Jon Lyons, director of global supply management for Honeywell's Industry Solutions (IS) division (Phoenix, Ariz.), is a facts guy. He likes to see decisions driven by hard data rather than gut feel, and he is determined to supplant "tribal knowledge" with essential documentation.

Lyons jokes about the reactions he often encounters on his relentless quest for facts: "People groan. They chide me for being too like an accountant."

But the emphasis on fact-based decision making is really starting to take root in the sourcing organization at Honeywell IS. It's evident in the group's new Web-based supplier rating system and in its application of Honeywell's Six Sigma-plus initiative. It's evident in the way the group reports cost savings, sticking to only real, bankable savings. And it's evident in the way the organization is attacking the digitization of its processes, how it is investigating and applying new tools, such as e-auctions.

Lyons and his management staff are a combined team from the AlliedSignal/Honeywell merger. Ten months into the merger transition, General Electric moved to acquire the new Honeywell, which sidetracked the entire organization for a period of about eight months, according to Lyons.

"When we started down the due diligence path with GE, there was a pretty heavy disruption factor as we struggled with what information we could share and what we needed to keep confidential because we had competing businesses. We also lost some good talent. Many people were either told they would not have jobs with GE or they simply assumed as much. The job market was hot and Honeywell has a great reputation, so these people were snapped up by other companies."

The GE-Honeywell deal fell apart in June 2001. Since then, Honeywell Industry Solutions has been made part Honeywell's new Automation and Control Systems (ACS) group. Now there's a new division president (the fourth in five years) and a new vice president of integrated supply chain for the Industry Solutions business, Tom LaMantia.

With these organizational changes in place and the threat of GE's takeover now history, Lyons says the new IS sourcing organization is finally getting a chance to spread its wings. And that's where the emphasis on fact-based decision making comes in.

One order of business, according to Lyons, has been to review some very big sourcing decisions that were made before the Honeywell-Allied Signal merger. For example, prior to the merger the IS division had undertaken two big outsourcing programs: outbound logistics as well as its entire printed circuit board assembly operations. "We're constantly reevaluating all our decisions," Lyons says. "The outsourcing of printed circuit board assembly (PCBA) has seen some very mixed results."

A problem, according to Lyons, was that Honeywell IS sacrificed its direct relationships with critical electronic components suppliers when it outsourced PCBA , which caused hardships for the division when supplies of electronic components became very tight in late 1999 and 2000. When the division tried to intercede on behalf of its electronics manufacturing service (EMS) providers, it found that it no longer had the necessary pull with component suppliers. "It wasn't their fault really. We were just no longer visible as a customer in [the component suppliers'] systems," Lyons says.

Unfortunately, the evaluation of EMS providers had not extended sufficiently to their materials management systems. "We thought we were going with companies that would be much more capable than they were of dealing with shortages and allocations."

Recapitalization of PCBA is definitely not an option, Lyons says, "But, going forward, we're going to be much more engaged with our second-tier component suppliers. We're also going to be working more closely with the supply-chain leaders of other business units within Honeywell ACS, many of which still make their printed circuit boards in-house."

Improving supplier performance is a big area of emphasis in the reinvention of supply management at Honeywell Industry Solutions. It starts with a system that documents supplier performance with enough frequency to spot trends and to catch problems before they get out of hand.

Robert Kajca (pronounced "Kiyza") is manager of global strategic sourcing for Honeywell Industry Solutions and a primary architect of the division's new supplier performance measurement system.

"Going back a few years," Kajca says, "supply management had an excellent process for evaluating and rating suppliers, but the group looked at performance only once a year. There was nothing happening monthly."

By moving to a monthly system of supplier performance measurement and reporting, Kajca says the company is looking to "get out of surprise mode. We want our suppliers to see how they are performing every month and whether or not their performance is trending upward or downward."

The new system is almost entirely Web based. Program administrator, James Kennedy, who is part of the supply management staff, built the site. Relevant data are either extracted automatically, using scripts, from other company information systems, or they are input directly by buyers.

Instead of mailing report cards once per year, suppliers can access their numbers any time. Suppliers have access to their own performance data as well as to a ranking of where they stand in their field. "If they are ranked 25 out of 50, they know there are 24 who are better and 25 who are worse, but they don't know the names of the other companies," Kajca says. (Details on pages 28, 31).

