Distributors prepare for Year 2000
Survey finds there's still work to be done for Year 2000 issue
By John R Johnson -- Industrial Distribution, 3/1/1998
Newton, Mass.--Twenty-two months and counting. That's how much time remains until the end of the century and the start of the new millennium and a host of computer-related problems that will arrive with it. Instead of celebrating a new century on Dec. 31, 1999, business owners may be tapping into their computers just after midnight to make sure their systems record the year 2000 correctly.Known as the Year 2000 problem, the computer glitch arises when systems can't read dates beyond 1999. The problem involves date fields buried in millions of lines of operating code that run all aspects of business systems for companies worldwide. It affects the smallest firms up to Fortune 500 companies.
An exclusive poll conducted by Industrial Distribution last month reveals that 40 percent of distributors are already Year 2000 compliant. Another 42 percent are in the process of correcting the problem. However, 18 percent still have not addressed the issue. What problems might distributors see come 2000? Sales histories could be lost. Accounts receivables will look like they are not due. And, shipping delays will arise because pick orders won't register.
"Some of the slackers will be surprised and hurt to some degree when the big day arrives," admits Bruce Merrifield, a consultant to the industry and president of Merrifield Consulting Group.
Doug Levin, vice president of sales at distribution software provider Prophet 21, Inc., Yardley, Pa., agrees. "My gut feeling would be that [fewer distributors] are ready than they think,'' he says. "Our market research indicates the majority of people who [operate in-house, custom] systems are not ready and will have the toughest time."
The ID poll produced results similar to a survey conducted by the Wholesale Distribution Industry Segment of IBM, which reveals 38 percent of distributors have started to implement a plan of action for 2000 issues, but 30 percent have taken no action.
Yet many distributors don't see the Year 2000 issue as a big problem. Some respondents to the ID poll indicated their software providers have guaranteed them they will be in compliance by 2000. Others, like Fastenal Corp. and Rubber & Accessories, Inc., of Lakeland, Fla., are addressing the issue by replacing their entire computer system. In fact, 42 percent of respondents say the Year 2000 issue resulted in a complete computer upgrade.
"Our software vendor is taking care of that for us, so we don't consider it much of an issue," says Levi Hill, president of Richmond Supply Co., in Augusta, Ga. "We'd have more concerns about our own customers and vendors being compliant than ourselves."
According to the ID poll, 78 percent of those who have fixed the problem did so in-house. Twenty-percent hired a consultant. Of those who are not yet compliant, 38 percent have set a goal of finding a solution by the end of the year. Twenty-three percent will push their luck and finish work sometime in 1999. The average cost to fix the Year 2000 issue was just over $81,000. Two-thirds of respondents currently working on the problem expect total costs to be less than $10,000. However, 19 percent expect to pay up to $50,000, while 10 percent put the cost of compliance at $100,000 or more. The average respondent in the study had annual sales of $6.5 million.
"It will come at a cost," says Hill. "I have no idea at this point. It'll be somewhat of a lick. It'll be up there." However, he doesn't expect that the costs will affect profitability.
The high cost of compliance for some distributors has to do with the fact that many are upgrading their entire computer systems at the same time they get their Year 2000 fix.
"We got completely new hardware and software," says Rubber Associates' Jackie Britt, who was in charge of the project but notes the Year 2000 issue was only part of the reason for the upgrade. "It was extremely involved. We weren't necessarily worried about Year 2000. It was just time for an upgrade in order to keep business improving."
Birmingham, Ala.-based Motion Industries, which will record sales of $2 billion in 1998, started working on the Year 2000 problem in 1995. According to Ellen Holladay, vice president of information systems, the firm is very close to being completely Year 2000 compliant. MI addressed the problem in-house, saving the cost of going to an outside consultant.
Holladay says that other than replacing two system software packages that are not Year 2000 friendly, "we are very close to being compliant. We have some more testing to do but we are very close. I think we're probably in better shape than anybody I've talked to."
Motion Industries has planned three test dates through this year, in which it will turn the clock ahead to 2000 and test things like quarter-end and year-end reports, and other critical data over long holiday weekends. That's exactly the approach that Prophet 21's Levin suggests.
"We've suggested [distributors] come in and run their business on the weekend and change the dates on their system and see what happens," says Levin. "We've had people who claimed they were in compliance, did that, and called us back Monday morning for help. There are ways to test it. It's prudent to make sure your business is being run correctly."
However, even that may not be enough. Distributors who do their homework and get their Year 2000 fix completed early will still be at the mercy of their trading partners -- mainly customers and manufacturers -- who may not take the Year 2000 issue seriously. The same holds true for service providers like freight carriers and credit card companies.
"When we go into the next trading century, we could get in a real 2000 issue that has nothing to do with [our] internal systems," says Holladay. "We could send data to a trading partner that their system might not be able to handle, and the whole system breaks down [even though] you are guilt free. I think everyone will have some problems with this no matter what they do."
For that reason, Levin says that distributors and manufacturers have started requesting authorization from their trading partners confirming that they are in fact Year 2000 compliant.
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