Y2K AND BEYOND

COLE CORBIN

While everyone hopes disruptions and computer failures caused by the millennium bug will be short-lived, many retailers, wholesalers and industry associations are looking beyond Jan. 1, 2000 at the long-term effect of the Y2K problem.

Distributors have turned much of their effort from upgrading their computer systems to developing contingency plans that would smooth the transition into the next century. In addition, companies are also attempting to safeguard themselves against possible litigation stemming from the year-2000's effect on their own operations.

"The industry is putting a lot of resources behind its efforts to [head off the Y2K problem]," said Timothy M. Hammonds, president and chief executive officer of the Food Marketing Institute, Washington.

The FMI has joined forces with the National Retail Federation, Washington, to create a year-2000 contingency planning report that "is intended to be a document that says what elements of a good contingency plan for dealing with Y2K problems would be," according to Hammonds. The "Year 2000 Contingency and Business Consulting Planning: Survival Beyond Century Change," was released this month.

The FMI and the Grocery Manufacturers of America, Washington, are also planning to hold regional forums this summer on contingency planning for Y2K problems, according to Hammonds. These meetings will "deal with specific problems, including those of small and single-store companies who would have a different kind of contingency plan than would [a larger retailer]," he added. Dates and locations have not yet been determined.

Fred Knotek, director of the Year 2000 Program at Supervalu, Minneapolis, said the wholesaler is currently preparing its own contingency plans. "One scenario we are looking at is if we have difficulty in taking orders from retailers," he said, adding that the wholesaler is exploring issues such as "what type of steps are we going to take and what type of possibilities will be available to us."

Gerland's Food Fair, Houston, is planning to use the collective experience of the industry associations in preparing its own contingency plans. "We would send some of our people [to the forums]," said Kevin Doris, president and CEO of Gerland's. "We will use what they are using as a benchmark to compare to our own contingency plan."

"We realize the grocery industry is in pretty good shape," said Pat Cox, Y2K specialist at Spartan Stores, Grand Rapids, Mich. "We're communicating with the Food Marketing Institute every day, and they're building industrywide compliance for contingency planning."

The FMI is also running an on-line forum for participating retailers with questions concerning the Y2K issue. "Right now we have almost 80 retailers participating, and they can pose questions to FMI and other retailers about the Y2K issue," said Carole Throssell, director of media relations at the FMI. The forum can be accessed at the FMI Web site, www.fmi.org.

Despite all preparations, many Y2K experts admit that they cannot predict with certainty exactly how many problems will occur or how severe they will be. As in many other industries, supermarkets rely on a complex, interlocking supply chain composed of thousands of companies, with products coming from numerous countries around the world. In the worst-case scenario, year-2000 shutdowns in one area will cascade quickly into other areas rather than being contained.

"I hope the effect is we have our main disruption in January and that we get mini-disruptions after that for a period of a couple of weeks," Cox said. "Then I hope it settles down by spring."

The level of uncertainty is also coupled with worries about legal action. "Litigation is a very real fear," said Hammonds. "There clearly are law firms out there planning on getting a large portion of their income next year from Y2K lawsuits."

To protect themselves, companies need to document as much of their year-2000 work as possible. If a company is sued because of a business-interruption issue, "it's not necessary to be perfect, but companies must show that they took all reasonable steps [to deal with Y2K]," said George Takach, an attorney who co-chairs the Y2K services group at the law firm of McCarthy Tetrault, Toronto. Companies should also consider having their computer systems tested by a third-party company, said Takach. "They can look at the audit and testing processes, which can help demonstrate diligence," he said. "Companies need to be testing toward some type of external standard, so they can show their testing is first-rate."

"We support legislation that would limit liability," said the FMI's Hammonds, noting that the association supports limiting damages "to the actual costs and not allow for punitive damages."

Another major area of concern is whether small companies have the financial and manpower resources to deal with the year-2000 problem.

Wholesaler Supervalu is offering a financial package to independent retailers it services, according to Knotek. "We have put together a financing package, at low-interest, available for our independents to deal with Y2K," he said. The wholesaler established the offer in an effort to help its independents become year-2000 compliant without the fear of going bankrupt.

A bill signed by President Clinton April 6 sets up a $500 million program to help small businesses fix their computers before the millennium bug bites. The Small Business Year 2000 Readiness Act, which was passed by Congress last month, will help businesses around the nation buy new computers or upgrade their current systems.

The long-term view is not all cloudy. Supervalu's Knotek said the Y2K issue has not necessitated putting off other IT projects. "I would tend to say at Supervalu, it has not materially changed our focus on information technology in the longer term," Knotek said. "We continue to work on strategic IT initiatives in parallel with our Y2K issues."

Gerland's Doris said the retailer is using the year-2000 problem to facilitate many upgrades it had scheduled. "Some of the items that were not compliant were items that we had marked for upgrade. In one sense, we turned the issue into an opportunity."