PR ODUCTI ON PLA NNING & CONTROL 1999, V OL . 10, NO. 8, 796 – 808
The Y2K problem: manufacturing inputs at risk
R ONA L D E. M CGA U GHEY and A. GU NASEKA R AN
K eyw ords
risk
Y2K , year 2000, manufacturing, supply chain,
A bstract. By now , most have heard of the year 2000 problem.
M ost large- and medium-size manufacturing Ž rms have been
working feverishly over the last 2 or 3 years to address their inhou se Y2K exposures. Taking care of in-hou se exposures is certainly important, but external Y2K threats cannot be ignored .
A very signiŽ cant area of concern, one that is receiving much
attention of late, is the threat of disruption in manufacturing
inputs. This paper addresses this very real Y2K threat. W e
A uthors: R. E. M cGaughey, School of Business, Arkansas Tech. U niversity, Russellville, AR 72801,
U SA, and A. Gunasekaran, Department of M anagement, U niversity of M assachu setts, Nort h
Dartmouth, M A 02747-2300, U SA, e-mail: agunasekaran@ umassd.edu
R ONA L D E. M CG A UGHE Y is a Professor of M anagement I nformation Systems at Arkansas Tech.
U niv ersity where he teaches courses in the areas of informa tion systems and production/operations
management. His research has appeared in the J ournal of Systems M anag ement, Information and
M anag ement, International J ournal of P roduction Economics, International J ournal of Computer Integ rated
M anuf acturing , J ournal of Information T echnolog y M anag ement, J ournal of M arketing T heory and
P ractice, etc. He has presented the results of his research at numerous conferences and his work
appears in many professional proceedings. He is the I nternet Editor for the International J ournal of
A g ile M anag ement Systems. He has management experience in the logging, construction and textile
industries. His current research interests include manufacturing strategy, electronic com merce, the
year 2000 problem, and managing technol ogy.
A . G UNA SE KA R A N is an Associa te Professor of Operations M anagement in the Department of
M anagement at the Univ ersity of M assachusetts, U SA. He has a PhD in industrial engineering and
operations research from the I ndian I nst itute of Technology, Bom bay ( I ndia) . Prior to this, Dr
Gunasekaran has held academic posit ions at Bru nel U niv ersity ( U K) , M ona sh Univ ersity
( Australia) , the Univ ersity of Vaasa ( Finland) , the U niv ersity of M adras ( I ndia) and the
U niv ersity of Toronto, Laval U niversit y and Concord ia U niversity ( Canada) . He has had over
100 articles published in jou rnals, e.g. the International J ournal of P roduction Research, International
J ournal of Systems Science, International J ournal of O per ations and P roduction M anag ement, Computers in
Industrial Eng ineering : A n International J ournal, Europea n J ournal of O perat ional Research, L og istics
Information M anag ement, T Q M M ag azine, M anag ement D ecision, M anag erial A uditing J ournal,
International J ournal of A dvanced M anuf acturing T echnolog y, International J ournal of P roduction
Economics, J ournal of O perational Resear ch Society, Enterprise Innovation and Chang e, International J ournal
of T echnolog y M anag ement, T echnovation, Computers in Industry: A n International J ournal, T otal Q uality
M anag ement, International J ournal of Q uality & Reliability M anag ement, and International J ournal of
Computer-Integ rated M anuf acturing . He has presented over 50 papers in conferences and given a
number of invit ed talks in more than 20 countries. He is on the Editoria l Boa rd of over 12 internationa l jou rnals that include International J ournal of P roduction Planning & Control, International
J ournal of Systems Science, Computers in Industry: A n International J ournal, CERA , T echnov ation, J ournal
of Product and P rocess D evelopment, Log istics Inf ormation M anag ement, B usiness P rocess M anag ement J ournal,
J ournal of O perations M anag ement, Supply Chain M anag ement: A n International J ournal, International
J ournal of Q uality & Reliability M anag ement. He has edited special issu es for a number of highly
reputed I nternational J ourna ls. Dr Gunasekaran has been inv olved in several nationa l and internationa l collaborative projects that are funded by private and government agencies. He has supervised more than 40 dissertations and several industrial projects. M ost of the projects are industry
based. Dr Gunasekaran is the Editor of the International J ournal of A g ile M anag ement Systems. He is
currently interested in researching agile manufacturing, concurrent engineering , management
inform ation systems, technol ogy management, supply chain management, com puter-integrated
manufacturing , and total quality management.
P roduction P lanning & Cont rol I SSN 0953– 7287 print/I SSN 1366– 5871 online # 1999 Taylor & Francis Ltd
http://w w w .tandf.co.uk /J NL S/ppc.htm
http://w w w .taylorandfrancis.com /J N LS/ppc.htm
T he Y 2K problem
provid e an overview of theY2K problem and examine some of
the more important areas where manufacturers are exposed to
Y2K-ind uced disru ptions in the supply of manufacturing
inputs.
1. Introduction
I nformation technolog y ( I T) is a very broad area
encompassing computer technolog y and telecommunications technolog y. Few technol ogies have had such a
dramatic impact on individuals and organizations as
I T. The impact of I T in manufacturing has been particularly palpable. I T has been one of the most powerful
technolog ical forces shaping manufacturing in the last
half of the 20th century, helping manufa cturers make
products faster, cheaper and better ( better satisfying
customer needs) , and helping them deliv er products to
customers with greater dependability and speed.
So what could possibly be wrong with this rosy picture
of the role of I T in manufacturing? The answ er is a little
computer bug known as the year 2000 problem, the millennium bug or Y2K . Simply put, two digits representing
the year in dates could cause problems that would turn a
manufacturer’s world upside dow n, at least for a short
time. How will Y2K failures in uence manufacturing?
Quite obviously, Y2K -related failures will in uence
manufacturing direct ly if they cause in-plant equipment
failures that disrupt manufacturing processes. M ost
manufacturers recognize the obvious risk of in-plant
system and equipment failures, and they are working
feverishly to identify error-prone equipment and systems
and to take corrective action ( M ichel 1997, J esitus 1998) .
