Indirect Procurement

Governance Policy Training

HQ-PPMR-DTR-0001-0 Rev# 4
Why Are We Here?
Indirect Procurement Governance Policy

Completion of this training does not replace the requirement to read

and understand the Indirect Procurement Governance Policy
Key Takeaways:

The primary and functional objectives of the Indirect Procurement

Governance Policy (IPGP)

The scope of the Policy – what is and is not covered by the IPGP

The importance of fair and ethical procurement practices

The role of the indirect procurement function

The Sourcing and Supplier Selection Process

Contract Signature Requirements

Segregation of Duties
Key Policy Features

Indirect Procurement Objectives

Scope and Administration of the Policy

Indirect Procurement Function

Sourcing and Supplier Selection

Contract Signature Policy

Segregation of Duties
Key Policy Features

Indirect Procurement Objectives

Scope and Administration of the Policy

Indirect Procurement Function

Sourcing and Supplier Selection

Contract Signature Policy

Segregation of Duties
Indirect Procurement - Primary Objectives

Indirect Fair and ethical

Cost control Procurement procurement
governance practices
Indirect Procurement - Functional Objectives

Consistency Supplier
in supply chain Best value sourcing and
management management
Key Policy Features

Indirect Procurement Objectives

Scope and Administration of the Policy

Indirect Procurement Function

Sourcing and Supplier Selection

Contract Signature Policy

Segregation of Duties
Scope and Administration of the Policy

This policy does not apply to:

• Direct OEM goods

• Regulatory payments (e.g. taxes and fines)

• Personal expense claims

• Inter-company cross charge payments (i.e not

through sourcing events)
Some Examples of Indirect Procurement
MRO
• Electrical Components – PLC’s, Sensors,
Limit Switches
• Precision Measurement – Made-to-Print,
Jigs/Fixtures
• Production Cutting Tools – Drill bits, Inserts,
Punches
• Office Supplies – Desks, Pens, Paper, Folders
Industrial Equipment/Construction
• Retool Equipment
• Equipment Rigging, Leveling, Setting
• Construction & Trades (Concrete,
Mechanical, HVAC, Elec)
Services
• Industrial Services – Manpower Service
Providers, Calibration,
• Facility Services – Maintenance, Cleaning,
Recycling, Janitorial, Security
• Professional Services – IT, Engineering,
Training, Marketing, Direct Mail Campaigns,
Incentives
Information Services
• Software – Licensing, Downloads, Cloud
• Hardware – Servers, PC, Network, Scanners
• Telecom – Video Conferencing, Cellular Phone
Key Policy Features

Indirect Procurement Objectives

Scope and Administration of the Policy

Indirect Procurement Function

Sourcing and Supplier Selection

Contract Signature Policy

Segregation of Duties
Fair and Ethical Procurement Practices

Anyone involved in the procurement

process is required to:
•Exercise ethical conduct

•Avoid the appearance of impropriety

in their business dealings with others
•Avoid any situation that does or may
involve a conflict of interest
Fair and Ethical Procurement Practices

This includes, but is not limited

to giving/receiving:
•Kickbacks
•Payments
•Benefits from suppliers
for services not rendered
Fair and Ethical Procurement Practices

If you have a concern, or see any conduct that may violate the law
or this Policy, report it to your supervisor, senior management, local
Compliance and Ethics office, Human Resources/Associate
Relations, and/or Honda Legal.

If you have already reported your concern through internal channels,

and believe the concern should be reported to the regional level, you
may contact the Corporate Compliance and Ethics Office at Honda
North America (HNA) or the HNA Law Division.

Retaliation or adverse action against an associate for cooperating in

a formal investigation, or reporting a suspected violation of Honda
policy, is a violation of the North America C&E Policy and Honda
policy and will not be tolerated.
Contact Information

North America Regional Compliance

and Ethics Line

US/Canada: 1-855-462-2236

México: 01855-4622236
Quiz

What is one of the primary objectives of the

Indirect Procurement Governance Policy?

