24 September 1998

Speaker Says Supply Chain Merits Separate Y2K Review

The following article is excerpted from "ITAA's Year 2000 Outlook".

For even the most diligent remediators, the Year 2000 issue may be starting to look like that pink rabbit on television. Going and going. (For the moment, forget about this bunny's date with the time barrier waiting just 469 days down the road). As companies do more to address the situation, new layers are discovered that need addressing. That point became clear this week at an SPG Y2K trade show in Los Angeles, where supply chain management was an important topic of discussion.

David Hurst, Data Dimensions Director of Non-IT Issues, led a thought-provoking exploration into navigating this parallel universe. For many companies, managing the supply chain response to the Year 2000 is essentially a letter writing campaign to any and all suppliers and vendors ever lucky enough to present a bill. Many of these letters are never answered.

Hurst offered what appears to be a more comprehensive and productive approach.

Longstanding and strategic business relations, not voluminous Y2K inquiries, are the ties which bind companies together, making even the largest corporate giants seem like little more than the sum of their external partners. Hurst offered as examples a hamburger colossus, straddling the globe with 17,000 restaurant franchises in 100 countries, with 130 distribution centers, 4000 suppliers, 500 vendors of other types, and 80 other business partners. A pharmaceutical firm with dependencies on both sole suppliers and suppliers in Third World locations. And a specialty fashion retailer with one-of-a-kind merchandise coming from 2000 one-of-a-kind small and mid-size enterprises.

Is the Y2K problem a matter of supplier heal thyself? Maybe yes and no. In answering the question, companies need to figure out exactly which entities — beyond key suppliers — should be included in the web of critical interdependencies. Many companies may operate only through franchisees and dealer agents. Distributors may need to be on the list. Also business partners like banks and advertising agencies. And key outsourcing providers too, such as payroll processors, check printers, coupon redemption centers or co-packers.

Hurst says whether or not these entities are getting ready for the Year 2000, cutting these links from the corporate chain may be virtually impossible. For instance, he noted that some companies may be highly leveraged on customers for their revenue stream. So the readiness of key customers to cope could be critical.

Cross dependencies also snarl the ability of firms to just cut and run from date-challenged partners. A supplier may be a customer too. A partner could be a shareholder. Captive providers, those that have forsaken all others to serve a single master, may contend that an implied obligation exists and cry foul if the relationship ends. And then there is the matter of existing business contracts, the paper cement that keeps supplier relationships in place. Hurst said even those firms that have flagged the Y2K folly of their suppliers must still prepare the proper legal groundwork before they undertake anticipatory breach of contract actions.

Hurst says a Year 2000 program office should distinguish between IT projects and business relationship management, a non-IT set of functions. This corporate chain gang could include professionals with expertise in business relationship management (sales people, buyers and procurement specialists), corporate communications, contracts administration, financial management, project scheduling and the like.

The work of this group is in many ways similar to that performed on the IT side of the program office. Hurst says the tasks include building an inventory of partners and associating business functions with the products or services they provide. He says people tend to get hung up on protecting their favorite products, perhaps losing perspective on just how important such products are to