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Big Y2K risks from small suppliers

       Message Board: Year 2000 bug

   In-Depth Special: Looking at the Y2K Bug

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July 27, 1999
Web posted at: 11:07 a.m. EDT (1507 GMT)

by Kathleen Melymuka

(IDG) -- At least 1.4 million, or 18 percent, of small businesses in the U.S. won't be ready to handle the year 2000 date change, a situation Sen. Bob Bennett (R-Utah) calls "a serious threat to the strength of the U.S. economy."

Those figures are from a June survey by the National Federation of Independent Business, which points out that disaster lies not just in the possible failure of small companies, but also in the effect that failure would have on industry supply chains.

Yet despite the danger, a recent spot check of Fortune 500 insurance, retail, manufacturing, food, utility and pharmaceutical companies indicates few large companies have done much to lend a hand. "Everybody is really keen on getting Y2K information from their suppliers. But other than the auto industry, I've found almost no one helping their small suppliers cope," says Jim Porter, a partner in the Y2K practice at PricewaterhouseCoopers in Tysons Corner, Va.
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"We have had a lot of requests about our Y2K status, but no one has offered in any way to give us a hand," says Brett Gardner, year 2000 project manager at Excalibur Laboratories Corp. in South Burlington, Vt., a small company that calibrates test equipment for aviation, manufacturing, biomedical and nuclear power plant customers.

Excalibur has only 10 employees; that's the good news and the bad news. Small companies don't have the layers of Y2K complexity that face larger corporations, but they also lack the resources and expertise to handle the millennium problem. "I've been wearing a lot of hats, doing everyday business and trying to deal with the issue," Gardner says. "It would have been helpful if we'd had some resources or even some ideas from larger companies."

Gardner's not talking about hands-on assistance; he says basic information, like access to Y2K seminars or databases of software or hardware compliance, would have been very helpful. But none of his large customers offered.

The few companies that have helped their suppliers are quick to acknowledge that they're motivated more by self-preservation than altruism. That points to a basic fallacy in many supply-chain contingency plans: "People can say they're going to re-source suppliers, but in the real world, it doesn't happen," says Cindy Sim, year 2000 project manager of supply management at Deere & Co., a maker of agricultural and industrial equipment in Moline, Ill. "Nine out of 10 times, it's not possible. ... The glib people who say they'll just find another source are not in the real world of supply management."

Sharing the 'A-ha!'

Changing suppliers is the last thing Colgate-Palmolive Co. wants, so the New York-based consumer products manufacturer has been willing to help when its smaller suppliers have needed it.

For example, in the early days of year 2000 remediation, a lot of suppliers didn't know how to assess embedded systems and plant equipment, says Jan Polish, associate director for Y2K compliance at Colgate. Because the company had gone through an internal audit of those items, it shared the methodology. "We went to plants, walked through with their engineers and said, 'Did you check this? Did you check that?' And they'd say, 'A-ha!'" she recalls.

Colgate also clued in its less-knowledgeable suppliers on the seemingly extraneous things that need to be under the Y2K tent. "We'd say, 'Did you check the fire alarm system? How about security?' And they'd say, 'Ahhh -- that's a good idea!' And we'd say, 'Did you think ... that sometimes an embedded chip has a maintenance date, even though it doesn't have a working date?'" Polish says.

"Some of those questions set off lightbulbs in our smaller companies," she adds. Not only have the suppliers appreciated the help, but some have passed it along to their suppliers, she says.

Polish says Colgate's suppliers tell her that no one else is providing that level of assistance, with one exception: the auto industry.

Starting their engines

General Motors Corp., Ford Motor Co. and DaimlerChrysler (joined later by other major automakers) have been working on year 2000 supply-chain issues since 1997 through the Automotive Industry Action Group (AIAG). It began with the now-famous, 120-question Y2K self-assessment that ultimately went to 120,000 suppliers around the world, says Fred Craig, year 2000 program manager at the AIAG. "That [assessment] continues to be updated so we know how people are doing at any given time," he says.

As part of the program, the AIAG has established a supplier information center that offers a help desk and databases on tips, techniques, lessons learned and the compliance of plant equipment.

The AIAG also offers classes for auto suppliers on Y2K project management and assessing both their own and their suppliers' compliance.

The group recently began offering consulting assistance, financed by the automakers. If a supplier is behind on its year 2000 work, its customer can offer to send AIAG-trained consultants to work with the supplier to restart that supplier's Y2K engines. "It's only [when] the supplier agrees. They're still responsible for their own remediation," Craig says.

The result is that "probably less than 30 companies globally" still need help, Craig says -- and even those auto suppliers aren't expected to fail. "They're just getting special attention," he says.

One-on-one attention

Although the AIAG is concentrating on top-tier automotive suppliers that deal directly with automakers, the lower tiers, which supply the suppliers -- and are usually much smaller companies -- are often left on their own to prepare for Y2K.

Illinois Machine & Tool Works LLC, a machine metal-parts maker in North Pekin, Ill., with 130 employees, doesn't have access to Y2K resources like those that deal directly with the Big Three automakers. But it has had offers of help from one big customer: Deere has invited Illinois Machine controller Duane Baker to attend its Y2K seminars.

Of Deere's 2,600 mission-critical suppliers worldwide, many are small and midsize businesses, says Steve Jost, Y2K project manager. Deere has been holding year 2000-supplier seminars throughout the U.S. and Europe for several years, advising attendees on issues and helping them evaluate their risks of Y2K failure. "If they had a bad scorecard, we tried to go back and work with them to show where they need improvement," Jost says. He says Deere also encourages suppliers to have third-party readiness assessments and has participated in creating some of them.

The company also has been working with suppliers to test their ability to run electronic data interchange procurement transactions. A lot of the tests failed initially, Jost says, but by the second or third time around, the suppliers have been on track.

Beyond that, one buyer at Deere is responsible for the ongoing Y2K relationship with each supplier, Sim explains. After it searches for information amongperiodicals, industry groups, consultants and through Web surfing, Deere's Y2K supply management organization funnels it to suppliers through their lead buyers. "We have armed our buyers with information to assist the supplier, and templates to help them manage their project and now their contingency plan," Sim says. "These are just suggestions. We're trying to share information."

Deere is adamant about one matter: It wants to bring all its suppliers into the new millennium with it. "It takes years to establish these good relationships with suppliers," Jost says, "and we're doing everything we can to maintain them."

Looking at the Y2K Bug

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July 26, 1999
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July 19, 1999

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