1. Leverage over indirect procurement suppliers

2. Fair and ethical procurement practices
3. Honda branding

Answer: 2. Fair and ethical procurement practices

Key Policy Features

Indirect Procurement Objectives

Scope and Administration of the Policy

Indirect Procurement Function

Sourcing and Supplier Selection

Contract Signature Policy

Segregation of Duties
Role of Indirect Procurement

The Indirect Procurement function is

responsible to lead the sourcing and
supplier selection process.

The Indirect Procurement function will manage all strategic

sourcing activities, including single/sole source awards, strategic
spend management to optimize savings, and provide appropriate
visibility of potential contracts to ensure value is delivered in terms of
cost and rate setting, service, quality and delivery.
Formal Award Should Occur

Formal award by the Indirect

Procurement function must occur prior
to supplier performing services or
delivering goods.

**Purchasing can issue a temporary

PO number in the event of an
emergency**
Confidential Information

Buyers and Business Users must confirm a Confidentiality

Agreement is in place before sharing Honda’s confidential
information.
• Sometimes referred to as a
Non-Disclosure Agreement

• Coordinated by Procurement
Quiz

When is a confidentiality agreement

required to be sent to a supplier?

1. When you first meet a prospective supplier

2. After the job is 75% complete
3. Only if the supplier asks for one
4. Before sharing confidential information

Answer: 4. Before sharing confidential information

Competitive Bidding

Best practice for certain types of business

Confidentiality and integrity are highest level

of importance

All materials & questions should be submitted

in writing, then distributed fairly to all bidders

Maintain the integrity of the process flow

If a bid is ‘contaminated’ (e.g. Sharing one

supplier's information with another), supplier
relationships with Honda can be damaged
Bid Matrix
Bidding/Competitive Requirement Matrix

The Bidding/Competitive Relative Competitive Waiver of

Cross-Functional
Indirect
Indirect
Procurement
Contract Method3
Complexity & Sourcing Process Bidding Competitve Advance Notice
Requirement matrix is
Procurement Assumes appropriate Master
Spend Value Requirements Bidding Required Guideline for
Team Required Legal Agreements executed
Bidding

used to identify relative Low

Tactical Sourcing
Preferred, but not
No No 1 Week3 SAP Purchase Order
Less than $24,999 required

spend values, the

Minimum of 3

required level of Medium

Quotes1 acquired
by End User or
Indirect
SAP Purchase Order
Tactical Sourcing Yes No 2 Weeks3
competition, and to
Procurement from (with detailed purchase
$25,000 to $99,999
Procurement description)
Approved Supplier
List
provide
a recommendation for Minimum of 3
Quotes1 acquired
Preferred Level 2 “Order”
High RF(x) event1&2 Yes, including (Commercial Terms
Business Users to
Supplier selection
Strategic Sourcing facilitated by competitive cost 3-4 Weeks 3
Contract/SOW/etc)
$100,000 to Decision Analysis
Procurement based analysis +
$999,999 (DA) developed
on specifications SAP Purchase Order
and evaluated
determine advance developed by the
end user.

notice for Indirect Level 2 “Order”

Minimum of 3

Procurement Quotes1 acquired (Commercial Terms

Yes Contract/SOW/etc)
Very High RF(x) event1&2 Yes, including +
Supplier selection
Strategic Sourcing facilitated by competitive cost 8 Weeks3 SAP Purchase Order
involvement. Over $1,000,000 Procurement based
on specifications
analysis
Decision Analysis
(DA) developed
and evaluated
+
Contract
developed by the Compliance/Performance
end user. Mgmt Methodology Applied

Bids solicited from Procurement Approved Supplier list for the applicable spend category(ies).
1

Will include potential new sources, if applicable.

2

Assumes master legal agreements, such as NA Non-disclosure Agreement, NA Master Services Agreement, etc. have been executed and are active. Additional time may
3

be required to execute new master agreements.

