Race To The Finish

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June 8, 1998

Race To The Finish

As 2000 approaches, tech managers are turning their attention to compliance efforts of their partners, suppliers, and customers

By Bruce Caldwell

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Year 2000 Resource Center

ith 18 months to go before the turn of the century puts computer systems to the real test, corporate IT managers are turning their attention to the year 2000 compliance efforts of their partners, suppliers, customers, and service providers. The testing of company-to-company connections for date-change problems is taking on a sense of urgency amid growing evidence that some sectors, including small businesses, government agencies, and telecommunications providers, are behind in their conversion efforts.

While many companies express confidence that their own millennium projects are on track, the concern has shifted to identifying weak links in the commerce chain among companies. Failure to do so could result in data-processing errors or delays, causing checks to go unmailed, products to go unshipped--or worse.

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The issue i s coming to the fore as new studies put the spotlight on year 2000 laggards. Last week, the government received an "F" in Rep. Stephen Horn's (R-Calif.) latest report card on federal year 2000 projects. Just five agencies were judged to be on track for project completion by the deadline of next March, with 13 agencies looking to finish in 2000 or later. Audits by federal banking regulators, also released last week, found that year 2000 projects at 695 banks need improvement, with the efforts at 43 of those institutions listed as unsatisfactory. Other signs of trouble: A Gallup poll sponsored by Wells Fargo & Co. found that 75% of small businesses surveyed had yet to take any action on year 2000. And a nationwide survey of hospitals by Chicago law firm Gordon & Glickson found that 30% haven't begun year 2000 projects.

The situation is getting the attention of business and technology managers, who are increasingly evaluating and testing whether their partners' systems are year 2000 compliant. Connectic ut On-line Computer Center, a bank processor, put nearly 100 of its bank clients through grueling test procedures over the Easter weekend. First Union Corp., a financial firm with $157 billion in assets, is taking its own steps. "We're out there with all our suppliers and partners," says Thomas Fogarty, senior VP of IT services with First Union. "We're discussing how they'll be compliant, but we're also deciding how we'll organize for failure."

Still, others warn that there's simply not enough time to test all points of vulnerability. Even with testing done daily, Chase Manhattan Bank won't be able to check for system glitches with all of its partners, suppliers, and customers in the 571 days remaining before 2000, says Steven Sheinheit, senior VP of corporate systems and architecture. "How do you make sure everything works on an end-to-end basis?" Sheinheit asked last week at a year 2000 symposium in New York sponsored by the U.S. Office of Thrift Supervision.

Pilot Testing Begins
Individual companies and industry groups are moving quickly to address Sheinheit's question. Next week, the Securities Industry Association will begin pilot tests with two dozen companies representing various segments of the securities industry, a precursor to broader testing next year that will involve more than 1,500 participants. The SIA has set up eight subcommittees to deal with the year 2000 impact of third parties on its member firms, and it plans to demonstrate the reliability of year 2000 connections between stock exchanges and "utilities," the industry term for service bureaus that handle the clearing and settlement of trading transactions. "If a utility fails, the entire industry has a problem," says Michael Tiernan, chairman of the SIA's year 2000 committee.

The Auto Industry Action Group (AIAG) has been surveying 70,000 physical sites of auto parts suppliers worldwide, collecting year 2000 data so that automakers won't have to duplicate efforts in requesting compliance data. The scope of the supply-chain search recently expanded when the suppliers asked that the compliance survey be extended to their own suppliers--and to their suppliers' suppliers.

"You've got some small companies that ask 'What's Y2K?' especially some of the plants that support our suppliers," says Rebecca Vest, manager of strategic planning with the purchasing arm of Toyota Motor Manufacturing North America, which recently joined the AIAG's year 2000 effort.

As part of that program, Toyota will be able to search the AIAG's database to determine the year 2000 status of its suppliers. That will let the automaker focus attention on those it deems most critical. Still, Vest says, it won't be possible to verify the compliance of all of Toyota's parts suppliers. "We will have to trust some of them," she says.

How do companies rate their own year 2000 readiness? In a survey last week by InformationWeek Research, 90% of the 125 companies contacted say their projects are on schedule and within budget. Even so, much work remains. Only one in 10 companies has actually finished its conversion work.

That means companies are going to have to balance what remains of their own year 2000 conversion projects with the external testing they still need to do. Prudential Insurance Co. of America is wrapping up its year 2000 work, which it plans to complete this year. At the same time, Prudential has identified several thousand business partners that could potentially damage Prudential's business if their IT systems aren't compliant by 2000. Prudential has segmented them into high- and low-risk categories, based on the level of conversion work to be done, and has developed an action plan for each. Of those, more than 200 were identified as high risk. Prudential regularly monitors each partner's progress, sometimes putting its own IT people on their sites. With one partner, Prudential went so far as to do a formal audit of its IT systems.