THE Y2K BUG: LOOK BOTH WAYS (1-2 Sep. 14 issue of BW businessweek.com --Marty)
To tell clients you're ready, your suppliers must be, too
Bill Howell had heard about problems related to the Year 2000 bug, but
he didn't expect them to crawl right out of his mailbox. Howell, owner of
Howell Petroleum Products Inc., a nine-employee petroleum-products
distributor in Brooklyn, N.Y., has received some 10 letters and
questionnaires from suppliers, clients, and banks in recent
months--each wanting assurance that he has prepared for the Year
2000, or Y2K, computer glitch. As you've probably heard ad nauseum,
that's when many antiquated two-digit-date computer systems roll 99
back to 00, potentially sparking a meltdown of disastrous proportions.
For Howell's business--and yours--proof of readiness for the
changeover may be crucial in maintaining hard-won business
relationships.
''Initially, it scared the hell out of me,'' says Howell, who, after checking
with his computer manufacturer, is confident his four PCs are ''Y2K
O.K.'' Howell has been returning the questionnaires, some of which
require only a signature, while others need longer responses. ''The
letters kept coming, and I've been told they're going to keep on
coming,'' he says.
Indeed, at the time the Y2K glitch first appeared on the media's radar
screen two years ago, Corporate America was thinking it needed to
wrestle only its own systems into shape. But planners soon realized
they also had to worry about whether their suppliers--and their
suppliers' suppliers--ad infinitum, were prepared to battle the bug.
Already, corporate Y2K demands are starting to influence the simplest
of commercial transactions. Contemplating a line of credit? Bidding on
a job for a multinational? Maybe you're receiving customer orders via
modem. Whatever the task, you'll most likely have to eventually
demonstrate to your clients, vendors, and the local bank that your
computer systems won't have any date-related breakdowns when the
clock strIkes midnight.
Small companies have similar worries. ''If my major suppliers are totally
computerized and their systems don't work, then I'll have a problem,''
says Emily A. Williams, owner of Williams Tile Co., a 30-employee
construction company in Florissant, Mo., who is waiting for a
manufactUrer's upgrade of her customized accounting software.
A recent National Federation of Independent Business study found that
82% of small businesses have potential exposure to the Y2K bug.
However, out of 500 small outfits surveyed, just half said they had
already taken action or had plans to do so. In the worst case, the study
concludes, Y2K woes could shut down as many as 330,000 small
companies. ''The range of consequences is enormous,'' says the
study's author William J. Dennis, Jr., a senior research fellow at the
NFIB.
The pressure to ensure that suppliers are compliant is further
intensifying now that the Securities & Exchange Commission has
required public companies and the 50,000 local governments that
issue bonds to disclose their third-party Y2K liabilities.
''We're looking at our entire infrastructure,'' says Ken Ouchi, chief
information officer for Solectron Corp., a $1.3 billion electronics
manufacturer in Milpitas, Calif. The company recently canvassed more
than 4,000 suppliers about their Y2K preparations. If those answers
give the company reason to suspect a vendor's internal systems could
crash, Solectron will line up emergency suppliers. ''We can't afford to
have an outage because a critical supplier goes down,'' says Ouchi.
Banks, which are being pushed by federal regulations to minimize the
Y2K impact, are starting to move small companies into compliance,
too. Arkansas State Bank in Clarksville, Ark., recently added Y2K
questions to its loan applications to flag any problems that could cripple
a business and affect its loans.
Loan officer Coral L. Gould has been visiting small-business clients to
ensure they're protected against potential Y2K shutdowns. ''Companies
need to think outside their walls about who is going to be affected,''
advises Gould, who says the bank might revoke credit from
computer-dependent companies that don't demonstrate compliance.
''Some of them didn't have a clue, and we told them that they should be
concerned,'' she says. To help avoid surprises, Gould hands out
pamphlets and even suggests that companies take out additional loans
to pay for needed software upgrades.
Small-company owners say they understand the technical reasons for
inquiries about their Y2K battle plans, but they're afraid their responses
could be used against them in a lawsuit alleging they misrepresented
their preparedness.
''Everyone is playing this very carefully because of the threat of
litigation,'' notes Ouchi, who estimates that just 10% of the 4,000
surveyed vendors have responded to the company's requests. In
general, return rates by businesses on such surveys have been running
less than 20% across all industries, adds Thomas Costello, a
consultant at CoreTech Consulting Group Inc., which consults on Y2K
issues in King of Prussia, Pa.
But as Costello and other Y2K experts point out, most small companies
can't afford to ignore Y2K queries, especially if huge clients are
threatening to yank their business. Howell received a Y2K compliance
letter from South Jersey Gas Co. that warned vendors that if they didn't
respond, the utility ''will assume your company will not be Year 2000
compliant, and will therefore not meet our standard'' for suppliers.
How should you respond to the deluge of Y2K compliance demands in
a way that will fix any glitches, keep your customers happy, and limit
your legal liability? First off, don't lose sight of the mission at hand:
squashing the Y2K bug. That's best done by cooperating with clients,
not treating them as adversaries. Also, be honest with clients, but don't
make promises you can't keep, such as guaranteeing compliance by a
certain date, says Joshua Slavitt, an attorney to high-tech companies at
Philadelphia's Synnestvedt & Lechner. ''It could come back and haunt
you.''
''PANICKED.'' While some Y2K survey forms ask dozens of detailed
questions--such as how much you're spending on Y2K compliance and
whether you have a written timeline--Slavitt and other legal experts
recommend drawing up a standard Y2K response that outlines the
company's Y2K plans and its progress to date. Ask a lawyer to review
it, too. ''Don't pay any attention to what's in the survey, and use the
statement across the board,'' recommends William A. Fenwick, a
partner at Fenwick & West, a Palo Alto (Calif.) law firm that handles
Y2K issues. ''If you check a box and send it back, you're making a very
absolute statement,'' Slavitt cautions.
Of course, your own roster of suppliers is also putting your company at
risk. Randall York, president of FallLine Corp., a 27-employee
polyurethane molder in Reno, Nev., was lucky enough to get his
15-year-old custom accounting-and-inventory system upgraded by the
developer for $600. But he's still anxious about how prepared his large
chemical suppliers are. Although he has sent out six of his own
compliance letters, no one has responded so far. ''A lot of them are
very panicked,'' he says.
Running your own Y2K survey, as York did, could help you assess your
Y2K bug exposure (see a sample form at
enterprise.businessweek.com). But be wary of guaranteeing your
suppliers' readiness to others, says CoreTech's Costello: ''I don't see a
lot of companies promising that.''
As the Year 2000 creeps closer, promises will go only so far. Survival in
this fragile business biosphere will require equal measures of trust and
trepidation.
By Dennis Berman in New York
Copyright 1998, by The McGraw-Hill Companies Inc. All rights reserved. |