Kajca's hope is that the measurement system will put an end to sourcing decisions that are based on people's impressions of suppliers' abilities. "Everyone can tell a good supplier from a bad one," he quips, "A good supplier is one that helped us out of a bind four years ago. A bad supplier is one that hurt us at some time in the distant past."

The goal, according to Kajca, is to replace these vague impressions with hard facts. The scoring goes from four to 20 points. Commodity managers, he says, are expected to scrutinize any suppliers with overall scores of 10 or lower. "For suppliers in this group, we want to see one of three things happening. We want to see a get-well plan from the supplier, we want our quality and supplier development engineers to be working with the supplier, or we want a transition plan in place." New work, Kajca adds, will go only to suppliers who score well in the system.

While the measurement system does not assign specific costs to instances of supplier nonconformance, Kajca says he expects the data to be used by commodity managers in making business awards in post-electronic auction environments. "If we do an e-auction with four suppliers that we know, we're going to look at their scores because the supplier with the lowest price may have a score of 12, while the runner-up may have a score of 20. There's value in having that 20 score and we're going to pay attention to that."

An evolving objective is to have the company's first-tier suppliers, in particular its EMS providers, using the same or very similar systems for rating electronic component suppliers, which goes back to the division's outsourcing of its PCB assembly, according to Kajca.

"Because we have outsourced that piece of our business," he says, "we can no longer tell the good component suppliers from the bad. We no longer have access to the data on their performance, and yet we have engineers designing specific components into our products."

An immediate goal, Kajca says, is to get the company's EMS suppliers to provide information on their component suppliers' quality, delivery, service and cost performance over time, which may involve making the new Web measurement system available to these suppliers. "We've opened some discussions," Kajca says. "We don't want to tell our EMS providers how to do their jobs, so if they have good systems in place for measuring supplier performance, that's fine. But we do want to know when they're having trouble with suppliers so we can stop designing the parts into our boards. We're looking to aggregate data in ways that will help our design engineers."

For initial supplier qualification, the IS division relies on a Honeywell corporate tool called Maturity Path to Premier Supplier (MPPS). This is an annual assessment and scoring system that incorporates past performance but also looks at such things as financial risk, succession planning, health and safety records, quality systems, and supplier relationships and control.

Taken together, according to Kajca, the monthly and annual scoring tools create a strong basis from which the Honeywell IS division can allocate its precious resources for supplier development work. "If we have a delivery issue in Phoenix, a buyer in Phoenix can work on that. But if a commodity manager notices delivery issues cropping up at multiple sites, he or she knows there is something systemically wrong and we need to consider deploying some of our supplier development people."

While commodity managers are ultimately responsible for either improving or transitioning away from poor performing suppliers, Kajca says the emphasis remains on keeping existing suppliers, wherever possible, because the costs of transitions can be high.

And that's where Dan Fink, manager of Supplier Quality and Development gets into the act.

Fink leads a team of supplier quality engineers and is in process of filling two new supplier development positions at Honeywell IS. It is Fink's mission to instill Honeywell's Six-Sigma-plus culture among the company's supply base.

The Six Sigma piece refers to a well established set of quality-control training modules and tools that are designed to eliminate variation, to "lock down" processes so the only possible outcomes are products or services that meet required specifications. The "plus" piece refers to the integration of Six Sigma with "lean" thinking, which emphasizes elimination of both dead time and nonvalue adding activities from manufacturing and administrative processes.

"Six Sigma is the enabler," says Fink, "but lean is where the money is." Lean manufacturing is where the company aims to eliminate waste and synchronize its activities with those of suppliers. "For example, one goal," Fink says, "is to eliminate the seesaw inventories that we wrestle with regularly."

Ideally, Fink says his team members would spend most of their time making good suppliers even better. In the real world, however, commodity managers with quality or other supplier performance problems request interventions by Fink's team. He uses Pareto analysis to figure out which projects make the most sense.