There is another area that should be of great concern to
manufacturersÐ disruptions in the supply of manufacturing inputs. W ithout inp uts, plants cannot operate! The
threat of Y2K -related supply chain disruptions has only
recent ly started to receive the attention it deserves
( Bylinski 1998, Karuppan and Karuppan 1998, U lrich
1998) .
I n this paper, we will Ž rst examine the origin of the
Y2K problem and provide a brief explanation of how it
came to be perhaps the greatest challenge of the inform ation age. The remainder of this paper will focu s on the
substantial Y2K -related input risks faced by manufacturing Ž rms.
2. The Y 2K problem (m illennium bug)
The Y2K problem is a consequence of a programming
technique and two human tendenciesÐ assuming and
procrastination ( M cGaughey and J ones 1999) . The programming technique, like many developed in the early
years of com puting, was designed to conser ve high cost
797
storage. The technique involved the use of two digits of a
six-d igit date cod e to represent the year ( i.e. 78 to represent 1978) in data stores and processes. Because date
Ž elds appeared in many data stores and date processing
was common in automated business processes, the two
digit representation of the year, rather than four, saved
a lot of storage space and was cost e€ ective ( M andel
1998) . I t was prudent, therefore, to use two digits to
represent the year in data stores and to program accordingly.
F or many years, the practice of representing the year
with two digits rather than four was not questioned. I t
was widely assumed that systems under construction in
the 1950s, 1960s, 1970s and even into the 1980s would be
replaced before the tw o-digit representation of the year
presented a problem ( Zarow in 1997) . I n the late 1970s
and early 1980s the practice of using a 2-digit date was
called into question when applications processing dates
for Y2K and beyond started to prod uce errors.
U nfortunately, few people were concerned about the
problem. Of those who were concerned, few saw the
problem as a pressing one and they did not address
the Y2K problem proactively. Now , many of the procrastinators Ž nd themselves confront ed with an almost overwhelming challengeÐ they have several years, worth of
work to do and only months to get it done!
The Y2K problem is quite pervasive. I t could, if not
corrected, a€ ect all types of computers from mainframes
to the PC, telecommunications networks ( Celko 1996) ,
and any device containing a special purpose microprocessor ( embedded chip) that processes dates in performing some task ( F rautchi 1999) . Figure 1 illustrates the
extent of the Y2K problem.
2.1. M ainf rames
M ainframe systems are particularly susceptible to the
Y2K problem because they often support legacy systems.
Legacy systems are often poorly documented. Poor documentation, coupled with inconsist ent naming practices,
makes it di cult to identify all date Ž elds and date processing occu rrences in these systems, and dates must be
found before they can be corrected. Finding potential
Y2K prob lems in legacy systems can prove to be quite
time consu ming and quite costly ( Appleton 1996) . Y2K
problems are not restricted to legacy systems. Newer
systems, custom or o€ the shelf, can have the same date
format problems as legacy systems as the practice of using
a two-digit representation of the year in dates continued
until very recently.
M ainframe operating systems ( O/S) can present problems because they, too, may use a two-digit representation of the year. M any applications acquire the date from
798
R. E. M cGaug hey and A . Gunasekaran
F igure 1.
the O/S, so even if the application itself is Y2K compliant, interaction with a  awed O/S can produce processing errors that lead to minor ( erroneous date on a
report) or major ( system shuts dow n) system failures
( Celko 1996) .
M ainframe hardware can be problematic. Some ha rdware components, microprocessors for instance, were
designed to use two digits for the year. As hardware components can cause system failures, the Y2K problem is
not just a software problem, it is a hardw are prob lem as
well.
2.2. Personal computers ( PCs)
Personal computers may have problems processing
dates for the year 2000 and beyond. M any applications
have migrated from the mainframe to the PC environment. Som e of those applications carried with them the
root cause of the Y2K problem, a two-digit representation of the year. Flawed applications running on a PC
will produce incorr ect results, or simply shut dow n in
much the same way as they would on a mainframe.
Because PC applications were designed and written by
personnel who adhered to practices long used for mainframe applications, processing dates beyond 1999 can
present problems for PC applications that never were
mainframe based. PCs inherited the Y2K problem
directly, or indirectly, from the mainfram e.
Like mainfram e systems, PCs can have hardware components that are not Y2K compliant. For instance, the
PCs BI OS ( basic input output system) can be  awed.
The BI OS in som e PCs cannot handle the Y2K and
will cause the computer to lock up, or the year 2000 to
be misinterpreted, commonly as 1980 or 1984 ( Celko
1996) , causing errors in the processing of dates.
Should PC-based applications interact with mainframe
applications, problems ca n result. Even if the PC is Y2K
compliant with regard to its hardware and software, the
interaction with a mainframe that is not Y2K compliant,
or one in which the mainframe solution produced results
not interpreted properly by the PC, can produce error
conditions in the PC processing environment.
2.3. N etworks
Networks comprise hardware and software like other
computer systems, but are also characterized by
computer to com puter communications made possible
by telecommunications technology. Some organizations
are so reliant on their networks for their communications
and data processing needs that network crashes could
completely shut them dow n ( Freeman and M eador
1997) .
L ike other computer-based systems, networks may
experience Y2K problems. The problem in the network
environment is a computer problem ( Freeman and
M eador 1997) . Network operating systems, application
programs and hardware com ponents may not be Y2K
compliant and may experience problems similar to
those experienced by mainframes and PCs. Client server
environments are particularly vulnerable, as a consequence of the required interaction between the clients
and the server, as they share data and processing tasks.
A Y2K problem on either the client or server can produce erroneous processing results or a system failure.
Not only does the Y2K present problems for networks,
it creates the potential for problems when any two computers share data, processing responsibilities, etc. The
Y2K solution for one computer system may produce
problems for other systems, even if the other systems
are Y2K compliant. This is one of the reasons why
T he Y 2K problem
Y2K solutions require extensive testing. I t is important to
examine the results of distributed processing , data sharing and other required com puter interactions to ascertain
whether or not problems exist in the processing of dates in
the year 2000 and beyond.
