Honeywell Operating System

Overview

Sebastian Groffik – OD Process Leader

Marcel Klazema – HOS Process Leader
EMEAI
July 2010

This presentation is for planning and study purposes only. Proposals and options contained herein are subject to Law Department Review,
management approval and any legally required notice, collective bargaining and consultation obligations.
 ACS HOS Team Steven Mitchell
VP HOS & Quality

HOS Group Leaders OD Process Leaders Process Leaders

Name: David Reed Name: Brian Carroll Name: Rob Garrett Name: Marcel Klazema
Title: HOS Group Leader Title: HOS GL Title: HOS GL – Name: open Cannata
Name: Mary N.A. Name: Sebastian Groffik Title: HOS Process Leader
HLS EMEA HBS VP Ops ECC EMEA Title: HOS
Title: HOS OD
OD Process
ProcessLdr
Ldr Title: HOS OD Process Leader EMEA

Name: Nat Gombis

Name: Jeff Herrell Name: David Hughes-Jones Name: Raymond Mak
Title: HOS GL – Name: Adrian Walker Name: Enrique Rivera Name:HOS
Title: Raymond
ProcessMak
Ldr
Title: HOS GL HLS NA Title: HOS GL – ED&S EMEA
ECC NA Title: HOS OD ProcessLdr Title: HOS OD Process Ldr Title: HOS
AP PL AP

Name: Joe Mosher

Name: Prasant Mohanty Name: Beth Peterson
Name: Greg Yates Name:
Name:AmyAmyShen
Shen Title: HOS Process Leader
Title: HOS GL - HPS Title: HOS Group Leader S&C Title:
Title:HOS
HOSOD
ODProcess
ProcessLdr
Ldr
Title: HOS GL - Security North America

ACS
HOS HOS Corporate - Barbara Austin, OD Process Ldr
Support Support: - TBD, Process Ldr
Name: Denise Valli
Roles Name: Cheryl Lim Title: Sr. Admin Asst/
Title: Dir HR ISC Sharepoint Admin.
2 HONEYWELL – CONFIDENTIAL
Preliminary – not final – no decision will be taken without satisfaction of any applicable consultation or negotiation requirements.
 Learning Objectives
Understand…

- What Operational Excellence is

- What HOS is and how it builds Op Excellence
- HOS deployment model and current status
- HOS results expectations
- How HOS ensures sustainability
- HOS challenges and strategies going forward

Any questions before we start?

3 HONEYWELL – CONFIDENTIAL
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 Operational Excellence
…as defined on Wikipedia (with minor edits)

• A philosophy of leadership and teamwork resulting in

continuous improvement throughout the organization by
focusing on the needs of the customer, empowering
employees, and identifying wasteful activities from its
process. Operational Excellence's values lie within
Safety, Quality, Cost Productivity, Human Development,
Asset Management, and engagement in Product
Development.
• Balance must be obtained between the 3P's (Passion,
People, & Patience) and the 3G's (Go & See, Get the
Facts, & Grasp the Situation). The idea of Mutual Trust
& Respect between employees, management, and
customers is key.

Op Excellence Is A Strategic Imperative For HON

4 HONEYWELL – CONFIDENTIAL
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 Honeywell Operating System
Integrated System Built on Six Sigma Foundation to Drive
Sustainable Safety, Quality, Delivery, Cost, and Inventory
Improvement In Our Operations
• A broad application of Lean & Six Sigma tools against a construct of:
- Standardized work (SW and LSW)
- Rapid problem solving
- Continuous improvement
- Knowledge sharing

• Organization Development ensures sustainability through:

- Specific roles & responsibilities for leaders
- High-performance management systems
- Enabling structure
Building A Permanent Competitive Advantage
To Better Meet Customer Expectations
5 HONEYWELL – CONFIDENTIAL
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 Standard Implementation Framework (SIF)

The Standard
Implementation
Framework (SIF)
is the way we
define the
approach to the
Honeywell
Operating System

6 HONEYWELL – CONFIDENTIAL
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 Bronze-Silver-Gold Maturity Framework
Bronze – solid maturity… basic site process and organizational capability
• Complete full scale deployment for the entire site
• Demonstrate process capability and meet AOP for safety, quality, delivery, cost, inventory
Silver – sustained and expanding maturity with improved linkages
• Sustain and expand results
• Extend Kaizen and deepen in the organization ( 2 per employee/per month)
• Line of Business SIOP = Bronze
• Achieve Green process maturity rating + meet AOP for customer OTTR, inventory,
forecast accuracy and supplier on time delivery.
• Achieve Green rating in VPD elements 8-16 (Design and Delivery Phases) and Yellow rating
in elements 1-7 (Define Phase) in SBU/LOB VPD Assessment
• Supply base trends moving significantly in the right direction
Gold – World class performance…operates as part of a Lean Enterprise
• Sustain and expand results
• Strategy Deployment mature at Line of Business level
• SIOP Maturity sustained
• Achieve Green rating in VPD elements 1-16 in SBU/LOB VPD Assessment
• The supply base is a huge enabler operating as a world class extension of HON