Over the past year or so, the team has undertaken a number of Six Sigma green belt initiatives with suppliers. The projects typically start with four full days of green belt training for supplier personnel, usually alongside people—buyers, commodity managers, or supplier quality engineers—working for Honeywell.

Wong's- CMAC is a company based in Mexicali, Mexico, that provides conformal coating services on printed circuit boards for Honeywell Industry Solutions. Last year, Fink along with supplier quality engineer (SQE), Tom Roberts, approached the company with a green belt initiative aimed at resolving some chronic quality and leadtime problems the supplier was experiencing.

"We send circuit boards to Mexico where Wong's- CMAC applies a coating that is designed to provide protection for the boards in corrosive environments. But we were getting areas with coating that weren't supposed to be coated. We were also seeing cosmetic defects with the coatings, for example, bubbles or voids," Fink says.

After providing green belt training to three of Wong's- CMAC's employees Roberts says the team "basically worked all the [Six Sigma-plus] tools in order."

The first step is to create a detailed process map and to identify inputs for each process step. "This is where we find all the 'hidden factories'," Fink says. "For example, we might uncover a hidden rework loop or some other undocumented input that can influence the process outcome."

Next step is to list all the critical-to-quality (CTQ) parameters and to rate each process step according to how likely it is to influence the CTQ. For example, in the case of Wong's- CMAC a critical-to-quality parameter might be "thickness of coating". "If the process step is 'remove part from the box', then it's not going to get a very high rating," says Fink. "If the process step is 'mix coating liquid', the rating is going to be higher."

This exercise, he says, serves to call out the process steps most likely to be causing problems, so the team can then spend its limited time conducting Failure Modes and Effects Analysis (FMEA) on the most influential steps.

"The FMEA is where you take a detailed look at each process step and ask, 'What are all the things that could possibly go wrong?" Roberts explains. "Then you use a ranking system to decide what you're going to do first."

An early part of the Wong's- CMAC project, according to Roberts, involved calibration of Wong's- CMAC inspectors with incoming quality inspectors at Honeywell. "Obviously, we were rejecting things in Phoenix that they were failing to reject in Mexico. So we did a Kappa study, where you have all the in-spectors sample a known universe of parts, compare the differences in their results, and determine which inspectors need training." The exercise proved so effective, Roberts says, that Wong's- CMAC continues to deploy it once per month to make sure its inspectors are calibrated among themselves.

"We did that to get things under control quickly," Roberts says. Then the team moved on to the business of mapping Wong's- CMAC's conformal coating process and looking for sources of variability that could be locked down.

One important change, according to Murali Rajagopalan, Wong's- CMAC's operations manager, was the creation of visual work instructions for Wong's- CMAC masking operators. These were diagrams, created by Wong's- CMAC and approved by Honeywell, of the printed circuit boards with precise measurements and arrows describing where the masking must be located on each board. "The documentation has improved the consistency and repeatability of our masking operations," Rajagopalan says.

Measurement systems analysis is another Six-Sigma tool that was deployed in Wong's- CMAC's green belt initiative. "Basically," says Roberts, "this tells you if your measurement system is accurate and repeatable."

For Wong's- CMAC, the team applied the analysis to the supplier's measurement of its spray coating's viscosity (the thickness of the liquid). "Originally," says Roberts, "they were measuring viscosity by dipping a calibrated cup into the liquid and measuring the time it took for the liquid to drain from the cup." But try as they might, the team could not find a way to make the measurement repeatable. "We performed the analysis three different times, but it kept turning out bad," Roberts recalls. "We would try to correct something, then test again to see if it got better. We never managed to nail down the process, so we decided to devise an alternate way of controlling it."

Since the team was having difficulty measuring (and subsequently controlling) viscosity as a means of controlling the thickness of the coating, they looked back through their process map and FMEAS for other factors that affected thickness and could be more easily measured.

The solution was to hold the liquid's mixture and temperature constant and compensate for variation by controlling for flow rate through the spray machine. As a result, the measurement system doesn't rely on a person watching a cup drain and clicking a stopwatch in a precise way. "Instead, we programmed the machine to dispense liquid for a set period of time. Now, to determine flow rate, they simply use a cup to measure the amount of liquid dispensed," Roberts says. The flow rate can also be adjusted immediately using a valve placed near the spray nozzle, instead of re-mixing or "sweetening" the mixture of the liquid, which is time consuming. While noting it was "hard for everyone to agree to this change," Roberts says the result has been "a big reduction in setup time" for Wong's- CMAC.

