JAPANESE TOAST - "Y2K disruptions of suppliers could hobble manufacturers"

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Y2K disruptions of suppliers could hobble manufacturers

By Yuri Kageyama, Associated Press, 12/22/99

TOKYO (AP) Leading manufacturers in Asia express confidence they are prepared for the Year 2000 computer problem. But when asked about their suppliers, they are far less certain.

Corporations otherwise amply prepared could be crippled by Y2K disruptions of their suppliers. It's an unsettling scenario for such technology-dependent nations as Japan, South Korea, Taiwan, Singapore and the United States.

For big industries like auto and consumer electronics makers, falling just one part short could shut down entire assembly lines. Especially susceptible are companies with ''just-in-time manufacturing'' systems, a technique pioneered by the Japanese and widely used by Detroit in which parts are obtained only as needed to keep inventories low and profit margins high.

Mindful of Y2K's potential for disruption, many big manufacturers have broken the mold for this one-time event, stockpiling anywhere from a few days to a few weeks' supplies prior to Dec. 31.

But many smaller manufacturers have not.

That means any Y2K problems upstream in the supply chain might not be felt for weeks but could then cause assembly lines from Osaka to Detroit to grind to a halt.

Worldwide, only 26 percent of all companies have arranged alternate supply or distribution channels. Companies with more than 500 employees are doing somewhat better, with 45 percent having alternate suppliers, according to the Massachusetts-based technology research group International Data Corporation.

The research group forecasts $22.8 billion in losses to businesses worldwide from Y2K-related failures and predicts a ripple effect: for every dollar lost by one company, business partners will suffer 70 cents in losses.

Reflecting a global trend, larger Japanese corporations are better prepared than smaller ones for Y2K, the legacy of a programming flaw in which years were expressed with just two digits, meaning 2000 could be misread as 1900, causing crashes and scrambled data in computers and the microchips prevalent in so many assembly lines.

At the end of October, only 75 percent of small- and medium-sized companies in Japan had completed Y2K repairs far lower than the nearly 100 percent for banks and 92 percent for companies in general, government studies show.

Kazuo Sato, a Tokyo city official who counsels small and medium-sized companies on Y2K, says many smaller companies couldn't afford to invest in remedies even if they wanted to.

''I'm worried,'' Sato said. ''Fixing a Y2K problem isn't an investment that a business sees as returning a profit anytime soon.''

Dennis Grabow, an investment banker with Millennium Investment Corp. in Chicago believes supply-chain disruptions are likely and capable of setting off recessions in some nations. Suppliers in industries like aviation or computers can't be replaced easily and stocking up is unrealistic for industries that require thousands of parts, he said in a telephone interview.

The danger could hit practically anywhere.

A power failure could stymie a supplier, even if it had fixed its computers. Or a ship transporting parts could be disabled by Y2K troubles and prevented from making a delivery.

And some suppliers are in nations like Indonesia and China, where the millennium bug is expected to cause at least moderate though unpredictable disruptions.

''There are potential problems at the supply chain that we cannot possibly control,'' said Peng Nai-chueh, spokesman for Gigabyte Technology, a major Taiwanese maker of motherboards, the main circuit board on computers.

Peng, whose company's clients include Compaq and Fujitsu, says it is impossible to monitor all the company's more than 100 suppliers.

Some parts are already in short supply in Taiwan because of booming electronics sales and the Sept. 21 earthquake that damaged some plants.

Matsushita Electric Industrial Co., the Japanese maker of electronic goods under the Panasonic brand, says it is sure that at least 95 percent of its 18,000 suppliers 6,000 of them overseas are Y2K-compliant. But Matsushita, which was increasing inventory on some parts, is worried about parts that are in tight demand, such as liquid crystal displays and computer chips.

''If the Y2K bug hits those areas, the operation will be down immediately,'' said Matsushita spokesman Akira Kadota.

Japanese government officials insist plants will be humming along, more or less just-in-time, with no major trouble after New Year's.

Yet the government has not independently checked the private sector's Y2K readiness, and millennium bug analysts like Ed Yardeni, chief economist for Deutsche Bank Securities in New York, are skeptical.

''I just think it defies the laws of human nature and probability that all these systems are going to be working perfectly well around the world,'' said Yardeni.

''There's certainly a lot of complacency and that means that these systems better work because most companies are not going to have very much in the way of inventory buffers or serious contingency plans.''


-- John Whitley (jwhitley@inforamp.net), December 23, 1999

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