February 01, 1999, Issue: 750

Section: News & Analysis --------------------------------------------------------------------------------

In Focus: Y2K Compliance -- Dear Partner: Comply Or Die

Tim Wilson

If business partnerships are like marriages, the Year 2000 problem is fast becoming grounds for divorce.

Failure to achieve Y2K compliance could send many business partners out the door in the next few months-even in the next few weeks-as an increasing number of companies end relationships with longtime suppliers and online trading partners.

"We are planning on dropping suppliers that are not going to be Y2K-ready, [particularly] suppliers that provide the critical equipment that we need in our product," says David Babler, staff engineer at AG Communication Systems, a $400 million telecommunications equipment manufacturer owned jointly by Lucent Technologies and GTE.

"If we do not get a positive response [on compliance] by June 30, we will begin looking for other suppliers to certify and purchase from," Babler says.

Some suppliers already are losing contracts because of their lack of Y2K readiness, according to consultants that work on the problem, though they declined to release company names.

"We have one client-a multinational firm that depends on its telecommunications supplier to do business-that will make the switch to a new telecom supplier next month," says Ed Yourdon, chairman of the Cutter Consortium, a Y2K advisory organization. "The CIO of our client company went out to visit its telecom supplier, and after reviewing the supplier's progress, he came out with a queasy feeling. So he decided to make the switch."

Incidence of such sudden divorces could escalate rapidly, according to a study by Cap Gemini America, a Y2K services firm. In a survey of 110 IT managers at Fortune 2000 companies, Cap Gemini says the number of businesses "likely" or "potentially likely" to cut ties with noncompliant suppliers has risen to 69 percent (see chart right).

Others agree these splits will happen quickly over the next five months. "The question is how long it takes for a company to change suppliers," says Kate Kaiser, senior adviser at Giga Information Group's Year 2000 IT Practices unit. "If it takes six months to terminate one supplier and add a new one, you need to make a decision by June. We have one client in the garment goods industry that has a lead time of one and a half years. They were looking at this issue six months ago."

Yourdon agrees that deadlines are pressing: "If you're going to change suppliers, it's likely to happen in the next six to 12 weeks, not the next six to 12 months."

Over the past year or two, relations between business partners and suppliers regarding Y2K were fairly amicable as companies requested information about their respective progress in fixing the date bug. But now, frustrated by the unresponsiveness of their partners, some are losing confidence that those partners will finish their remediation before glitches begin to impact the supply chain.

"The primary goal of our Year 2000 project is to ensure there will be no interruption in service delivery to our members and customers," says Mary Taschner, Year 2000 project manager at AAA Arizona. "If a vendor is not responsive to our requests to provide Y2K-compliance status, and if we determine that they could have a critical impact on our business, we will certainly look at replacing them with a supplier that at least will confirm that they have made their best effort to be compliant."

The Cap Gemini survey bears out these concerns. "We found that about 92 percent of companies have already missed deadlines in their Year 2000 plans," says Jim Woodward, senior vice president and head of the TransMillennium Services unit at Cap Gemini. "As time winds down, there is greater recognition that some companies just aren't going to make it. So the companies that trade with them are getting more serious about deadline slippage."

The largest companies are cracking the whip the hardest, according to Howard Rubin, president of Rubin Systems Inc., a Y2K consultancy. "I think there will be a good many relationships changed in the small to medium-sized business segment," he says.

Large retail firms such as Wal-Mart and Sears, Roebuck & Co. are forcing suppliers to "comply or die," much as they forced smaller companies to deploy EDI software years ago, notes David Darnell, president of SysTrends Inc., a consulting firm that specializes in EDI and e-commerce implementation. Wal-Mart and Sears did not respond for comment.

"The smaller companies will have problems," Darnell says. "For the big companies that are doing just-in-time inventory, there just aren't any allowances for suppliers that can't make the grade. I expect that the big retailers will weed out some of the smaller suppliers by midyear."

Although large companies in industries such as retail and manufacturing may have the ability to switch suppliers to avoid possible Y2K-related failures, others don't want to change their business relationships-or in some cases, they have no alternative.

"One problem we have is where we use a service/product that we cannot replace or cannot replace in a timely manner," says Debi Schaibly, president of MM Consulting Inc. and chair of the West Central Florida Year 2000 Users Group. For example, an auto manufacturer may have only one source for a certain part; or a garment retailer may have only one contact for a particular item.

"It is becoming evident that there is a lot of uncertainty in what will and will not fail. We need some truth and reality on what we will be facing. The contingency plan for a service that will be down for a few days is a lot different than the plan for a few weeks or a few months of downtime," Schaibly says.

If a company is leery of a partner's Y2K compliance but unable to switch partners, Y2K planners should factor that skepticism into a Y2K contingency plan, experts say. "Some companies may decide to stockpile a certain amount of the product they receive from that supplier to tide them over until the supplier can get up and running again," says Giga Group's Kaiser. Other companies simply eliminate redundant suppliers, she says.