Bidding Process

By following the requirements of the bidding matrix, the

indirect procurement function can:

• Be involved in the bidding process at the appropriate time

• Understand the business requirements to assign the necessary

resources

• Provide guidance and recommendations when selecting suppliers

that will participate in the bidding process

• Identify the appropriate required agreements

Scope of Work - Purpose

Now we have a vendor… A Scope of Work is an agreement between

You will need a Scope of Work customer and vendor that specifies the goods
…what is a Scope of Work? and/or services to be provided

A Scope of Work typically exists in 2 different forms, dependent upon

the nature of the transaction (examples outlined on next slide):

1. Goods/Materials & “1-time” Services 2. “Repeat/on-going” Services

• Requisition for material where the

Purchase Order clearly calls out part • Written, detailed Scope of Work
# or specification, quantity, timing, etc signed by department manager and
• “1-time” order for service where the vendor outlining expectations
Purchase Order clearly calls out a
deliverable, timing
• NOTE: a “shopping cart” approval by
department manager is equivalent to
signature approval
Scope of Work – Definition
Examples of (but not limited to) agreements within each definition:

1. Goods/Materials & “1-time”

2. “Repeat/on-going” Services
Services
• Paint, sealers, engine oil, • Industrial cleaning
fuel, other formulated • Quality inspection services
products • Parts delivery, other material
• Steel, resin, other raw handling services
materials • On-site calibration services
• Construction or equipment • Regular preventative
“Project” (could be and maintenance services
installation or maintenance)
with defined beginning and
end
• Office supplies
• Tools
• Calibration
Scope of Work - Purpose
What makes a good Scope of Work?
A Scope of Work must include:
• A description of the work to be done
• Department expectation of the services to be provided
(deliverables/products/results/resources/cost)
• Schedule/timing of deliverables
• Evaluation criteria and reporting using quantifiable, not
subjective measurements
• Term of agreement (start/finish)
A good SOW:
• clarifies the vendor’s tasks & Honda’s expectations
• establishes clear elements to evaluate cost for competitive bidding
purposes
• establishes standard to measure vendor performance relevant to
business requirements using a Scorecard or equivalent method

An approved SOW:
• Is signed by User Department Manager and Vendor Management
• Document is stored by User Department in ISOQuest
 Scope of Work - Example
Scope of Work
best practice
FA-Waste Manager Cost conditions and Terms
3. Reference to reporting
2. Deliverables
requirement in job scope

1. Description of work to
be performed

Signoff by User Dept

2.a) Supplemental tasklist Manager and Vendor
with timing requirements
Excerpts show at right…
3.a) Reporting reflects
deliverables

Use headings from this Scope or HQ-PPMR-DBM-0002-0 as a guideline for developing content for
your Scope. If one or more headings are not applicable to the services in question, include the
heading on your Scope and indicate “not applicable”
 Scope of Work – Vendor risk assessment
Do I need to evaluate vendor performance?
• All vendors must be assessed and ranked to establish level of Quality risk to your department’s
final product
• Purchase Order-based specification (office supplies, direct materials)
• Written agreement-based specification (equipment maintenance, inspection services)
• Department ranking will dictate which vendors to incorporate an evaluation into your Scope of
Work (for example, as per HQ-DP00-QAP-08410-0) Recommendation: Like departments (ex AF1/AF2)
should correlate risk assessments for common
EXAMPLE from HQ-DP00-QAP-08410-0: vendors

Vendors’ level of risk to department’s product assessed Risk score determines level of measurement

Score of 10 or above requires a scorecard (or equivalent) to measure vendor performance

Scope of Work – Vendor evaluation
How do I evaluate vendor performance?
Vendor performance criteria:
• Measurable with clear Plan vs. Actual
• Evaluation frequency (wkly, mthly, qtrly, etc.) and communication
method (e-mail, meeting, presentation to mgr, etc)
• Management method for KPIs if not met (ex. Gap sheet)
• Criteria and results agreed upon by both parties
• Clear linkage to goods/service Scope of Work
• Manager approved measureables (PIC maintains data)

Example only
 Scope of Work – Vendor evaluation

• Using Departments are responsible to:

• Measure their supplier performance based on the requirements and frequency

outlined in the vendor’s Scope of Work.