Moving From Lean Mfg. To Lean Enterprise Focus

7 HONEYWELL – CONFIDENTIAL
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 HOS Learning
• Drives Understanding Of Relationships Between Tools
Enabling Tools Lean Thinking

Six Sigma Discipline

Design for Flow Consistent Culture

Efficient
Kaizen
Honeywell Eliminate Waste
5S
Operating Pay Attention
Visual Management
System Observation
Standardized Work
Tacit Knowledge
Rapid Problem Solving Experimentation

Value Stream Mapping Always Improve

• Disciplined Behaviors We Expect

• Consistent Culture That Promotes And Reinforces

Enable…
Tools Enable…Culture Sustains!
8 HONEYWELL – CONFIDENTIAL
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 Honeywell Five Initiatives
“HOS, Functional
Transformation, and
VPD™ are absolutely
critical enablers to
Honeywell’s future.”
- Dave Cote

Honeywell’s Five Initiatives

are key to the company’s
performance and success

Growth
Productivity
Cash
People
Enablers

9 HONEYWELL – CONFIDENTIAL
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 Common Processes
Focus Goals

• Significant Improvements in Cost,

Engineering & Quality, Speed
VPD™
Marketing
Velocity Product Development • Link with Strategic Marketing Program
(SMP)

• Standardize, Eliminate Unnecessary

Factory & Work, Generate Idea Flow
HOS
Honeywell Operating System Non Factory • Significant Improvements in Safety,
Quality, Delivery, Cost, and Inventory

Administrative • Standardize, Eliminate Unnecessary

FT Work
Functional Transformation
Functions
• Significant Improvements in Cost,
Quality, Speed

Converging For Maximum Impact & Sustainability

10 HONEYWELL – CONFIDENTIAL
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 HOS Deployment Status – As Of June 3, 2010
Combined Factory and Non-Factory
Full Scale Deployment --- Improving Maturity And Results
WAVE 1 WAVE 2 ONGOING
LAUNCH

BRONZE
FACTORY

FACTORY
PLANNED

SILVER

TOTAL
GOLD
TOTAL

Phase1 Phase Phase Phase Phase Phase Phase Phase Phase

NON

Pre-
Launch 2 3 4 5 2 3 4 5
Factory/Non

ACS 130 92 38 40/15 11/5 5/5 21/2 1/0 3/1 1/0 9/10 1/0 52/23

Aero 77 72 5 25/3 6/0 16/2 19 1 5 47/2

SM 34 34 0 18/0 1 4 7 1 0 2 1 16/0

TS 39 30 9 4/4 1/1 9/2 7/2 2 2 5 26/5

Corporate 2 0 2 0/1 0/1 0/2

Total
Sites
282 228 54 87/22 19/7 34/10 54/4 1/0 4/0 3/1 5/0 0/0 20/10 1/0 141/32
Single
Wave 94 68 26 16/7 18/6 24/3 9/10 1/0 68/26
% of Mfg
Cost 100 18.6 7.0 21.9 34.1 0.8 1.7 1.1 2.2 0.0 12.2 0.4 81.4

Deployment Model Phase Descriptions Typical Timing – 70 – 120 Weeks Total

• 5 Phase, Gated Process Phase 1 = Organizational Readiness (Pre-Launch) Wave 1 Wave 2
• 2 waves = 50% of site each Phase 2 = Baseline and Planning Phase 2 8-16 2-4
• 1st wave with coaching Phase 3 = Learning Through Observation
Phase 3 10-22 4-8
• 2nd wave largely unassisted Phase 4 = Work Process Improvement
• Nominal 24 month process Phase 5 = Pursuing Excellence Phase 4 22-32 16-26
Phase 5 4-6 4-6
Notes: Baseline = 2009 FY Conversion Cost
44-76 26-44
Costs Are Factory Only
54 Non-Factory Sites Include Distribution, Test, Engineering, Customers, and Suppliers
11 HONEYWELL – CONFIDENTIAL
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 HOS Success Metrics
Site level performance improvements
- Minimum expectations 12 months after launching full scale deployment
- Strong guidelines – SBG’s to adjust as appropriate
- All sites must meet all AOP targets to exit Phase 4

Exceptions require Ops Council approval

• Safety – 10% reduction in Total Case Incident Rate (TCIR)

• Quality – 25% reduction in customer defects (PPM = parts per million)

• Delivery – On Time To Request (OTTR = On Time To Request)

- If < 90% - reach 90%
- If >90% but <95%; reach 95%
- If >95%; reach 98%

• Conversion Cost – 50% greater than non-HOS rate (~7.5%)

• Inventory – 15% improvement (rear looking DOS = days of supply

12 HONEYWELL – CONFIDENTIAL
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 2010 ACS HOS Objectives
- Launch a minimum of 33 new HOS full scale
deployment sites