2.4. Embedded chips ( special purpose processors)
Embedded chips ( microprocessors) can be found in
many consu mer and industrial/commercial products. I f
dates are processed by those chips in perform ing their
specialized tasks, and they are not Y2K compliant, errors
or shutdow ns can occu r. The problematic date code can
produce equipment failures with consequences that range
from minor inconvenience to life threatening. Embedded
chips are commonplace in industrial/commercial applications and can be found in many household appliances
( Frautchi 1999) .
3. Y 2K and m anufacturing
W hat are the consequences of Y2K -related I T failures
in manufacturing ? Since the Ž rst application of computers in business during the 1950s, businesses of all
types have become increasingly dependent on computers
in performing basic business processes. Furthermore, telecommunicat ions technol ogy, to a very large extent, provides the linkage that supports the exchange of
inform ation and data within and among organizations.
Now here is the pervasiveness of I T more apparent than
in manufacturing. I T ( computers and telecommunications technolog y) can be found virtually everyw here in
modern manufacturing companies from the executive’s
pock et to the factory  oor.
The role of I T in manufacturing has increased steadily
throughout the last half of the 20th century, and the
trend seems certain to continue well into the 21st century.
M anufacturers turned to I T to gain competitive advantages through reduced cost , increased  exibility,
improved quality and greater dependability. New strategic initiatives for manufacturing emerged in response to
the increasingly dynamic and global business environment. Terms like agile manufacturing and virtual manufacturing describe emerging manufacturing enterprises
that encompass business partners and operations around
the globe ( P reiss et al. 1996) . These manufacturing webs
are com prise partners that must interact rapidly to provide products in response to changing markets. The information infrastructure of these manufacturers must
facilitate rapid movement of inform ation around the
globe. These Ž rms are highly dependent on I T to provide
the necessary inform ation infrastructure to link their
799
geographically dispersed operations. The high I T dependence of these ‘leading edge’ manufacturers makes them
quite vulnerable to Y2K disruptions in their operations.
I ronica lly, the very technolog y that has helped many of
these manufacturers improve their competitiveness could
be the source of the bug that bites them, leaving them
crippled ( some performance degradation) or dead ( out of
business) .
Any enterprise using computer-integrated manufacturing ( CI M ) , computer aided design/computer aided
manufacturing ( CAD/CAM ) ,  exible manufacturing
systems ( FM S) , automatic storage and retrieval systems
( AS/RS) , computer numeric control machines ( CNCs) ,
robotics or other elements of advanced manufacturing
technolog y relies on systems and processes wherein information technol ogy and process technol ogy may be so
thoroughly integrated that they are inseparable. For the
users of these technologies, exposures to Y2K -related risk
abou nd. The prevalence of embedded chips in these
automated systems and elsewhere in less automated
plants is a particular concern. Estimates suggest that
manufacturing’s exposure to the risk of Y2K -related
embedded chip failures is about 10 times greater than
the
exposure
of non-manufacturing
enterprises
( Bylinsky 1998) .
The I T depend ence of manufacturers is further evidenced by its use in enterprise, business, functiona l,
plant and department level planning and control
systems. Particularly in industrialized nations, the activities one associa tes with manufacturing, e.g. invent ory
management, scheduling, quality assurance, process control, maintenance, inbou nd and outbound logistics all
rely on, at least to som e extent, computers, and/or, telecommunications technology. Other business functions,
e.g. marketing, Ž nance, human resource management,
engineering and accou nting rely heavily on I T exposing
them to Y2K problems and the risk of failures that in uence fund amental business processes. The necessary interaction of manufacturing with these functional areas
indirectly increases the exposure of manufacturing to
Y2K -related risk.
I T is an enabler of basic business processes in all
functional areas. I n manufacturing, I T drives processes
and supports managers, sta€ and production workers as
they engage in activities necessary to facilit ate the  ow of
inputs into, through, and out ( as Ž nished goods) of a
manufacturing system. I n industrialized nations, all but
the smallest of manufacturers have at least some dependence on I T, and thus, are exposed to some risk of Y2K related disruption of operations, and they create risk for
others up and down the value chain.
Retailers, wholesalers, transportation companies, utilities, government agencies and other types of operations
are likewise reliant on I T. They too are at risk of business
800
R. E. M cGaug hey and A . Gunasekaran
process disruptions attributable to Y2K . M anufacturers
must interact with other manufa cturers and other types
of organizations in obtaining needed inputs. Y2K -related
disruptions in the operations of other Ž rms ( manufacturing operations and non-manufacturing operations) thus
threaten the supply chains for manufa cturing inputs
( Freeman and M eador 1997) . W e will now turn our
attention to this important areaÐ the Y2K threat to
manufacturing inputs.
4. Y 2K failures and m anufacturing inputs
I n a manufacturing Ž rm, various inputs are transformed, via manufacturing processes, into tangible outputsÐ products. Some products become inputs for other
manufacturers and others move through various distribution channels to a Ž nal consu mer. There is a high
interdependence of Ž rms that comprise the value chains
that create and distribute manufactured goods. That
interdependence magniŽ es any single Ž rm’s exposure to
the risk of Y2K failures. For instance, if a Ž rm had Ž ve
component suppliers, each of which had Ž ve suppliers,
1
2
that would be a total of 5 ‡ 5 suppliers, or 30 suppliers
that could exp erience Y2K failures creating a disruption
in the supply chain. I f one assumes that the second
level of suppliers each have Ž ve suppliers, also, then the
third level increases the number of suppliers to 155
1
2
3
… 5 ‡ 5 ‡ 5 † . Figure 2 illustrates this magniŽ ed exposure to the risk of disruption in manufacturing inputs.
To illustrate the risk further, one can evaluate the reliability of this simple supply network using techniques
applied to product reliabilities. Assume that each of the
30 suppliers could experience an internal Y2K problem,
e.g. an equipment failure, not related to a problem with
the other suppliers in the network. The probability of a
supplier failure is then associa ted with an independent
event. Assume that the prob ability of failure is low, e.g.
0.05. The reliability of the supplier, the probability that
the system will function properly, is then ( 1 ¡ 0.05) or
0.95. The reliability of the network of 30 suppliers is
30
then 0.95 or 0.215. I f one uses the three-level supplier
1 55
network then the netw ork reliability is 0.95
or
0.00035. This simple analogy suggests that the prob-
F igure 2.