• Manage the day-to-day supplier performance.

• If concerns arise, Using Departments can escalate performance disputes to PP MRO for
support with contractual support.
Bidding Responsibility Matrix
End user
Attaches quote from
$0 - $24,999 selected vendor to SAP
shopping cart
Attaches number of quotes
required per company bid matrix, or
$25k - $99,999
attaches single quote with signed
Waiver of Competitive Bidding form
to SAP Shopping cart.
Attaches quotes + Level 2 Order
(Commercial Terms
$100k (+)
contract/SOW/etc.) to SAP
Shopping Cart
Procurement
Supports bidding process if
necessary
Checks for attached quote on
SAP shopping cart
Checks for appropriate number of
attached quotes on SAP shopping
cart or quote and Waiver of
Competitive Bidding form.
Supports department with bid
process and necessary Level 2
documents
SAP Shopping Cart Entry

Accurate and detailed entry of information in the SAP

Shopping Cart ensures that time to process orders and
errors are reduced.

If the shopping cart does not have the required

documentation your shopping cart will be REJECTED.

Be aware of the documents that are being sent out to the

supplier with the order. If an attachment includes confidential
information, e.g. competitor information or internal Honda
documents, make sure that it remains Visible internally only.
Quiz

A project is worth $1,200,000.

What steps are required?
1. Multiple bids, cross functional team involvement, advanced
notice for bidding
2. Sole sourcing without justification
3. Two bids, the department requesting services, advance notice
for bidding
4. Calling supplier contact and negotiating pricing

Answer: 1. Multiple bids, cross functional team

involvement, advanced notice for bidding
Key Policy Features

Indirect Procurement Objectives

Scope and Administration of the Policy

Indirect Procurement Function

Sourcing and Supplier Selection

Contract Signature Policy

Segregation of Duties
Contract Execution

Authorized company representative can sign

commercial contracts
Be aware that verbal or informal contracts may
also be enforceable (a promise, board notes,
handshake, email, etc…)
Click Agreements: clicking, “YES” (or) “AGREE”
can be legally binding
Contract Signature Authority Policy

Master Agreement Templates

To achieve optimal contractual and commercial
position for Honda, Buyers should always first
attempt to use Honda’s Legal-approved
templates for contract documents.

This applies to all types of contracts.

Contract Signature Authority Policy

Honda Template Contract Modifications and

Subject Matter Expert Review

Honda Template contracts signed by

a supplier with no modification
• No review by Legal or technical
SME

Honda template contracts modified

by supplier
• Review by Honda Legal

The use of Supplier Paper in contracting may

require Legal consultation and/or review before
executing
Contract Adherence

Adhering to the contract and ensuring that the supplier does

the same allows Honda to gain the full value of the
negotiated contract

Business Benefits Legal Benefits

Ensures the ordered goods/service

Protects Honda from risk
meets the end user’s needs

Purchases made through a Honda Provides an avenue for resolution

contract improves spend visibility of legal issues

Other Honda companies benefit Provides clear definitions to avoid

from increased contract spend different interpretations

Purchases made outside of existing contracts do not have

any of the benefits and expose Honda to unnecessary risk
Quiz

When must there be a Subject Matter Expert

and Honda legal review of a contract?

