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Y2K Forces Supply Chain Partners to Snap to Attention by Michael S. McGarr

But some suppliers still arent up to standard

With 2000 quickly approaching, supply chain partners around the world are putting the finishing touches on contingency plans for rollover weekend. The date change, which occurs at 12:00 a.m. on Jan. 1, could potentially wreak havoc on the worlds supply chains as older computer applications are finally forced to deal with a two-digit date code containing only zeros.

In North America, suppliers and manufacturers across all industries have been diligently preparing for the big day for more than three years, and experts dont see a significant disruption in the supply chain due to computer malfunctions.

Although Y2K compliance programs vary by industry and some are more ready than others, each has taken steps to help its supply chain partners deal with Year 2000 (Y2K) issues. (see chart, p. 26). Whether its retail, automotive, banking or health care, the goal is the same: keep products and services flowing through the supply chain during rollover weekend and beyond without negatively impacting supply chain partners.

Nobody knows whats going to happen when the year clicks over from 99 to 00, but companies around the world arent taking the potential problem lightly. Analysts estimate between $300 and $600 billion will have been invested in Y2K compliance worldwide by companies trying to minimize the impact of the date change on their operations. Disruptions in the supply chain may range from minor inventory shortages and transportation delays to major power outages and telecommunications failures. Companies in North America alone are spending $125 billion on Y2K contingency programs.

Bottom line, I think were in pretty good shape, says Fred Craig, Y2K program manager, for the Automotive Industry Action Group. He has spent the past three years educating and monitoring the automotive industrys 120,000 suppliers on Y2K compliance. Our objective at this stage of the game is to narrow down the possibilities of what might go wrong and put together a contingency plan. I dont foresee any major shut downs (in North America) but there may be some hiccups.

Contingency planning is actually the third and final step of most Y2K compliance programs. It follows a thorough risk assessment of the problem and extensive system testing, both internally and between trading partners. Internal testing involves re-setting computer system clocks to mimic the date change, upgrading vendor-supplied software applications to handle four-digit date fields, and re-writing code for home-grown applications if necessary.

There are a number of ways in which companies work around the Y2K problem. The National Retail Federation (NRF), for example, is advising its members to treat the date 00 as 2000 under a temporary fix called windowing. Instead of recommending that EDI-dependent members upgrade to ANSI X12 version 4010, the latest X12 EDI standard that can handle a four-digit date code, they are recommending windowing as a temporary fix for suppliers in the retail supply chain.

In windowing, date-sensitive programs are altered to fix any two-digit date codes between 00 and 15, so that the computer reads 00 as 2000 and 15 as 2015, for example. While that does not solve the date problem, it brings the company into compliance and allows it to continue operating through the date change.

Moving to 4010 is a very involved process, and at this stage of the game we are actively working with members on their plans for rollover weekend, says Cathy Hotka, vice president of information technology at NRF. That entails things like figuring out who is going to work that weekend, making sure generators are operational, and having back-up communication plans in place that include cell phones, for example.

Not all retail suppliers can rely on a quick fix, however. Large retail hubs like Wal-Mart Stores Inc. are using their tremendous size and clout to demand their suppliers move to 4010.

Ive heard that as of Jan. 1, Wal-Mart wont pay any invoices except 4010 invoices, says Dave Darnell, president of SysTrends Inc., who has seen a big rush over the past year of EDI-capable suppliers moving to the new standard. Wal-Mart would not comment on its Y2K compliance efforts.

Bringing suppliers into compliance is a big job and many are turning to their vendors for help. Sterling Commerce Inc. offers a Y2K program that certifies that a companys suppliers are Y2K compliant. In Wal-Marts case that means helping its legions of suppliers move to 4010. Sterling also offers services for companies that dont have the time or resources to move to the new version by the end of this month. To keep slow adopters in compliance Sterling offers an in-network translation service that takes supplier data in any format and translates it into Y2K-compliant data for a fee. The fix is transparent to the hub, which can continue operating without any fear of Y2K problems.

Of course, we would like to see everybody on 4010, says An Boyd, product marketing manager for Sterling Commerce. Retailers may be doing windowing with some trading partners, but Wal-Mart also sells pharmaceuticals and products from other industries so they need all of their trading partners to be compliant. If a small supplier just doesnt have the time or resources to upgrade to 4010, then we can still help them comply with our network services. Thats only a temporary fix, though, and they will still need to move to 4010 sometime next year.

While most supply chains in the U.S. should keep humming along into the new millennium, the outlook for foreign companies and large multinational firms with manufacturing operations overseas isnt so clear.