T he Y 2K problem
801
F igure 3.
ability of the supplier network not experiencing a Y2K related failure in some network node is quite low. Again,
consid er that the Ž gures are quite conserv ative, using
somewhat limited netw ork sizes and high individual reliabilities. I t would seem clear that there will almost certainly be supply chain disruptions, the question then
becomes what will be the impact?
M aking matters worse, Ž rms may have little control
over the Y2K readiness of com panies comprising supply
chains that provide needed inputs. The manufacturer’s
dilemma, simply put, is that critical inp uts can be cut o€
or severely restricted as a consequence of Y2K failures in
other companies that supply needed inputs.
M any diverse inputs are used in manufacturing processes to produce outputs. Figure 3 show s the basic process model of manufacturing with special emphasis
placed on the categories of manufacturing inputs at risk
because of Y2K .
Suppliers provide materials, end prod ucts in use ( items
not incorp orated directly into products being manufactured) , component parts, services ( maintenance, bank-
ing, insurance, health care, etc.) and infrastructure
elements, e.g. energy ( electricity, gas, coal, etc.) water,
sewage disposal, transportation and communications
( U lrich 1998) . Y2K -related supplier risks have become
a great concern to manufacturing Ž rms ( Herman 1997,
Attaway 1998, Bylinsky 1998, J esitus 1998, K aruppan
and Karuppan 1998, U lrich 1998) . Supplier risks encompass nearly all input categories with the possible exceptions of human resources and land, so an evaluation of
supplier risks is, to a very large extent, an evaluation of
input risks. A disruption in the supply of any manufacturing input could cause a manufa cturing shutdown, or at
least a slowdow n ( below normal level of operations) . I n
the follow ing sections, the categories of input ( supplier)
risk are examined.
4.1. M aterials and components
M aterials and component s can move through relatively short and simple supply chains, but more often
802
R. E. M cGaug hey and A . Gunasekaran
their supply chains are complex and lengthy. I t is noteworthy that supply chains for what we generally call raw
materialsÐ sand used in concrete for exampleÐ tend not
to be as lengthy as those of components ( components
are themselves outputs of manufacturing processes) , but
multiple links are not uncom mon in any supply chain. As
an illustration, we will look at a ‘simpliŽ ed’ supply chain
for polyester yarn used in manufacturing carpet. The
chain would start with a chemical ingredient used in
polyester ( we could go further back to the basic raw
material, but we wish to keep the illustration brief) .
That chemical, along with others would be used to
make polyester pellets. Those pellets could be purchased
by another manufacturer that would then transform
them into a continuous strand Ž bre. That Ž bre could
then be purchased by another manufacturer that combines many such Ž bres to make a continuous Ž lament
polyester yarn. The yarn could then be sold to a carpet
manufacturer which could use the yarn along with other
inputs to manufacture carpet. The carpet could in turn
be sold to wholesalers, who could sell to retailers, who
could sell to contractors who could instal the carpet in
homes or commercial buildings. A Y2K failure in a
critical system in any one of the companies that makes
up this ‘supply chain’ could disrupt the business of other
companies in the chain, creating a ‘domino e€ ect’
( U lrich 1998: 3) up and dow n the chain. How long
would a supply chain disruption last? That is a question
to which many seek an answ er, but nobody has it!
How long can a Ž rm operate without com ponents and
materials? Given current practices in supply chain
management, e.g. J I T, some Ž rms would be shut down
within days or even hours of a Y2K -related supply chain
failure.
The Y2K threat to material and component supply
chains is very real. There may be one, tens, hundreds
or even thousands, of non-Y 2K -compliant computer
systems and embedded chips in use by Ž rms along the
supply chain. Bill Swanton of Advanced M anufacturing
Research illuminated the seriousness of the threat posed
by supply chains in stating that, ‘one little guy not taking
the year 2000 seriously could shut down the whole supply
chain’ ( J esitus 1998: 2) . Further exacerbating the problem is the general trend tow ards the use of few er suppliers, shorter lead-times ( J I T practices) and more
intensive supply chain managementÐ many organizations have few alternative sources of supply to which
they can turn in the event of a supply chain disruption.
Considering that the bulk of product and service providers that make up supply chains tend to be small or
mid-sized, the ones likely to be least prepared to deal
with Y2K ( U lrich 1998) , one can begin to appreciate
the likelihood of supply chain disruptions. The bottom
line is this: because of Y2K failures, materials and com-
ponents may not be available when and where they are
needed.
4.2. End products in use: computer hardware, software, and
machinery and supplies
Computer hardware and software are rather unique
when discussing Y2K -related manufacturing input risks,
because it is these inputs, to a very large extent, that are
at the heart of the Y2K problem. Hardware and software
inputs that are not Y2K compliant can become the
source of Y2K problems that will a€ ect a manufacturing
company’s operations and the source of Y2K problems
that a€ ect key company constituents, e.g. suppliers and
customers. M anufacturers are already experiencing
supply chain problems with these inputs, and it is not
2000 yet!
Computer hardware ( with the possible exception of
microprocessors) often comprise many components produced by numerous manufacturers. Some software products, e.g. hardware, comprise modules ( programs)
produced by di€ erent companies, and it is not unusual
for a software prod uct to pass through several suppliers
prior to purchase for use in manufacturing. Computer
hardware and software are subject to the same risk as
noted for materials and componen ts before, during and
after the year 2000. W ith com puter hardware and software there is the added risk and complexity associated
with obtaining certiŽ cation of the product’s Y2K compliance ( U lrich 1998) .
The suppliers of computer hardware and software currently used by a manufacturer should be contacted for
inform ation on Y2K compliance and to Ž nd out if, and
when, upgrades or modiŽ cations might be expected. I f
hardware and softw are are certiŽ ed by the vendor to be
Y2K com pliant, internal testing might still be advisable
to make sure that the hardware or software are compliantÐ some products have experienced Y2K failures
when tested, even though they were certiŽ ed to be Y2K
compliant. Although testing of Y2K -compliant products
may seem to be an unwarranted exp ense, if a manufacturer cannot operate because of a hardware or software
related Y2K failure, even if a vendor is at fault, the
manufacturer will likely su€ er more than the vendor in
the short run. I f other Ž rms, e.g. consulting Ž rms, are
hired to conduct hardw are and software testing, they
should provide written certiŽ cation of compliance based
on their testing.