When Honeywell started its green belt initiative with Wong's- CMAC, the supplier's quality performance was 3.2 Sigma, which is 44,565 defective parts per million (PPM) shipped. Initial goal was to get to 4.5 Sigma (1,350 PPM) and that goal was met last July. For the three months ending December 2001, the supplier performed at 6 Sigma (3.4 PPM). "That's a three-month rolling Sigma level," Roberts says, "so it's very good."

And that very good performance has created a new opportunity for Wong's- CMAC. Fink says Honeywell Industry Solutions is now considering the possibility of Wong's- CMAC taking over some of the printed circuit board assembly work that is being done for Honeywell by its parent company Wong's Electronics of China, which would be a new line of business for the Mexicali facility. "Before the green belt initiative, we never would have entertained the idea," Fink says. "Now we're going to be moving forward together.

While Six Sigma-plus initiatives often focus on fixing suppliers' problems, they are also, according to Fink, very much about extending Honeywell's internal lean manufacturing initiatives up and down the supply chain. For example, a green belt initiative with Phoenix-based BlackHawk Metal Products, which supplies precision sheet metal fabrications to Honeywell, led to big changes on the supplier's manufacturing floor and to the way it ships products to Honeywell IS.

An internal process analysis had found that Honeywell technicians— working at fully loaded labor rates—were spending up to 15% of their time unboxing and unwrapping the parts that BlackHawk, located about 13 miles away, was shipping in.

"Since we're local," says Curt Jamieson, materials manager for BlackHawk who underwent Honeywell's green belt training, "we were able to switch over to reusable shipping containers." The containers are designed for several things. They protect the parts. They are slotted so parts can be received with a quick visual count. They can be rolled right up to a manufacturing workstation, which eliminates materials handling and extra storage. And they serve as a replenishment order when they arrive empty back on BlackHawk's dock.

Another radical move at BlackHawk has been dedication of an entire manufacturing line to Honeywell, which is a move that came out of a time-value analysis (a lean tool) that the green belt team conducted. "One trick," says Fink, "is to ask 'What is the leadtime?' and then to ask "What is the leadtime when it becomes necessary to expedite the heck out of something?'" It's not unusual to find that a 30-day leadtime part can have an expedited leadtime as short as a single day or even a few hours. "That tells you immediately how much dead time you have in your process," Fink says. Meanwhile, he continues, "The 'part-family matrix' is a tool that shows how many parts follow the same route through a shop, for example, cut, blank, sheer, bend, punch, and paint."

In BlackHawk's case, Fink says the team did some quick mental math. "They have at least four of every machine. We represent 25% of their business. All of our parts flow through the same way, so it made sense for them to put one of each machine on a line and dedicate the line to our business."

Adds Jamieson, "Collapsing our process gives a quicker response to the customer and saves us money by taking our cash out of inventory."

Fink expects such supplier cost reductions to come back to Honeywell in the form of piece part price reductions (which translate into productivity improvements in the supplier measurement system) as a return on Honeywell's investments in supplier green belt training and development work. "The axiom is 'Never let a dollar out the door that doesn't advance the cause of the business'," Finks says. "But, we're very careful to establish our intentions up front. We go through the exercise of defining a supplier's loaded labor rates and so forth, so we can decide what a fair price reduction will be while protecting their margin." He notes also that the supplier is free to apply its green belt training to the work it does for other customers and to bank all the savings.

When a commodity manager and he agree to develop a supplier, Fink says he is sure the commodity manager has no immediate plans to transition the supplier or to e-auction the business. "They understand that transitions tend to foster the 'part in a box' mentality that needs to be eliminated if we're going to integrate our in-house Six Sigma initiatives with those of our suppliers."

Lyons, for one, thinks that ensuring a balance between piece price and overall supplier value is the right answer for Honeywell IS. "Our new tools are aimed at driving the right decisions. So long as we keep the emphasis on facts, we should be able to have the best of both worlds."