- Achieve at least 80% conversion costs under

HOS full scale deployment

- Achieve HOS Bronze certification at a minimum

of 45 sites

- Achieve at least 50% factory conversion costs at

HOS Bronze certification level
Balancing Speed-Impact-Sustainability To
Drive Competitive Advantage HONEYWELL – CONFIDENTIAL
13
Preliminary – not final – no decision will be taken without satisfaction of any applicable consultation or negotiation requirements.
 Sustainability Is Built Throughout HOS Deployment

• Leaders own and drive the system with coaching from HOS experts

• Org structure, roles, and responsibilities defined and aligned

• All employees are engaged in the improvement process

• Work is standardized as the basis for continuous improvement

• HOS is fully integrated into the site management system

• HOS is constantly reinforced by Leadership Standardized Work

• Sustainability is assured through a common deployment

framework and ongoing maturity assessment

Sustainability Focus Differentiates HOS

14 HONEYWELL – CONFIDENTIAL
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 Key Acceleration Strategies

 Expand Foundational Work outside of traditional deployments

 Grow OD Capacity/Capability, especially in ER

 Install Buddy & Mentoring Systems

 Increase HOS organizational efficiency and reach

 Increase Workshops (Smaller/More Experiential)

 Clear Objectives Linked to HPD, deployment schedule rigour

 Increase Leadership Understanding and Ownership

Sticking With Full Scale Deployment Model -

Extending Organizational Reach And Effectiveness
15 HONEYWELL – CONFIDENTIAL
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 What is OD? How does it support HOS?

20% 80%

Lean Conversions
Cultural Conversions
Lean Production
Lean Management

OD is not about moving boxes on an organizational chart

– it’s about changing how you lead!
- it’s about changing the sum of peoples’ habits!
- it’s about changing how we get work done!

“Most of the journey is internal, a mental calibration and

adjustment to a lean world.”
Creating a Lean Culture: Tools to Sustain Lean Conversations – David Mann

16 HONEYWELL – CONFIDENTIAL
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 STAR Model

Culture & Leadership

Systems &
Processes
Environment &
Stakeholders

Strategy & Structure &

Linkages Results
Guidance CI

Metrics
People
& Rewards

Alignment and connectivity between these choices

drives results
Adapted from Jay Galbraith Model

17 HONEYWELL – CONFIDENTIAL
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 Large Scale Baseline Drives OD Analysis

Single, Integrated
PLAN
100%
18%
Implementation Ho
ww
35%
ill w
SOURCE MAKE DELIVER
60%
69%
24%
90%
Plan ec
Utilisation

37%
DELIVER
ha
Fore Cust
ng
Cast
Order Entry
Ord
46% 54%
e?
PLAN MPS 45% 34%
23%
Shipping
RCCP
MAKE
8%
17% 8%
11% Potential
Organization
6%
MRP
BOM
Inventory
SupportMachine
Assy SupportMachine
Assy
Projects
Value Added Planned Waste Waste
XX XXXX
CRP
A
B
Manufacturing X X XXX
XX Baseline
SOURCE S X XX X X Our
R X
$
$

X
Destination
e?
Purchasing
E 2 2 12 2 2 1 8 3 3
Dock to Stock

3 1 1 1 1 (vision) g ?
Large Scale han ge
c an ?
Where to ch act
Baseline Analysis We Are ed to mp ed?
n e d i t
e nee the pac
w
Wh W o e be im
at a here d w
t o ill be
re o ar
ur o e we? ha y d t w ill
W h a w
ppo
rtun Vision: Where W Wh ho
itie W
s? We need to Be

18 HONEYWELL – CONFIDENTIAL
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 Key Summary Concepts
 Create the case for change to establish why the organization and its people need
to change.
 Clearly understand the expectations of the “targets” of the change and have a
robust communications plan.
 Take the actions necessary to ensure adequate capacity within the organization
to absorb the change by managing demand.
 Build commitment with good planning on the front-end - Rework is expensive
and frustrating for the organization.
 Ensure a balanced solution (50% tools/50% consequences).
 Obtain adequate sponsorship. (Resource AND consequence management.)
 Ensure a comprehensive change effort rather than one focused on one
component of the STAR model.

Good Change Management Practices are a

Competitive Advantage
19 HONEYWELL – CONFIDENTIAL
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 Summary
• Strong 2006 - 2009 track record of performance
- Investor community gaining understanding
- Deployment length and Bronze achievement must continue to improve

• Organizational capability and effectiveness is key

• Aggressive 2010 plans based on lessons learned

- Increased focus on key sites to achieve Bronze
- Significant transition and SAP activity must be managed

• HOS clearly linked with SIOP, VPD, Procurement

- Aligns activities to support Bronze-Silver-Gold

Well On Our Way To

Sustainable Competitive Advantage
20 HONEYWELL – CONFIDENTIAL
Preliminary – not final – no decision will be taken without satisfaction of any applicable consultation or negotiation requirements.