Year 2000: Are you ready? Are your suppliers ready?
By Mark Vigoroso -- Purchasing, 2/12/1998
With 2000 just two years away, warnings of computer meltdowns and business stoppages are becoming louder and clearer. For purchasing departments the warnings are especially acute. That's because all the preparation money can buy will be useless if any supplier is excluded from a compliance project. A single ill-prepared supplier is a weak link waiting to undermine an entire supply-chain operation.Unfortunately, while most buyers appear to be aware of the danger, a recent Purchasing reader survey indicates that in many cases, suppliers are being left out of the "Y2K" action plans.
The problem
To simplify calculations and to conserve computer memory space, programmers in the 1970s adopted a two-digit coding convention for reporting years in software applications, embedded chips, hardware, and other computing devices. However, this coding scheme will report the year 2000 as "00," which will be interpreted as 1900. This so-called Millennium Bug threatens the welfare of everything from telecommunications to purchase-order processing.
According to Purchasing's survey, the Millennium Bug is not being ignored. A sample of purchasing professionals was asked to rate the importance that top executive management and purchasing management are placing on the Y2K problem. On a scale of 1 to 10 (ascending in importance) 61% of respondents rate their top executives' level of emphasis at seven or higher, about 15% choose 4-6, and 24% say three or lower. Results are virtually identical for purchasing management.
That one in four purchasers rate executive emphasis at three or lower is significant and potentially worrisome as many experts have set the deadline for action at yesterday. One respondent writes, "Discussion has not led to any firm plans to alter regular scheduling." On a more positive note, however, the survey finds only 6% of respondents claiming their companies have no plans to address the issue.
Many aspects of the supply chain are time-sensitive, and every one of them is at risk. Polled buyers identi-fy several key business components that may suffer if the Millennium Bug goes unchecked:
* Contract administration programs.
* Electronic material requisition systems.
* Transportation tracking systems.
* Inventory tracking/JIT systems.
* Financial systems, accounts payable functions.
Consider the following scenario: You transmit a purchase order to a supplier through an EDI system or extranet in December of 1999, requesting that an order be filled in January. On January 1, 2000, the system will interpret the date as January 1, 1900, and consider the order to have never been submitted, leaving you empty-handed.
Manufacturing shops with just-in-time systems are especially dependent upon timely deliveries and are particularly vulnerable to Y2K-related production lapses. Any type of software that electronically transmits part demands, production queues, or delivery schedules relies on precise times and dates. If a delivery is slated for 15 days on 12/22/99, what will happen on 01/06/00? Most likely, it won't be a delivery.
What can be done
To avoid these pitfalls, companies need to locate and debug millions of lines of code and all outdated embedded chips within their own operations. They must also ensure that all their suppliers are following through with similar Y2K plans. As a point of departure, many buyers cite broad-scope solutions like new Y2K-compliant computer systems and software (for example, SAP R/3), letters and surveys to suppliers, and special "task forces" comprising in-house IT staff, management staff, and outside consultants.
Peter de Jager, a world leader in Y2K awareness, suggests an active approach on the part of purchasers in certifying suppliers in Y2K compliance. Surveying suppliers on their preparedness should be an obvious first step, according to de Jager. Purchasers might take their cue from the Big Three automakers, who launched a massive effort with the Automotive Industry Action Group (aiag) to survey and assess the industry's 50,000 leading suppliers and to make the results available on the Internet. Perhaps a more exhaustive initiative, according to de Jager, would be to have an external firm formally audit suppliers for Y2K compliance. Ideally, third-party firms would issue standard, transmittable Y2K certification documents to be presented to a supplier's current and prospective customers.
What buyers are (and aren't) doing
Faced with a long and diverse list of suppliers, some purchasers are developing classification schemes that assess and rank the importance of various suppliers. Those deemed most critical are given top priority in Y2K plans. Stahl USA in Peabody, Mass., is one company using this type of supplier classification. Director of Purchasing, Raoul Ajamil writes, "[We have] a huge corporate program to monitor compliance...Suppliers have been categorized. The most vulnerable are 'critical.'" A buyer from another company goes into more detail: "We have established a set of criticality codes, which are assigned to every supplier. This will establish a methodology to concentrate our resources on those suppliers that have the greatest potential to impact our operations."
While impressive, such extensive plans are rare among buyers, according to Purchasing's poll. Most are expending their Y2K efforts internally and are not actively including suppliers. Only one-third of buyers surveyed say they are working with suppliers to implement Y2K solutions. When asked what percentage of their suppliers have plans to address the issue, a 57% majority say they don't know. The rest of the field looks like this: 8% say 0-25% have plans to address Y2K, 1% say 25%-50%, 26% say 50%-75%, and 8% say 75%-100%.
A common practice is to place responsibility entirely in the hands of suppliers. For instance, Ed Kiper, materials manager for Katelman Foundry Inc. in Council Bluffs, Iowa, writes, "We will rely on our suppliers to make adjustments. I believe competition will be a driving force in this regard." Similarly, Ronald Parsons, purchasing manager at lotte usa Inc. in Battle Creek, Mich., says, "Any supplier that is unable to maintain the present level of operation will lose business....We will make sure our customers are taken care of and we will expect the same from our suppliers."
Will we make it?
As the seconds tick away, what are the chances the transition will be made without major mishap? Despite the low percentage of buyers who are working with suppliers on Y2K projects, most survey respondents see no reason to brace for a calamitous ending to the 20th century. On a scale of 1 to 10, with 1 denoting very doubtful and 10 very confident, fully 82% of purchasers rate their confidence in a catastrophe-free turn of the century at seven or higher. Only time will tell if this confidence is well founded. Regardless of whether or not you believe the Y2K hype, a better-safe-than-sorry attitude may be the best tactic for facing the Bug.
Mark Vigoroso
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