Y2K problems in the supply chain will affect some businesses more than others.

"It could happen, but we aren't too concerned about it," says Joe Knowles, director of the systems department at The New York Times.

In some cases, companies will tout their Y2K-compliance edge over slower competitors. According to the Cap Gemini study, more than half of the companies surveyed plan to incorporate Y2K compliance into their marketing messages this year.

Y2K compliance "will certainly be a competitive advantage for [our] suppliers, and companies that are open to confirming their compliance status will likely position themselves to gain new relationships," AAA's Taschner says.

"Those that do [Y2K remediation] first and best will have a distinct operational advantage over everyone else," says Lila York, director of special projects at Southwest Stars Corp., a Year 2000 services firm.

And what if your company is one that will not be able to meet its compliance requirements?

"At that point, you have two choices: You can lie about it and plan to leave town on New Year's Eve, or you can be up front about it and work on contingency plans," says Cutter Consortium's Yourdon. "A lot of companies don't want to end their partner relationships; they just want to know what the impact will be. Will the plant blow up? Or will there just be a delay in sending out some billing information? Sharing what you know is one way to keep your customers."

Industry standards vary as well. Some have established standards for Y2K remediation variables, such as windowing-a way of fixing Y2K problems without expanding dates to four digits-while others have no concerted effort to set such standards.

"There are some questions about standards," Yourdon acknowledges. The banking industry, for example, asks participants a lot of hard questions about the quantity and quality of the testing that has been done," he says. "But at this point, I think most of the questions really center around whether the partner will finish on time."

Copyright . 1999 CMP Media Inc.

http://www.techweb.com/se/directlink.cgi?INW19990201S0004

-- Gayla Dunbar (privacy@please.com), January 31, 1999

Answers

Gayla,

Fiscal year roll-overs in April aren't what's going to cause panic. If I had to pick just one reason why the stock market and banks are in danger, it's the situation described in the article you posted.

Vendors be aware!

-- Kevin (mixesmusic@worldnet.att.net), January 31, 1999.

Many indusdries will be late with even that. It takes up to 2 Years for the semiconductor industrie to test and aprove new vendors of equipment attached to plasma chambers.As an example RF and DC supply vendors know that the average time between design and being spect in on a system is about 1.5-2 years and plan ahead accordingly. The problem is that a change from brand x vendr to brand y vendor could screw up many of the delicate chemical depositon and etching processes. The result would be that the specifications for a transistor, diode, or chip will not be reproducable and this Mfg. is not able to produce this part. If this is a ee-prom, e-prom or processor needed to replace Y2k damaged product... guess what... it will take even longer to fix those problems. Yes I know.... there are nummerous engineers out there who are able to rebuild the recipe and get on with production. This takes a lot of time and if more than one or two steps are involved then one might as well redevelope the entire recipe. To develope and test a semiconductor recipe ( there are numerous steps and recipe's involved to make a single simple chip not even to speek of a processor or e-prom) will take month to years.

Not one of the vendors of this type of equipment has yet stated that he is y2k O.K. You may can fix equipment with spare parts but who will be able to make the spare parts? It is bad enugh without Y2k. just ask any RF or DC high power equipment manufacture design engineer how often his design does not work because the mfg of the parts changed the process just a little. Look at a databook of chips an see how many :" same flavor and function :" chips are out there that are NOT interchangable even though the pinout is the same..... different Mfg. have just slight different recipes.

It will not get better.... it will get worse.

rickjohn

-- rickjohn (rickjohn1@yahoo.com), January 31, 1999.

Thanks la,

Just keeps getting more and more complex.

Diane *Sigh*

-- Diane J. Squire (sacredspaces@yahoo.com), January 31, 1999.

This is so bad its funny. I mean, each of these suppliers that supposedly will be ready is presumably also counting on their suppliers to be ready, who in turn are counting on ... etc., etc. (And its actually even more complex, if you think about it: Customers should also be polled, since if your largest customers are going to go belly up, that too should figure in to Year 2000 strategic business planning.) This is just a "paper blizzard" that is meaningless.

-- Jack (jsprat@eld.net), January 31, 1999.

Where I work we have constant vendor problems not even remotely related to Y2K. I doubt if our poor-performance vendors can all successfully pull together and whip this Y2K problem. I think the factory may be forced to shut down sometime next year. If they can't get all of the necessary parts, then they can't manufacture their products, and so the customers go elsewhere.

-- dinosaur (bumblepuff@hotmail.com), January 31, 1999.

you're an employee of a small widget manufacturer.

your company's main source of income tells your company to take a hike.

you're laid off.

who needs to wait for the rollover? You're broke now!

Arlin

-- Arlin H. Adams (ahadams@ix.netcom.com), January 31, 1999.

"...and so the customers go elsewhere."

And the beat goes on. How many 'elsewheres' will be functional? They are all caught up in this web.

-- Tom Carey (tomcarey@mindspring.com), February 01, 1999.