I f hardware or software in use are demonstrated to be
non-Y2K compliant and vend ors cannot be relied on for
corrective action, a manufacturer might opt to perform
the remedial work in-hou se, but remedial work on exist-
T he Y 2K problem
ing hardware and software inputs can be expensive and
time consu ming. Beyond the time and expense or remedial e€ orts, Ž rms Ž nd that they often face the problem of
inadequate supply of human inputs ( a short age of qualiŽ ed people to do the work) and di culty procuring the
necessary parts, source code, etc. to com plete remedial
work. Here again, is the exposure to a disruption in the
supply of manufacturing inputs.
Because of the aforementioned problems with in-house
correction of Y2K hardware and software problems, and
di culties involved in getting the problems addressed by
vendors, many manufacturers have opted to replace noncompliant hardware ( or com ponent parts) and software
with Y2K -com pliant hardware and software ( M ichel
1997) . CertiŽ cation of hardware and software Y2K compliance should be mandatory. Companies are experiencing some di culty procuring new Y2K -compliant
hardware and software due to shortages. Temporary
backlogs have developed as vendors struggle to make
their hardware or software products Y2K compliant.
Here, again, Ž rms are confront ed with supply chain
risk. I t may be di cult or impossible to get the new
hardware or software in a tim ely fashion.
M achines and other types of equipment pass through
supply chains much like components and materials. For
machinery and equipment, com prising hundreds, thousands, or even millions of parts and components, many of
which will have their ow n supply chains, supply chain
risks seem to increase exponentially. I f a manufacturer
plans to purchase machinery or equipment in the near
future, perhaps to replace equipment prone to Y2K failure, the lead time for delivery and installation is quite
likely to straddle 1 J anuary 2000. Disruptions in one or
more relevant supply chains are possible, and more likely,
probable. The supply chain risks associa ted with machinery and equipment purchases should not be overlooked.
Similar supply chain risks exist in the purchase of parts
for machinery and equipment. The supply risks for
equipment and parts are compounded by the global nature of the manufacturing equipment business. M achines
and parts come from around the globe, and there are
some countries that have yet to take the Y2K threat
seriously.
A great concern in manufacturing machinery /equipment purchases, or remedial work, is the problem of
embedded chips. Of the 70 billion chips produced since
1972, as many as 20% of them may be prone to failure
because of their inability to process Y2K ( Paul 1998) .
How many of those chips are used in manufacturing?
No one really know s, but we do know that they are
widely used in manufacturing equipment where they
monitor, direct, and control equipment and processes.
As noted, embedded chips are one of the most important
sources of exposure to Y2K failures for manufacturers.
803
One manufacturer reported spending 400% more on
embedded chip remediation than on its computer systems
( Paul 1998) .
One cannot tell by looking at a piece of equipment that
it con tains an embedded chip( s) . The chips are most
often hidden from view, not for purposes of deception,
but instead to protect the fairly delicate devices.
I nquiries directed to equipment suppliers are warranted
regarding the use of embedded chips, and if embedded
chips are found to be a part of the equipment, then Y2K
compliance certiŽ cation becomes an issue and should be
secured from the equipment supplier. Herein lies a serious problem for a number of reasons. First, the equipment supplier may not be in business anym ore, so the
chip’s Y2K status cannot be determined. Second, the
chips may have been supplied by numerous manufacturers over the life of the equipment, so the supplier
may not know with certainty the status of a given chip.
Lastly, suppliers have claimed compliance and subsequent tests have produced failures, so you cannot
always believe suppliers.
I f a chip is found to be faulty, non-Y2K compliant,
there may be no way to repair it as in most instances
the chips cannot be reprogrammed ( Paul 1998,
Bylinsky 1998) . Then there is the di culty of acquiring
a replacement chip. Oft en suitable replacement chips are
not available. I f replacements are available, they may be
di cult to Ž nd and in short supply. I n some instances
when replacement chips are not available, the equipment
or com ponent containing the chip must be replaced
( Bylinsky 1998) . This can be expensive and brings the
company full circle to equipment acquisition supply
chain risk.
Supplies include items, e.g. machine lubricants,
specialty knives used in cutting up meat, form s, computer
paper and industrial cleaning products. These items
are not incorporated directly into the prod uct, but are
nevertheless necessary to keep manufacturing plants
running properly. Purchases of these items involve essentially the same supply chain risk as do materials and
components. I f some supplier in the relevant supply
chain experiences a Y2K failure, and cannot provide
the needed supplies, then companies needing the
supplies may Ž nd timely acquisition di cult if not impossible. I f a wholesaler, through whom the supply item
passes in its distribution channel, is shut down due to a
problem with a non-Y2K -com pliant computer and
cannot ship products, again companies needing the supply item may Ž nd procurement di cult or im possible.
One should not underestim ate the importance of supplies. A lack of critical manufacturing supplies can shut
down prod uction just as surely as a lack of materials or
components.
804
R. E. M cGaug hey and A . Gunasekaran
4.3. Services
Continuous and reliable services contribute to a Ž rm’s
ability to manufacture products. Services used in manufacturing can be provided in house ( internal services) or
they can be provided by external service providers.
Examples of internal services include maintenance, information systems and human resources. Examples of external services include banking, janitorial service, waste
disposal, insurance, health care and temporary labour
services ( U lrich 1998) . There are many other specialty
services that might serve manufacturing, but this list
should su ce to highlight the signiŽ cance of service
supply chain risk.