1. If there are any changes to the Honda

template language
2. For all contracts over $1 Million
3. At the discretion of any department
4. Only when Honda Legal requests it

Answer: 1. If there are any changes to the

Honda template
Key Policy Features

Indirect Procurement Objectives

Scope and Administration of the Policy

Indirect Procurement Function

Sourcing and Supplier Selection

Contract Signature Policy

Segregation of Duties
Process Level Separation of Duties (SOD)

Requisition Budget Business Purchasing Receiving Accounting

(Requestor) Controller Approver (Ordering) (Receiver) (Payer)
** For Reference

Person(s) Person(s) Person(s) Person(s) Person(s) Person(s)

responsible for: responsible for: responsible for: responsible for: responsible for: responsible for:
• Specification • Manage • Approving • Sourcing • Confirming • Supplier
setting planned and Purchasing Competitive completion of Payments
• Create unplanned transaction Bidding services and or • Bank
Purchase expenses (e.g., • Supplier delivery of Information
Requisition in • Report budget requisitions, Selection goods
SAP of other to Division budgets, • Negotiation
systems orders) • Contracting
including
paper request • Confirm
pricing &
delivery
• Confirm Legal
Terms

Requisition Process Buying Receiving Paying

Proper SOD reduces risk of fraud and prevents errors

Receiving Goods/Services Segregation of Duties

Receipt of the goods or services should be

validated by the associate in accordance with the
requirements prior to the approval of payment of
any invoice

This validation must be independent of the

individual who created the request to ensure
segregation of duties

Utilize two sets of eyes to approve invoices

for services (e.g. Two signatures, invoice
referral)
Utilize Central Stores for receiving
function when appropriate
Quiz

Who can validate the receipt of goods or services?

1. The person who requested the goods or services
2. The business approver (department manager)
3. The budget controller
4. The accounts payable associate
5. Someone independent from the associate requesting the
goods or services

Answer: 5. Someone independent from the associate

requesting the goods or services
Case Study

An IT Manager, Bill Fold, hires an IT contractor, Nucleus, to install a software

system for $500,000. Bill selected Nucleus and did not follow a bidding
process to give other contractors the opportunity to compete for the project.
Nucleus presents Bill Nucleus’ master services agreement. Although there is a
Honda master services template, Bill agrees to accept Nucleus’ paper.
Bill negotiates the cost of the project with Nucleus by himself and it turns out
that Nucleus’ costs are high compared with other similar vendors/suppliers. He
Agrees to pay the services based on a time schedule and not deliverables.
Bill’s budget controller, Jan Brady, creates a requisition and purchase order for
the contract. Nucleus completes ½ of the project and submits a vague invoice.
Jan is also the person responsible for receiving the invoice for Nucleus’
services. Jan see’s the invoice but asks Bill regarding the invoice because it is
so vague. Bill directs Jan to pay the invoice. Nucleus fails to complete the
remainder of the project and is fired, but Bill has Jan receive a second invoice,
based on the terms of the contract and pays Nucleus the remaining $250,000
Behind the scenes Nucleus charged Honda and extra $100,000, half of which
Nucleus then gave Bill after Honda paid the invoice (the actual work for the
second ½ was actually worth only $150,000. Bill pockets the money
Case Study Conflicts

Policy What Happened What Should Have Happened

• Procurement was not notified of the
Procurement initiative
Involvement • Required single source justification
did not exist
• Procurement did not review the
Procurement & Legal Supplier’s Master Services Agreement
Contract Review • Legal did not review the Supplier’s
Master Services Agreement
• Procurement should have been notified with
adequate time to support the sourcing event
• Procurement would identify required
documentation
• Procurement would identify the required
agreements and use Honda templates
• If changes are made to the agreement, legal
review would have occurred

• Through early procurement involvement,

Procurement • Pricing was negotiated without
pricing negotiations would take place to achieve
Negotiations procurement
the optimal pricing and terms

• Bill controlled both the decision to • By implementing process level SOD, an

Segregation of Duties place the order and approve the independent party would exist to verify that the
invoice services were satisfactorily completed
Key Takeaways:

The primary and functional objectives of the Indirect Procurement

Governance Policy (IPGP)

The scope of the Policy – what is and is not covered by the IPGP

The importance of fair and ethical procurement practices

The role of the indirect procurement function

The Sourcing and Supplier Selection Process

Contract Signature Requirements

Segregation of Duties