Sunday, June 28, 1998

Mid-size business falling in 'Y2K' gap

By KATHY BRISTER / Scripps Howard News Service

KNOXVILLE, Tenn. -- Three years ago Plasti-Line went through a rocky conversion of its computer system.

The change to a new system interrupted the flow of information between the sign manufacturer's divisions, and without dependable electronic tracking of orders, the Powell, Tenn.-based company found itself struggling to keep up with when to produce, where to ship and whom to bill.

"It hurt our cash flow significantly because we couldn't process information," said Mark Deuschle, vice president of finance for Plasti-Line.

"(The failure of an information system) can have a devastating effect on a business. It can actually bankrupt it, if you're not careful," Deuschle said.

So, when company executives a year later began to hear warnings about the Year 2000 problem -- a glitch in some computer hardware and software that could crash systems by reading a year denoted 00 as 1900 rather than 2000 when the new millennium begins they understood what a shutdown of the system could do to business.

Year 2000 doomsday predictions range from complete operational stoppage to costly litigation. The most pessimistic forecasters say lawsuits will trickle down through business layers, with one company suing another for not being able to deliver promised goods or services.

Plasti-Line is preparing for the moment when clocks strike midnight on Jan. 1, 2000.

If past experience hadn't pushed the company to act, its then-public status would have "forced the issue," Deuschle said.

That's because the U.S. Securities and Exchange Commission is requiring public companies to warn shareholders if the cost of a Year 2000 fix will significantly hurt their earnings. Businesses that don't correct possible problems must tell shareholders if the company expects Year 2000 problems to affect performance or products, services and competitive conditions.

In addition, some of Plasti-Line's customers want to make sure the company will be ready to deliver on Jan. 1, 2000. This past year, the company received surveys from General Motors Corp. and Ford Motor Co., asking how Plasti-Line was preparing for the next millennium.

Many large companies, like Ford and GM, are nearly as concerned with ensuring that suppliers and subcontractors are Year 2000 compliant as they are with making sure their own operations are in order. With "just in time" inventories more the norm, any hitch in the delicate balance of corporate outsourcing could disrupt production.

Plasti-Line has nearly completed converting its operating system to a Year 2000 compliant version.

System conversion has cost the company about $500,000, Deuschle said. In addition, the company has not been able to use its technical resources to improve operations, and it still has to test its other computerized systems ranging from payroll to air conditioning to make sure they will continue to operate in 2000.

What worries Walter Williams, an electronic commerce consultant for the University of Tennessee Center for Industrial Services, is that many manufacturers have not even started tackling the problem.

Williams said most large companies have the resources to address Year 2000 compliance, and very small companies may only incur the expense of replacing one or two computers. But small manufacturing operations are caught in the middle.

Knoxville lawyer Sidney Gilreath said the most legally vulnerable businesses may be those now in a pinch to pay for Year 2000 compliance, Gilreath said. "The small businesses may be the last ones to get help, and they are likely to be the ones to go into litigation."

Twelve state legislatures have considered putting caps on Year 2000 liability.

Last year, for example, Nevada legislators passed a law that provides immunity to the state, its contractors, employees, officers and political subdivisions from civil lawsuits based on Year 2000 problems.

Some analysts believe the federal government -- by most estimates far behind big business and many states in Year 2000 compliance -- may follow suit.

A "reactive" mode of operation has compounded the Year 2000 problem for many small manufacturers, Williams said. "This is low on the list of priorities. The impact is not visual.

"If they have a choice between (becoming Year 2000 compliant) and buying a machine that increases productivity by 30 percent or expanding floor space, they are choosing what they can trace to today's bottom line," Williams said.

The millennium bug has created a situation in which new business technology simultaneously is a blessing and a curse, Williams said. "(The Year 2000 problem) would not have been as serious before electronic commerce. The connectivity to suppliers and clients works for you, but it also can work against you" by making a business susceptible to the Year 2000 problems of a linked customer or supplier, he said.

Williams anticipates a costly "absolute, mad race for manpower" in the last six months of 1999.

D.J. Caulfield, spokesman for the federal Small Business Administration, agreed that it is "just more difficult for the middle range to eliminate their inventory of older computers that have older (software) programs or new programs based on old languages."

But mid-size businesses must begin dealing with the millennium bug now to avoid being non-compliant or paying high costs to rush the job, Caulfield said. "They don't have to think the sky is falling in, but it is an issue that has to be addressed today."

(Kathy Brister is a reporter for the Knoxville News-Sentinel in Tennessee.)