Y2K supply chain problems.....................
To: Rarebird (43766 )
From: John Rieman Sunday, Aug 8 1999 9:04AM ET
Reply # of 43771
mercurycenter.com
Posted at 3:23 p.m. PDT Saturday, August 7, 1999
Y2K bug in Asia poses risks for U.S. firms
Chart: Is the world ready for Y2K?
BY ILAN GREENBERG
Mercury News Staff Writer
SILICON VALLEY firms have received kudos from Y2K bug watchers for their efforts to eliminate the dangers of a disaster scenario from their operations, both locally and worldwide. But that doesn't mean they'll be in the clear on New Year's Eve.
Vital links in the manufacturing chain that feed the international production base of these high technology multinationals are at risk, analysts say, especially where component production and assembly have been farmed out to independent contractors and suppliers in Asia. Many of these developing countries are seriously out of compliance with international standards for Y2K preparedness.
A survey announced by the World Bank at the beginning of the year monitoring Y2K preparedness in 139 developing countries found only 54 countries had initiated national Y2K policies, and just 21 reported concrete remedial steps to combat the millennium bug. ''This is a global problem affecting not only industrial countries which are highly dependent on computers but developing countries as well,' warned James Bond, the World Bank official in charge of the institution's Y2K compliance program.
The situation has since improved somewhat, but several key production markets in Asia -- including Malaysia, Indonesia and Thailand -- continue to lag behind in preparedness, experts say.
The alarming tone taken by the World Bank and others is at odds with the tech industry's reliance on Asian suppliers. ''We have a very high degree of confidence that we won't have problems in our Asian plants,' said Scott Allen, spokesman for chip maker Advanced Micro Devices Inc. in Sunnyvale.
The reality is ''somewhere very in between,' said Durga Ravipati, a senior engineer with IBM in San Jose who until recently spent three months a year reviewing manufacturing suppliers throughout East Asia. ''While it may end up not as scary as some people think, it's certainly not going to be trouble-free either. There might very well be some big problems.'
Indeed, Sun Microsystems Inc. CEO Scott McNealy, speaking recently at an industry conference, acknowledged that his Asian suppliers present the weak link in his Y2K-purged manufacturing supply chain.
Many valley manufacturers, including AMD, have taken steps to assess and help their Asian suppliers, but ''with the way the manufacturing chain continues to proceed down the line to more anonymous sub-suppliers, there's always the potential to miss someone,' warned David Ramsay, a principal at Manufacturing Management Associates, a consultancy headquartered in Oakbrook, Ill.
Because of the inter-connectedness of high-tech manufacturing in Asia, a Y2K bug-related closure of a single facility could disrupt the supply of crucial components to the regional manufacturing base and have serious repercussions for Silicon valley companies, said Ramsey, adding that the problem could hinder production and delivery in the first quarter of the year 2000.
Intel cites Malaysia
Intel Corp. has identified Malaysia, for example, as the Asian country it thinks is in most peril of Y2K shutdowns. Although Intel is by all accounts in very good shape itself in terms of internal Y2K compliance and has safeguarded its main suppliers and distribution channels, the company is still exposed to risk overseas. Intel has put into place contingency plans, such as installing backup generators, and identified backup suppliers at its Malaysia facilities in the event of post-New Year's Day trouble.
''We're certainly not in a position to avoid all possible scenarios,' concedes Intel spokesman Bill Caulder.
The challenge for valley manufacturers is not only to identify which of their individual suppliers are Y2K compliant, but also to assess the infrastructure readiness of an array of different countries where they rely on transportation, power and telecommunications resources.
''It's one thing to have contingency plans for stockpiling inventory or getting second source suppliers, but you still need to deal with the country status,' said Matt Hotle, a Y2K analyst with the Gartner Group, a consulting firm in Stamford, Conn.
Gartner Group rates regions within countries for Y2K preparedness, using a 0 to 5 scale -- from no compliance to a high degree of readiness. China, where many valley companies outsource manufacturing to contractors, has conspicuously low rankings; none of China's regions scored higher than a 4, which indicates that critical remedies are at best only nearing completion.
''Our questions have to do with the infrastructure issues in Asia -- power, for instance. Apparently some of those questions are issues that still need to be resolved,' AMD's Allen said.
At this macro level, even companies trumpeting their oversight of major suppliers may be debilitated by infrastructure issues. Hotle points to customs clearance procedures, which tend to be computerized in even the least advanced markets, as especially vulnerable to Y2K glitches.
Y2K analysts, like economists, divide Asia into two categories. Suppliers in ''first-tier' countries, such as Japan and Taiwan, are typically large corporations with the expertise to implement Y2K remedial programs. But ''second-tier' countries, such as Malaysia, Indonesia, Thailand and, to some extent, South Korea, are considerably less resistant to Y2K problems, both at the individual factory level and the infrastructure level.
'Can't lump Asia together'
''There's a big difference whether you're talking about Singapore or China,' said Jason Dedrick, senior research fellow at the Center for Research on Information Technology and Organizations, in Irvine. ''You can't lump Asia together. Singapore is probably more ready for Y2K than is the U.S.'
Accentuating the problem are the economic and political crises still gripping many of the newly industrialized economies in the region. Companies in countries like Indonesia, Thailand and Malaysia often do not have the financial resources or the mandate from management to initiate expensive Y2K compliance programs, Dedrick noted.
The ability for valley companies to assess these various macro-regional factors is even more acute when the focus is on the nebulous realm of sub-contractors, down the supply chain from their more familiar business partners. Sometimes a letter asserting Y2K readiness is the only available test of compliance.
''There's no way to judge if someone is compliant or not,' Ravipati said. ''They may have to go through some sort of demonstration from certification companies, but the standards are different. When you look at companies in first-tier countries, they follow the same rules as we do. But companies in second- tier countries really don't.'
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