Y2K: Crisis or business as usual?
As the supply chain counts down to Y2K, the focus shifts to customers' safety stock requirements
By Sara Procknow -- Industrial Distribution, 9/1/1999
NEWTON, MASS.--Put your ear to the ground and chances are you'll hear faint Y2K rumblings in certain circles in the supply chain. While some companies fear that the first few days of the new year could compare with the logistical problems posed by the UPS strike of 1997, other distributors are barely reporting an increase in inventory requirements or safety stock.Most industrial supply companies are completing final internal preparations for the year 2000 -- fixing computer systems, re-writing lines of code and checking embedded chips and automated processes for date-sensitive functions. This fall, however, many distributors are preparing for Y2K in a different way. Future preparations will focus on customer requirements for inventory, negotiating safety-stock levels, and working with vendors to determine inventory levels.
"I have had just one request from a major customer to date regarding increasing inventory levels to prepare for Y2K," said Ken Adams, vice president of sales for IDG New England. "Most manufacturers are experiencing a 10 to 20 percent slowdown in their own business levels. I believe everyone has been so focused on their computer Y2K initiatives, that the possibility of inventory shortages is just now beginning to come to light."
Early predictions are that there will be some problems related to Y2K, mostly isolated incidents around the globe, with the supply chain being especially vulnerable. The Gartner Group predicts that most problems will be short-lived, with an estimated 15 percent of U.S. organizations having mission-critical failures. Of those, 10 percent will have failures that last more than three days.
The big question is this: Do distributors need to stockpile inventory for a just-in-case year 2000 crisis? The answer, to some degree, is yes; however, manufacturers say distributors should get their orders in now.
"We are telling our distributors that we don't believe increased stock levels will be necessary, but if they are planning on adding additional stock that they do not wait until November or December," said Brian Short, vice president of marketing for Dayco Products, Inc.'s Industrial Division. "We ask that they open a dialogue with us now to talk about what they anticipate they will need above and beyond their normal demand, so we can plan accordingly."
Stan Owens, marketing manager for the Warner Division of Dana, adds, "We're not recommending any stockpiling. We've seen some major OEMs in the agricultural and construction markets that are locking in schedules for early January. Typically these schedules are for four-week lead times that are now eight-week lead times. They want to take delivery early, just in case. Everybody seems pretty optimistic that this will be a big non-event. And I think in the MRO market that there is enough inventory out in the world that they could cushion any significant problems."
Bob McNelis, vice president of Industrial Tool Products, is optimistic that Jan. 1, 2000, will be "just another day." However, several of his customers are starting to request products for projects scheduled for next year.
"We have seen some activity from our customer base asking for safety stock inventory build-up. We have several nuclear power plants under contract and they are concerned about critical items with extended delivery (six to eight weeks) which might be needed on short notice," said McNelis.
The nuclear power plants are preparing Y2K-specific inventory schedules for Nov. 1 to March 31 in order to have safe inventory levels for at least four months.
"It's too early to tell, but who will own these products after the critical period ends," McNelis said. "What will be the impact of restocking fees? Will this cause a temporary glut of product if, in fact, it is not consumed or installed during this period?"
Industrial Tool Products is already in conversations with manufacturers to address this. "If we support the manufacturer and customer with inventory, do we have the ability to return 50 percent and will the customer buy 50 percent?" he asks. "We're watching this closely."
To date, most all of McNelis' conversations with customers have been regarding date-sensitive systems. However, he's seeing a shift to inventory concerns.
"I was just in a steel mill meeting today, where they were talking about inventory levels and preparations for Y2K. As a distributor, I'm waiting on them for a decision," he adds.
Experts say being prepared is the best advice. Emergency-oriented products are receiving the most attention in both the industrial and consumer worlds. Industrial flashlights, batteries and portable generators, for example, are all being bought at brisk levels, in order for companies and contractors to prepare for Y2K. In fact, one manufacturer is recommending that distributors help customers prepare for Y2K as they would prepare for a natural disaster, such as a hurricane.
"The message we are sending is that the distributor and the customer should be prepared," said Laurie Ehlers, channel marketing manager of Rayovac's Industrial Division. She compares Y2K to hurricane season: "You can prepare, but in the end, you don't know whether it will be calm or crisis," she said.
"Distributors who are prepared for Y2K will have the advantage," Ehlers said.
The Year 2000 bug could actually turn out to be an opportunity for distributors to shine. Industry observers are predicting that Y2K-compliant suppliers will be given the same preferential treatment as ISO 9000 certified suppliers. If a distributor does not use Y2K compliance as a competitive advantage, the competitor down the street will.
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