Problem: Managing the Supply Chain at Honeywell
If you own a home, work in an office building, or travel by air, the chances are excellent that a Honeywell product has affected your life. The Honeywell Corporation is the world's leading maker of control systems and related components for buildings, homes, industry, space, and aviation. The most recognizable Honeywell product is the automatic thermostat control for home heating that can be found in millions of U.S. homes. Less recognizable Honeywell products are used in commercial and military aircraft, industrial applications, home security systems, and the U.S. space program. Like many companies, Honeywell is in a competitive environment that demands high-quality products at affordable prices. To meet these challenges, Honeywell has worked hard on its supply chain management. In an effort to maximize the value that suppliers make to its business units, Honeywell has developed a distinctive approach to supplier management. The distinctive approach contains the following key components:
The company is shifting from a focus on price to a focus on total cost. As a result, the company does not always buy from the lowest price suppliers. Instead, it buys from the supplier that it believes will provide it the lowest cost in the "long term." The company is shifting toward longerterm relationships with its suppliers and is treating its suppliers as if they are extensions of its own businesses rather than vendors. The company is asking its suppliers to provide business solutions, rather than simply dropping products off at the loading dock. Rather than treating suppliers in an adversarial manner, Honeywell is treating its suppliers like business partners and is looking for opportunities to partner with suppliers in a wide variety of areas.
The motivation for these criteria is not grounded in better public relations or altruism, but in the belief that prudent supply chain management saves money and creates a competitive advantage. The company's willingness to focus on issues other than price is central to the success of this philosophy. Commenting on this issue, a supply chain manager at Honeywell remarked, "We have to reengineer our mindset to focus on improving the benefits we can receive from the suppliers versus just concentrating on prices. Many business organizations hold price so sacred that they miss the free things that suppliers will do for you." 12 Good suppliers want to be closely scrutinized by their buyers, because it gives the suppliers a chance to showcase their on-time performance and other positive attributes.
The consistent theme that is reflected in all aspects of Honeywell's approach to supply chain management is an effort to maximize the value of its supplier relationships. The company asks a lot of its suppliers, from on-time deliveries to providing input on the design of Honeywell products. In exchange, Honeywell gives its preferred suppliers millions of dollars a year in business and conducts itself in a responsible manner by making payments on time and treating its suppliers with respect. This overall approach to supplier management creates what Honeywell believes is a win-win partnership between itself and its suppliers. The more Honeywell's suppliers contribute to the profitability of its businesses, the more business Honeywell will give to its suppliers.
Although Honeywell is fully vested in its distinctive approach to supply chain management, the company is also firmly committed to cost containment. Fortunately, supply chain management and cost containment are not at odds at Honeywell. The firm is very careful about the suppliers it chooses and works hard to find the right mix of price and performance. Honeywell involves its suppliers in every aspect of improving the efficiency of the supply chain. This creates a healthy working relationship between Honeywell and its channel partners. Honeywell is firmly committed to prudent supply chain management. The company has quantified the results of its initiatives in several areas. For example, in terms of treating suppliers like business partners rather than arm's-length vendors, the company has learned that "partners" rather than "vendors" produce more cost savings, have better on-time delivery, supply better-quality products, and provide more suggestions for supply chain improvements. These results, along with positive results in other areas of the company's approach to supply chain management, have affirmed to the company the value of its approach to supply chain management.
Questions
1. Why does Honeywell spend so much time dealing with supply chain management issues? Wouldn't the company be better off focusing on its own manufacturing operations? Explain your answer.
2. What aspect or aspects of Honeywell's approach to supply chain management appear to be particularly prudent? Can you suggest any additions to Honeywell's supply chain management program? 3. Do you believe that Honeywell's approach to supply chain management creates a win-win situation between the company and its suppliers? Why or why not?