeywell. Upgrade Kits are not included but are available at an additional charge. Customer will be invoiced for any Honeywell owned failed parts that are not returned to Honeywell within 30 days of failure. Honeywell will maintain obsolete equipment as long as parts are available. However, should parts become unavailable, the device must be replaced at the customer s expense or removed from this agreement. The Parts Replacement agreement provides for deletion of equipment from the list of covered parts. If equipment is deleted, Honeywell will adjust the agreement price to refl ect the deletion. The costs of reconditioning/modernization of hardware are not included in the Parts Replacement agreement. Parts replacement pricing structure Year Amount Year 1 2% of total installed hardware List Price at site ($P) Year 2 Average of actual usage in Year 1 and $P above ($Y1 + $P) /2 Year 3 Average of actual usage in Year 2, Year 1 and $P ($Y2 + $Y1 + $P) /3 Year 4 Average of actual usage in last three years ($Y3 + $Y2 + $Y1) /3 Year 5 Average of actual usage in last three years ($Y4 + $Y3 +$Y2) /3 Parts Replacement At-a-Glance Provides, for a fi xed annual fee, replacement of parts determined to be defective as a result of normal usage, or recommended for replacement by Honeywell during problem troubleshooting or preventive maintenance checks. Provides prepaid spare parts replacement (±15% band). Honeywell will deliver spare parts at a specifi ed 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. Where upgrade parts are available, and at customer request, parts eligible for replacement within the scope of this service will be replaced with the upgraded parts, and the Customer will pay the difference in price between the price for the upgraded part less any SESP discount and the price of the replace part less an SESP discount. Performance If there is no P1 or P2 included in the site contract, Honeywell will deliver the requested spare part within 2-6 weeks from receipt of Order unless specifi ed as a SPARE PART EXCEPTION. Method of Delivery Tools Parts replacement is supported contractually by Schedule A of the contract. Honeywell will maintain: A database of spare parts by revision levels that are compatible with the system or equipment. A database of hardware confi guration for each site/system or equipment. The Parts Replacement Fee is calculated over a 3 year average with a ±15% yearly risk on both sides. (If more less than 15%, customer will pay extra or Honeywell will credit.) Renewable Version 1.0-01/2009 Honeywell Internal Use Only Page 38