Honeywell sees broad benefits from logistics contract management tool
By David Hannon -- Purchasing, 12/11/2008 7:00:00 AM
In many companies, the sales team and the procurement team are considered opposite ends of the supply chain with very little in common except the end goal of improving the company's bottom line. So it may be somewhat surprising to learn that sales, procurement and logistics teams at Honeywell Specialty Materials are all leveraging the same piece of technology.
Behold, the extended benefits of logistics contract management.
Carl Minnis is the global manager of international transportation at Honeywell Specialty Materials, responsible for sourcing business unit's ocean and heavyweight air freight spend as well its third-party logistics providers and managing the contracts with all of those providers. As a $5 billion maker of high-performance materials including fibers, films and petrochemical technologies, the Specialty Materials unit is both an importer of raw materials from Asia and Europe as well as an exporter of product from the U.S. to a long list of overseas markets. All of which translates to a high volume of ocean and air freight—Minnis manages the carriers and contracts covering more than 5,000 ocean lanes a year, for example.
"That's not something you can manage on a spreadsheet," he says. To that end, about five years ago, Honeywell implemented a logistics contract management software tool from East Rutherford, N.J.-based Management Dynamics to help keep track of the ocean freight spend and contacts. It began as a tool that logistics personnel in the Specialty Materials business unit used to keep up to speed with current rates and providers. But the benefits of contract management soon found their way into other organizations within Honeywell, some of which were unexpected.
Much of the cross-organizational best practices sharing is facilitated by Honeywell's logistics council, which includes the logistics and procurement heads of each business unit, including Minnis' boss, Eugene Galdi. Business units that have more experience in a given mode or with a given lane or carrier share advice or best practices with those that have less experience.
For example, since the Specialty Materials unit accounts for about 80% of Honeywell's ocean freight spend, when other business units want to get data and contract terms on carriers, rates or lanes, the contract management system provides the data immediately. Gradually, the contract management tool has been implemented within other Honeywell business units, also. The contract management tool also allows for Honeywell's third-party freight auditing firm to pre-audit freight bills before paying them, which has cut freight costs dramatically.
And when sourcing professionals are preparing total cost analyses for global sourcing decisions, having access into the latest ocean freight rates and providers under contract can play a big role in determining where to source a given material or product.
"If a buyer is looking at sourcing a material from Korea, for example, they can compare the differences in terms and locations to see what is the optimal way of purchasing and shipping that product," says Minnis. "They can see how much we can move a given product in 40-foot containers from Korea to Baton Rouge and take that into account when negotiating with suppliers. It helps buyers determine if there might be too much fluff in the suppliers' prices that include freight."
But perhaps the most unexpected benefits of the contract management system were seen on the sales side of the business unit. Similar to how procurement uses it, a Honeywell salesperson can use the system to estimate how much it may cost to ship a product to a customer and make sure the costs are adequately covered in the sales price. In the past, if a salesperson or procurement professional wanted to estimate shipping costs, it required calling a logistics contact, often multiple time zones away and getting the information in a return call or email. With access to this web-based contract management system, those decisions can be made in the field in their hotel rooms, expediting the buying or selling process.
"For us, that's the beauty of this tool—it's very multi-functional," says Minnis, adding that regular training sessions on the latest features have helped keep the more than 200 users updated.
Minnis says Honeywell is now preparing to roll out an air freight contract management module from Management Dynamics that will provide similar benefits across various Honeywell organizations. And later, the Specialty Materials unit will implement a broader supply chain visibility system to "provide complete visibility from purchase order to factory to customer."
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