Supply chains... always viewed as... the weakest link.

*Sigh*

Diane

03 September 1999

Multinationals Publicly Confident of Meeting Y2K Challenge

(Doubts raised by skeptical magazine publisher) (1060)
By Phillip Kurata
USIA Staff Writer

http://www.usia.gov/cgi-bin/washfile/display.pl?p=/products/washfile/latest&f=99090301.clt&t=/products/washfile/newsitem.shtml

Washington -- Several multinational companies have declared their computer systems ready for the Year 2000 (Y2K) date change, but the publisher of a business magazine says the results of corporate survey show cause for concern.

Ford Motor Company and General Motors (GM) say their vehicles and their businesses will not stop running on January 1, 2000, because of computer problems.

"GM anticipates no problems with past, current, or future model vehicles, and no significant disruption of GM's business as a result of the Year 2000 problem," a GM statement said.

GM, the largest car and truck maker in the world, says it has analyzed the computer chips in its current and planned models and found that most have no date related functions. The chips that are date sensitive have been found Y2K ready, GM said.

GM says its "most reasonably likely worst case scenario" involves some localized disruptions that will last a short time. The vehicle maker says it is developing contingency plans to address potential breakdowns.

George Surdu, the director of technical services at Ford Motor, said Ford began preparing for the century date change in 1996. The company is spending more than $400 million dollars between mid-1997 and mid-2000 to keep all facets of its business running, while preparing for Y2K problems beyond its control, Surdu said.

"Ford Motor Company is confident as to its readiness, as well as that of its affiliates, dealers and suppliers," Surdu said. "However, the interdependence of the entire supply chain does represent the greatest risk to Ford. In particular, an extended infrastructure failure, that is electric, gas and water, would make it difficult to operate manufacturing operations," he added.

The Ford executive said contingency plans for all critical business processes will have been completed and tested by the end of September.

Executives from three multinational companies, Ahold USA, Philip Morris, and Proctor and Gamble, say their companies have taken exhaustive pre-emptive action against the Y2K threat and are confident of avoiding computer-related disaster.

Ahold USA, the fourth largest grocery store conglomerate in the United States, has spent more than $50 million since1996 for Y2K readiness, according to Senior Vice President Patrick Roberts.

Roberts says Ahold's greatest worry is disruption of its international supply chain for goods such as sugar, fresh fruits, coffee, tea and, above all, pharmaceutical drugs.

"More than 70 percent of drugs sold have some foreign component. For most, there is no good alternate supplier," Roberts said. "This is the area over which we have the least control, and, potentially, the highest risk."

Roberts recommends that people dependent on pharmaceutical drugs adhere to the guidelines of the Red Cross and the Federal Emergency Management Agency. Those two groups say one should prepare for Y2K in the same way one would prepare for a severe weather situation.

The grocery store executive says the way the media reports the Y2K event will affect whether the public engages in panic shopping.

"If the media promotes sensible actions and reactions to events, we believe there will be no shortage of products. If the media negatively publicizes Year 2000 disruptions, regardless of their severity, Ahold will likely encounter product shortages as a reaction to, not as a result of the Year 2000 disruption," Roberts said.

Philip Morris Companies Inc. (PM), the world's largest manufacturer of consumer packaged goods, such as tobacco, food and beer, says it is spending nearly $800 million and committing about 2,500 man-years of professional time to the Y2K issue.

Kevin Click, the PM head of worldwide Y2K compliance, said all of PM's computer systems will be Y2K compliant by the end of September. Click says PM's biggest concern is the lack of Y2K preparation among the conglomerate's more than 70,000 business partners around the world.

"In spite of our best efforts, we currently consider approximately 700 of our more than 6,000 highly critical business partners to be higher risk, or likely to suffer Y2K related failures. The majority, approximately 600, are international partners," Click said.

To deal with expected disruptions, PM is developing contingency plans, such as stockpiling raw materials and finished goods. "In Europe, we are increasing our inventory of coffee and cocoa beans by an additional three weeks. In our Asian tobacco businesses, we will be adding one month of incremental finished goods safety stock throughout the region. In some cases, we are moving additional finished products through the supply chain, staging inventory as close to the final consumer as possible," Click said.

Proctor and Gamble (P&G), a maker and distributor of household goods, says it, too, is going through an intensive Y2K preparation process.

"Based on our work to date, we are not expecting any major disruptions to our supply chain," said P&G executive Kevin Haukebo. "We either have confidence in or 'work around' plans that are ready to be executed with more than 99 percent of our key central suppliers worldwide."

P&G mobilized its lawyers to write Y2K contracts with suppliers to hold them liable for delivering goods during the date transition period. The company is procuring satellite phones and other satellite equipment to assure continuous data transmission in parts of Eastern Europe, Asia, Latin America and the Middle East, where Y2K risks are considered medium or high.

Gary Beach, publisher of CIO magazine, says a survey he has conducted has made him skeptical about how well the large companies have prepared themselves for the Y2K event.

In a poll of 892 companies taken in June, Beach said 33 percent indicated they were behind schedule and eight percent said they will not complete Y2K remediation until 2000 or later.

"Keep in mind these are huge, global firms with significant fiscal and human resources to focus on Y2K," Beach said. "If a significant number of large, global companies are lagging, what does that say for small businesses here and abroad? Small companies simply do not have the same level of manpower and resources as big companies," Beach said.

Beach said he can not predict the consequences of some large, global companies being unprepared for Y2K. "The consequences could range from minor inconveniences like a disruption in utility service to widespread economic, social and political upheaval," he said.

-- Diane J. Squire (sacredspaces@yahoo.com), September 07, 1999

Answers

But the stock market is undervalued. (See Count Vronsky's post.)

-- Mara Wayne (MaraWayne@aol.com), September 07, 1999.

Diane.. do you have handy that link for checking 10Q's? Somewhere all that data is compiled isn't it? Would be interesting to see what percent of their Y2K budgets all these *confident* companies have spent.

From GM'S 10Q there is this tidbit: "Of the critical supplier sites being tracked globally in 54 countries for specific risk management action, approximately 40% are outside of North America. Of the high- risk suppliers who have received or are receiving direct remediation assistance, approximately 77% are outside of North America."

GM's Y2K budget - between $564 million and $624 million (includes a $62 million payment from GM to EDS at the end of the first quarter of 2000 if systems remediated by EDS under the Master Service Agreement do not cause a significant business disruption. The total direct expenditures by GM, and value of Year 2000-related services performed by EDS attributable to GM's Year 2000 program, for the period from January 1997 through June 1999, amounted to approximately $471 million.

[83.8% to 93.8% of budget has been spent as of June 30th - ignoring the $62m bonus for March 2000. If I assume the $471 has been spent evenly over 3 years that = $.43m/day. They have between $31m - $91m left to spend. At $.43m/day that would take 72-212 days. If you assume most of that money was spent in the last 2 years, that equals $.645m/day and it would take 48-141 days. There are 68 Federal Days.. 116 total days left. Down to the wire with this one.]

-- Linda (lwmb@psln.com), September 07, 1999.

Linda,

Started to nose around Ahold USA (owned by Dutch company Royal Ahold) because they were more Y2K forthcoming, but only took a quick peek...

http://www.aholdusa.com/

...then jumped to their parent web-site, but it crashed my browser...

http://www.ahold.com/

*Sigh*

You can search the SECs EDGAR Archives at...

http://www.sec.gov/ cgi-bin/srch-edgar

Or go to Edgar-Online...

http://www.edgar-online.com/

I'll have to get back to researching later... got "stuff" to do.

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), September 07, 1999.