According to GartnerGroups Year 2000 World Status report, which has been tracking Y2K compliance efforts by industry and country since 1996, the U.S. rates a solid five on a compliance scale of zero-to-five, with five being totally Y2K compliant. The study, which factors in a countys dependence on technology, raises concerns over the Far Easts readiness. The study gives Asia a less-than-stellar rating of three, or currently working on problem.

Asia is by far the most technology-dependent region in the world, says Dale Vecchio, Director of Research for GartnerGroup and one of the studys authors. We are not predicting any major problems in the Far East but dont be surprised if the semiconductor industry sees some impact on its supply chain.

Intel Corp. produces about 80% of the worlds semiconductors, mostly in the Far East. It is safe to say if they have a major disruption in their supply chain, computer manufacturers like Dell Computer Corp. and Compaq Corp. will also be impacted. A dependence on slow-moving shipping lines for delivery of both raw materials and finished goods could also be a disruptive factor.

The company says it is confident that its tier-one suppliers are ready for the date change, but isnt so sure about second-tier suppliers. Intel has about 100 tier-one suppliers and thousands of tier-two suppliers

If you manufacture chocolate chip cookies, its more important to receive cooking dough than toilet paper, says Bill Calder, a spokesperson for Intel, referring to the companys strategy of focusing on its mission-critical suppliers. The company has invested $105 million in its Y2K compliance program.

Complications linked directly to the date rollover itself are only a small part of the problem, according to the GartnerGroup study, which estimates about 10% of the Y2K impact will occur as Dec. 31 turns into Jan. 1. A majority of the impact, defined as any event (not necessarily a computer system failure) requiring additional attention, will occur following the date change, with 55% of the Y2K impact occurring throughout the remainder of 2000 (see chart, p. 27).

Just think about it, most companies took their entire infrastructures apart and put them back together again, says Vecchio. Most people did not actually go in and change their code, they used windowing and other work-arounds. We cant assume everybody did it correctly. The applications are going to run, they just wont generate information that is correct.

That potential glitchcomputers spewing out incorrect informationis in some ways worse than applications not working at all. In industries like health care and banking that depend heavily on date-sensitive applications, data validation will depend on humans trained to spot potential errors.

People will need to be very diligent about validating business correctness, says Vecchio. Knowing what a correct range of values should be, for example, will require more than silicon power, it will require brain power.

The banking industry, in fact, is the most prepared heading into the end of the millennium (see chart, p. 26). For the past three years representatives from the nations top 50 banks have been meeting seven times per year to share Y2K information and monitor the industrys progress. In October the Bank Administration Institutes (BAI) Y2K Forum met for the last time prior to rollover weekend. Members discussed final contingency plans and evaluated overall readiness.

We have been feeling pretty good for the last couple of months, says forum member Willie Kennedy, Y2K engagement manager for KeyBank Corp. We have 70% of the industry represented (at the Y2K Forum), and we have been working to meet strict deadlines for the past three years. To tell you the truth Im more worried about the rough winter storms that are going to hit the Northeast this winter than I am about Y2K.

The millennium date change will be the second date-related computer event in the past three months. And if the NRFs Hotka has anything to say about it, she hopes the same thing happens on Jan. 1, 2000, that happened (or didnt happen) on Sept. 9, 1999.

On Sept. 8, 1999, officials at the NRF were prepared for the worst. It was just hours before computer clocks would roll over to the unusual date of 9/9/99, and there was legitimate fear that some older computer programs would confuse the series of nines with an old programming technique used to indicated end-of-file. The NRF was concerned that the retail supply chain could be interrupted if computers began inadvertently shutting down critical applications because of the 9/9/99 date code.

Although the potential problem dated back more than 20 years to the days of computer punchcards, many programs written back in the 70s are still in use today. NRF officials sat and waited. But Sept. 8 and 9 came and went, and nothing unusual happened.

On Sept. 10, the phone rang at the NRF. It was the White House demanding further information on a large retailer rumored to be having problems related to the date change. NRF officials scrambled to validate the information, which first appeared on an Internet message board. It turned out the posting was false. The large retailer was not having any supply chain problems related to the date change.

Our biggest concern heading into the year 2000 is not a collapse of the supply chain, says Hotka. We are worried about the media giving this event a huge amount of coverage. Our focus on rollover weekend is going to be controlling the rumor mill. You have to remember that we are talking about some huge companies here and their stock prices can be affected by unsubstantiated rumors.

Please E-mail your comments to: ecweditor@faulknergray.com

-- Brooklyn (MSIS@cyberdude.com), December 09, 1999

Answers

Gotta love that last paragraph!!! It should have been first! When I read between the lines I hear:

"The worst-case-scenario is stock prices falling, to hell with everything else!"

-- Hokie (nn@va.com), December 09, 1999.