I f an internal service provider, e.g. maintenance
experiences a Y2K failure, it may substantially impair
the provider’s ability to deliver the required corrective
or preventive maintenance. New , high-tech manufacturing equipment often must be hook ed up to diagnostic
equipment ( like many new automobiles) to diagnose
problems. I f the diagnostic equipment is rendered inoperable due to a Y2K failure caused by a faulty chip
or corrupted data, it might be useless in diagnosing
equipment prob lems, and without accurate diagnosis,
remedial action may not be possible. Furthermore, the
maintenance department may Ž nd it impossible to get its
diagnostic equipment replaced, or repaired due to problems with the supply chain for that product. I f the M I S
department, as a consequence of Y2K failures, is unable
to supply inform ation needed by plant personnel to make
decisions, little manufacturing activity would be possible
because nothing moves in manufacturing before inform ation moves. I f the human resources department ( or
Ž nance or accountingÐ depending on who is responsible)
were unable to provide payroll service as a consequence
of a Y2K failure, employees might not get paid or they
might not get paid the proper amount. This could cause
much dissatisfaction in the short term, and a loss of personnel if not corrected promptly, yet the internal service
provider may be reliant on others in a supply chain to get
their service system back in order. I t should be clear that
there are supply chain risks associat ed with inputs provided by internal services. Failures in the systems of internal service providers could have serious consequences for
manufacturing.
External service providers are critical to manufacturing. Banks, e.g., are very important service providers for
manufacturers. Consider the consequences of a Y2K failure in a local bank with whom a manufacturer does all of
its local banking. A potential problem area pertains to
the accuracy of accou nt balances. I f the manufa cturer is
writing cheques on its commercial cheq ue accou nt and
the bank’s Y2K problem causes accou nt balances to be
incorrect, cheques written to suppliers, employees and
others might be rejected due to insu cient funds, when
in fact the manu facturer has adequate funds on deposit.
This could create real problems if not remedied
promptly, but the bank may Ž nd itself depending on a
softw are supplier to correct the problem. The software
supplier may have all its employees, and there may be
too few, in the Ž eld trying to correct the problem at many
banks. The manufacturer having di culty paying its bills
may Ž nd itself hostage to a supply chain over which it
may be able to exert little direct control. Spokespersons
for the banking industry, the Federal Reserve System and
politicians continue to assert the banking industry has its
house in order ( Gordon 1999) , but we will not know for
sure until 1 J anuary 2000. Given the pervasiveness of
mergers in that industry in the last decade, one would
be predisp osed to wonder if the many diverse inform ation
systems brought together by merger, after merger, after
merger, have been evaluated, corrected, tested and put
back in production. Small, local banks with less automation, few er sophisticated services, few er electronic links
and less complex supply chains may be less prone to
serious Y2K failures, and thus, might be a good backup in the event that Y2K -related failures strike the banking giants.
Y2K -related supply chain risks associa ted with tangible products tend to be rather obvious, but those arising
from business relationship s with suppliers of services tend
not to be, but they should not be overlooked. Supply
chain risks should be assessed for all pertinent relationships with external service providers. Banking was used
for an example, but other external service providers may
be equally important in maintaining normality within a
manufacturing Ž rm in the year 2000. The risk associated
with other service providers should be assessed.
4.4. Inf rastructure
The W ebsters I I , New Riverside Dictionary deŽ nes
infrastructure as ‘the basic facilities needed for the functioning of a system’ ( 1984: 360) . I nfrastructure components critical to a manufacturer, if not to all businesses,
include energy utilities, e.g. electricity and gas, other
utilities, e.g. water and sewage, communicat ions and
transportation. I t is noteworthy that some of these
could have been discussed in the previous section on
services, how ever categorization is less critical than recognition that they are suppliers of important manufacturing
inputs.
Electricity and gas are the primary source for energy
used to run manufacturing plants. Coal and fuel oil are
used, but to a lesser extent. I f the energy necessary to run
a plant is not available from a supplier due to a Y2K
failure in the supplier’s business, or elsewhere in the
T he Y 2K problem
energy supply chain, then a shutdow n is inevitableÐ
plants cannot operate without energy. Some companies
generate their ow n electricity, but then there is often a
dependence on a supplier of some sort of fuel to produce
the electricity. U nless a plant uses a by-product as a
source of fuel for electric pow er generation, which some
wood product plants do, or water-driven turbines to generate electric pow er, there is a risk of shutdown if energy
suppliers cannot deliver. Even with a secure and reliable
fuel source for power ‘self-generation’, a manufacturer,
e.g. power companies, still faces other input risks associated with generating its ow n pow er.
W ater and sewage disposal are important to all manufacturers, even if not used directly in manufa cturing processes. I f for no other reason than safety and health
consid erations, the availability of fresh drinking water
and sewage disposal is important to the op eration of a
manufacturing plant. Furthermore, water is often used
indirectly in manufacturing for purposes, e.g. cooling
buildings and equipment, moving waste products or
materials, and for increasing humidity levels to aid in
the processing of materials or components ( this is common in textile plants) . W ithout water, and a way to
remove waste water, many plants would sim ply not be
able to continue operation. W hether water supplies and
sewage disposal are provided by an external entityÐ public or privateÐ or provided internally, these infrastructure elements are at risk due to supply chain failures.
Disruptions in service could arise from Y2K equipment
failures, lack of materials or any number of other supply
chain failures. There has been much discussion of socalled ‘smart’ valves that open and close in response to
commands provided by embedded chips. Failures in the
smart valves used in water and sewage disposal systems
could shut dow n the systems, leaving manufacturers
without access to these important infrastructure elements
facin g shutdow ns of uncertain duration. I f supply chain
disruptions prevent acquisition of the chemicals necessary
for water and sewage treatment, it could lead to infrastructure disruptions that lead to manufacturing shutdow ns or slowdow ns.
Communications is the accurate transfer and receipt of
data or infor mation. Com munications is essential in
bringing about action. Telecommunications is the term
used to describe all manner of com munications support
from the telegraph, to the telephone, to sophisticated
computer to computer data communications. Telecommunicat ions media include twisted-pair wire, coaxial
cable, Ž bre optics, terrestrial microw ave, communications satellites, cellular phone systems and wireless
LANs ( O’Brian 1999) . External providers of communications support include telephone companies, cellular
phone companies, cable providers, satellite companies,
etc. M ost manufacturers have an internal communica-
805
tions infrastructure that is linked to the external infrastructure. I nternal infrastructure is usually supported
by some combination of internal service providers and
external suppliers.
