Y2K countdown...or meltdown?
Distributors may be in for a rude awakening when the new Millennium hits
By John R Johnson -- Industrial Distribution, 2/1/1999
THE NEW MILLENNIUM IS QUICKLY APPROACHING, and the fallout from the Year 2000 computer bug remains a mystery. Rumors of planes falling out of the sky and nuclear warheads exploding are certainly extremes.The U.S. economy plunging into recession seems far fetched. But data corruption that could cause distributors to lose incoming orders and receivables -- and therefore millions of dollars -- is a distinct possibility.
"You'll still be able to sell stuff, but if you lose your inventory value and your receivables, you'll lose millions," says Doug Levin, vice president of sales for software provider Prophet 21.
Indeed, there are less than 10 months left until the Year 2000, and a new study by Industrial Distribution reveals that only 45 percent of distributors were compliant at the end of 1998, and that many are still asleep when it comes to the Y2K issue. However, only two percent are unaware of the problem, a huge improvement over the 18 percent who claimed ignorance in last year's survey.
"Last July 4 an alarm clock went off around the world when a lot of firms realized they only had 18 months to go," says Macola Software's Jim Taylor. "Well, we [expected] the snooze button to go off in January of '99."
The poll says that of the 55 percent still working on a fix for the issue, thirty-three percent plan on being compliant by April 1, while another 39 percent will push the envelop to June 1. Of those still working out the kinks, 24 percent expect the Y2K fix will affect profitability in 1999. Sixteen percent say profitability will be less in 2000. The nationwide poll of just under 100 distributors was conducted in December. Respondents had average revenues of $5 million.
What's more unsettling is that only five percent of distributors say they will drop their manufacturer partners if they are not compliant. Forty-seven percent of distributors report they will still use them, while 52 percent say they will use them, but won't rule out finding replacement suppliers.
And, going against the advice of experts, only 40 percent of respondents have begun to ask their trading partners and third party partners for verification that they are Y2K compliant.
"We're seeing customers, banks, and suppliers starting to ask [distributors] to provide certificates," as proof of compliance, says Scott Deutsch, vice president of marketing at Prophet 21. "A lot of distributors are heavily leveraged, so banks want to make sure their assets are protected."
Distributors need to do the same thing. Even those who are compliant could be burned by trading partners --manufacturers, logistics providers, even utility companies -- that don't update their systems on time.
The survey revealed that 10 percent have experienced some minor Y2K problems already. And, despite estimates that lawsuits resulting from the Y2K crisis will total more than $1 trillion, only 18 percent of those polled have notified their lawyers or legal departments of the potential for litigation as a result of Year 2000 lawsuits.
Duncan Equipment Co., a $63 million general line distributor based in Tulsa, Okla., is nearly Y2K compliant, but has already witnessed some effects of the Y2K bug. Almost two years ago, a blanket order contract was rejected because the end date was for the Year 2000. The event served as a wake-up call for the company, which hopes to gain market share from being Y2K compliant.
"In [early] 1999, the interest level, or panic level, is going to ramp up in a big way," says Duncan Equipment CEO David Ragland. "We're trying to make this an opportunity to gain market share in 1999. The Big Three came out with a [letter] 18 months ago that had a series of dates to become compliant. Initially, they didn't get a good response to that. When they came back and said, 'we'll take you off our supplier list,' everyone got serious. We're at least asking the question, 'We're compliant, but how about the guy you're buying from?' "
According to software experts, those who aren't complaint need to address the situation immediately. As the level of panic increases each week, it will be harder to find companies with the manpower to fix the problem. "The thing I worry about," says Taylor, "is the industry is short on resources, and there just aren't enough people in the marketplace to make this happen across the board."
Indeed, Levin says that those who wait beyond March 1 to contract with a software firm could wind up in serious trouble. P-21's telemarketing group routinely asks distributors if they are Y2K compliant . "It's amazing how many answer 'No' or 'I'm not sure,' " says Levin. "The stress level of [distributors] will certainly go up as the clock ticks closer to the end of the year. If people make decisions in the first quarter, they can still get implementations."
Beyond that, Levin says, "you will not be able to find any implementation resources anywhere. If you haven't made a decision on a system by March, and you don't have a commitment from a vendor, then you have serious trouble. It's a three-to-six month process [to install new systems], and those resources to train people and implement will be a rare commodity."
Levin says the Y2K problem has driven much of the consolidation within the industry, which could pick up in the coming months. "Lets say you're a 60-year-old CEO of a million-dollar distributorship. Do you really want to go through another computer upgrade, or just sell to somebody?"
Some economists and experts in the field are even predicting that Y2K will have such a negative effect on business that it will send the U.S. economy into a recession. However, only eight percent of distributors polled agree with that theory.
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