I n modern manufacturing Ž rms much of the transfer of
inform ation and data takes place over electronic data
links supported by the communications infrastructure of
external providers. Human to human communication
using the telephone service of external providers is likewise quite common and necessary. A variety of communication links connect di€ erent company sites ( plant to
plant, plant to warehouse, plant to corporate o ces) and
the same, or sim ilar links, connect manufacturers with
their suppliers, customers and other external constituents.
W ithout communications support, a manufacturer could
not operate. Because most, if not all, of the communications support discussed above is now driven, at least to
som e extent, by computers or microp rocessors, Y2K failures are possible.
W hat would happen if a telephone service provider
experienced a Y2K failure due to a software problem?
Not only might it render the telephones useless, the failure would likely disrupt com puter to computer data
transmission for e-mail, EDI , electronic funds transfer,
etc. M any essential activit ies would be curtailed. I f the
telephone service provider could not get its systems up
and running in a short time, a manufacturer relying on
them may have to shut down. How would materials be
ordered? How would custom ers place orders? How would
vital inform ation needed for decision-m aking be transferred? One can only imagine what would happen should
a company Ž nd it necessary to revert to communicating
face to face and by conv entional ( snail) mail. I n the U S
this situation is further complicated by the new dynamics
of telephone service. Some years back, the provider
would have been the company that actually ow ned all
the techn ology comprising the system. Today, telephone
service providers lease lines from those that ow n them
and do not directly control much of the telephone system
infrastructure. This lengthens the supply chain that provides telephone service, further increasing supply chain
risk. I n the event of a Y2K -related failure, who is responsible for repairs? W ill parts, materials and equipment
necessary for repairs be available? How long will corrective measures take? These are relevant questions pertaining to the supply chain risks associa ted with telephone
service.
The providers of other elements of communications
support ( cellular service, satellite transmission, cable service providers) , whether internal or external, are at risk.
They all use computer technolog y somewhere in their
operations, or they interact with others that do, subsequently, they are exposed to the threat of disruption
due to Y2K induced system failures. Because manufac-
806
R. E. M cGaug hey and A . Gunasekaran
turers must rely on internal and external providers of
communicat ions infrastructure, they must consid er the
possibility that communications support may not be
available and what they might do in response.
Transportation infrastructure is critical to manufacturing. The transportation system brings materials, components, manufacturing supplies, equipment and people to
the factory and takes products to customers. W ithout
transp ortation support, nothing can com e into a plant
and nothing can leave. Railroa ds, trucking companies,
courier services, airlines, shipping companies as well as
more specialized service providers that use some or all of
these resources comprise complex transportation networks used by manufacturers. These transportation providers rely on their suppliers for petroleum products. The
suppliers of petroleum products in turn rely on the electrical pow er grid to function, which in turn relies on the
petroleum suppliers, or other sources for fuel to generate
electricity ( M anufacturing and Y2K 1998) . Even this
somewhat high-level view of the transportation supply
chain makes it quite evident that there are serious supply
chain risks associa ted with the transportation infrastructure. Consider also, that the broader transportation infrastructure supports personal transportation which allow s
workers to get to work.
Air transportation is at risk as a consequence of a lack
of Y2K compliance in air tra c control systems. I f air
tra c cannot be controlled, planes will not  y, and air
transp ort, the fastest form of transportation, will come to
a halt. There are lengthy supply chains involved with the
computer hardware and softw are and other specialized
equipment that com prises air tra c control systems. Airtra c control is not the only concern of airlines. There
are risks associa ted with on-board systems that control
various aspects of the aeroplanes, operation ( separate
and apart from navigation) , there are Y2K exposures
with freight and luggage handling systems, and there
are Y2K exposures with the systems that handle transactions pertaining to the shipment of air freight.
M ajor players in the trucking industry have developed
a substantial dependence on computers for managing
logistics. On board computers make use of global positioning systems for route planning and control, and they
facilitate communicat ions between truckers and dispatchers. I n some trucks, sophisticated computers and
microp rocessors monitor speeds, and control fuel
consu mption, suspension adjustment and braking.
Trucking is much more computerized than one might
think , and as such, at risk for Y2K failures. This, of
course, translates into supply chain risk for manufacturers who rely on trucks for transportation. The risks
exist for manufa cturers that ow n private truck  eets,
use the services of contract or common carriers, or rely
on some com bination of the two.
Railroads, shipping companies and other specialized
transportation prov iders face sim ilar risk of exposure to
Y2K -related disruptions, because they too have become
increasingly reliant on computer technolog y in one form
or another. Their exposure to Y2K failure creates a risk
of transportation service disruption for manufacturers
that rely on them. W ithout transportation support to
move needed inputs in, and to move products out, manufacturing plants would soon shut down. Given the prevalence of J I T practices within some Ž rms, a cut-o€ in
supplies due to disruptions in transportation services
could bring about shutdow ns, quickly.
4.5. Human Inputs
The last category of manufacturing inputs threatened
by Y2K failures is people. The Y2K problem threatens
the supply of human inputs in a number of ways. Some
are quite obvious while others are not. W e will describe
som e of the risks to human inputs in order to demonstrate
that it is an area that should not be overlooked by manufacturing Ž rms when assessing Y2K exposures.
P erhaps the more obvious Y2K risk pertaining to
human inputs is the availability of personnel to correct
Y2K -related problems ( de J ager 1997) . I f manufacturers
do not have their ow n personnel to address Y2K problems proactively, or after problems arise, they must
secure assistance from ou tside sources. Technica lly qualiŽ ed personnel are already in short supply ( Bylinski 1998,
M andel 1998) , and the disparity between supply and
demand is likely to grow as the Y2K deadline grows
closer, and after Y2K , when remedial action is necessary
because of system failures. Personnel shortages have
already restricted the e€ orts of Y2K consultants, and
computer hardware and software providers. Some consulting Ž rms are already turning away new business
because they cannot service existing demand. The
markets for programmers, systems analysts, experienced
project managers, hardware technicians, network technicia ns, database techn icians and other specialists have
become very competitive. People with the skills necessary
to solve Y2K problems are selling their services to the
highest bidder. Beyond the risk associa ted with acquiring
assist ance from external sources, there is an additional
risk for manufacturing Ž rmsÐ they face the risk of losing
qualiŽ ed people who might be lured away by high
salaries and other incentives. I n sum, there are very
real risks associated with the supply of human inputs to
solve Y2K -related problems.
The Y2K problem poses some not-so-obvious supply
risks pertaining to human inputs. M anufacturers are at
risk of losing valuable peop le because they are so concerned about the Y2K problem that they are literally
T he Y 2K problem
‘heading for the hills’. People are quitting jobs, or planning to do so, and seeking safe havens in rural areas
where they feel that they will be able to survive the widespread chaos they believe may be caused by Y2K .
M anufacturing Ž rms and other businesses run the risk
of losing valuable human resources to Y2K hysteria.
People must be at work to produce. M ass infrastructure disruptions may keep workers, managers, and sta€
personnel at home. Among the reasons that people may
not arrive at work on 1 J anuary 2000, and for some
period after that date, are the following: ( i) employees
may not be able to get to work due to disruptions in
electrical pow er and transportation ( imagine a large
city with no tra c lights work ing, no public transportation, etc.) ; ( ii) employees may not be willing to go to
work because they fear that their safety, or the safety of
their families, may be comprom ised by their doing so;
and ( iii) if major disruptions occu r, employees may be
so preoccupied with providing the basic necessities for
their families ( e.g. food , water and heat) , that getting
to work is not particularly important. The absence of a
small percentage of a plant’s human resources might
cause a production slowdow n, but the absence of key
personnel and/or a large percentage of the workforce,
might cause a complete shutdow n.
Another possibility, one most would prefer not to
consid er, is that loss of life will result from Y2K -related
disasters. Although one would hope that there is no loss of
life associa ted with Y2K -related disasters, it does remain
a possibility. This most unfortunate outcom e poses
another threat to the availability of human resources.
The Y2K problem poses some rather serious threats to
the availability of human resources. W ithout human
resources, plants cannot operate. This is an important
area that Ž rms shou ld not overlook. Proactive e€ orts to
help manufacturers avoid these and other possible Y2K related threats to the supply of human inputs would
seem prudent. Because manufacturers have no direct control over some of these threats, contingency planning
is advisable.
5. Sum m ary and Conclusions
The solutions to Y2K problems are not that complex
or di cult in most cases, but they are tim e consu ming
and costly. I t is the time, cost and pervasiveness of the
Y2K problem that is most vexatiou s. W ith inform ation
systems, mainfram e, PC or network based, the Y2K
problem is most often with software, so operating systems,
application programs, utilities, databases and Ž les might
require modiŽ cation or replacement. I n some instances,
hardware must be modiŽ ed or replaced. As for embedded
chips, some can be reprogrammed, but most must be
807
replaced ( Paul 1998) . A real problem with embedded
chip ( microprocessor) replacement is that chip designs
are routinely discont inued as they are made obsolete by
newer chip technology. Replacement is not an option
when replacements are not available, thus a processordriven device or machine may have to be replaced ( Paul
1998, Frautschi 1999) .
The critical question concerning Y2K problems is not
can they be solved, but instead, can they be solved in
time? Even though correcting the problem is, in most
cases, not technically di cult, it can be extremely time
consuming due to the volume of computer-based applications that process dates in some manner, and the pervasiveness of networks and embedded chips. Remedial
plans must be developed; problems must be detected;
and solutions must be designed or purchased, then implemented, tested and retested before being released for use
( J ones 1997) . Further complicating the matter is the
need to get all this done while the business continu es to
operate. Few businesses can a€ ord to shut dow n operations while remedial action is underway.
The extent to which Y2K impacts a Ž rm negatively
will depend on the extent to which com puters play a
major role in operations, the extent to which a manufacturer addresses the threat proactively, and the extent to
which a manufacturer is able to recover quickly after
Y2K failures. M anufacturers have faced, and still do in
many instances, the very real challenge of getting their
own house in orderÐ addressing internal Y2K threats.
Beyond that substantial challenge, however, manufacturers must address the challenge of external threats
posed by Y2K , perhaps the greatest of which is what
we have called the threat to manufacturing inputs.
Companies shou ld conduct a thorough analysis of their
supply chains to evaluate their risk of exposure to Y2K
failures. Pressure should be placed on all links in the
chain to demonstrate Y2K readiness. I f assurances of
Y2K readiness cannot be obtained from suppliers, then
alternative sources of supply might be sought. Actually, a
Ž rm need not investigate the whole chain. By pressuring
immediate suppliers, a Ž rm can start the process cascading back through the entire supply chain with each link
pressuring its ow n suppliers, but this approach does not
guarantee results. Other approaches might be used also.
Chrysler, Ford, General M otors, Volvo and Toyota
North America have taken the supply chain threat seriously. They have formed the Automotive I ndustry
Action Group to develop a common approach to supplier
Y2K readiness. By working as a group, they reduce the
duplication of e€ ort that would exist were they all to
approach the problem on their ow n ( AI GA Year 2000
1998) . These automotive manufacturers share a common
goalÐ assuring that their sources of supply are Y2K compliant and that costly shutdow ns or slowdow ns are
808
R. E. M cGaug hey and A . Gunasekaran
avoided. Action Group members stress to their suppliers
that they ( the suppliers) are responsible for ensuring Y2K
readiness. Similar collaborative e€ orts are underway in
other industries as well ( Zerega 1998) .
Contingency planning ( e.g. stock piling of materials
and components, identiŽ cation of alternative sources of
supply, etc.) should be part of a manufacturer’s strategy
to protect itself against the possibility of costly shutdow ns
due to supply chain disruptions. Pressuring suppliers to
develop contingency plans may help, also, because wellconceiv ed contingency plans on the part of suppliers
could minimize disruptions dow nstream.
The Y2K threat to manufacturing inputs is real. Y2K
is not far away. I f a company has not yet evaluated its
exposures in this important area, now is the time to start.
Examining the threats and developing plans to eliminate,
avoid or minimize them should be high on the priority
list of manufacturers because, without inputs, they cannot operate.
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