94 DAYS AND COUNTING
Byline: Adam Blair
New York — It’s not quite as easy as spraying a giant can of Raid, but most experts think the millennium bug is pretty well under control.
Virtually any kind of technology, from mainframe computers to small appliances with embedded chips, could be affected by Y2K — though most observers believe the actual percentage of failures will be fairly low.
Where Y2K can cause trouble, however, is in global connections that have become standard practice in all kinds of industries. For instance, apparel’s heavy reliance on overseas manufacturing could spell trouble if the Y2K problem affects international communications, customs, transportation and source countries’ infrastructures.
And apparel manufacturers and retailers face several other Y2K issues:
Whether to stockpile products in the next three months as a hedge against post-Jan. 1 slowdowns and shortages.
The delayed effects of Y2K problems throughout 2000, especially on “hot” dates such as Feb. 29 and Dec. 31, 2000.
Ripple effects in budgets, merchandising and inventory systems from computers providing inaccurate information, rather than shutting down completely.
On the plus side for the apparel industry, many garment factories in developing countries are Y2K-compliant because they use no computers or automated equipment at all.
A leading Y2K expert believes stockpiling some products would be a prudent move, although not without problems.
“Faced with the notion that productivity and shipments from the Far East might be affected [by Y2K], and that perhaps in the first few months of 2000 there will be a reduced flow of inventory, one way to accommodate is to buy product in the next few months to make sure it’s here” by Jan. 1, 2000, said Peter de Jager, president of the consulting firm de Jager & Co. Ltd., Toronto. “In other words, relax your just-in-time inventory levels.”
De Jager acknowledged, however, that this might not be practical in the apparel industry. Importing more products early “means a company must incur the cost of inventory, which can be significant. In addition, because the industry has been practicing JIT [just-in-time inventory] for a while, there’s not a lot of storage area, in stores or warehouses.”
Most retailers and manufacturers told WWD that ordering extra stock ahead of the millennium rollover was not part of their corporate policy, but that it could occur on a limited basis.
“We’re not stocking up on extra product to any significant degree,” said Glenn Morgan, chief financial officer of apparel manufacturer Hartmarx, Chicago. “One of our operating companies may decide to get things a couple of weeks early, but it’s not a companywide strategy.”
“I know that, come the end of the year, I’ll probably order more product to be on the safe side, especially from domestic suppliers with shorter lead times,” said Art Quintana, senior vice president of the supply chain at The Sports Authority, Fort Lauderdale, Fla. “If that’s not the right thing to do, and we have more inventory than we need, there could be some potential for markdowns” next year.
If Y2K causes only minimal disruptions to apparel supply chains, retailers who stockpiled products would have to sell the excess inventory. If that occurs, “they’re not going to continue to order at the same levels as last year,” said de Jager. “The ideal answer would be to act like a good corporate citizen and reduce shipments by, say, 15 percent, and work their way through the inventory that comes in, but that’s not the way garment people think — they think for today.”
If a retailer severely curtailed orders in the first quarter of 2000, “ironically, companies that have done the work and were able to supply during this period, could be the ones that will be punished,” said de Jager.
The nature of apparel retailing also makes stockpiling products difficult.
“What if retailers decide they’re going to stockpile all that lime green silk stuff, and they find customers don’t like it?” said Cathy Hotka, vice president of information technology at the National Retail Federation, Washington. “They would have to spend extra to store it and might not ever be able to sell it.”
Despite the arguments against it, de Jager believes companies are stockpiling, and points to economic changes in the transportation industry.
“Call any shipping container company and find out if they have increased their shipping costs to North America for the next four months. The answer is yes — prices have gone up 30 to 40 percent. It’s costing significantly less to send goods back to the Far East, and some companies are even sending containers back empty.”
A Year-Long Problem
Like many others, the apparel industry has been focusing its attention on the Jan. 1 rollover. However, many experts believe Y2K’s impact will continue through at least the third quarter of 2000. And 2000 is a leap year, so computers may hit another “hot date” on Feb. 29, which some computers might mistake for March 1. Another potential trigger date is Oct. 10, 2000, the year’s first eight-digit date.
“People have been dividing the world into two universes, before Jan. 1, 2000 and after,” said the NRF’s Hotka. “But we think the apparel world ‘D-Day’ is March 1. The Feb. 29 problem is the date that’s giving the most problems in testing — after that, people should be able to exhale.”
Apparel’s traditionally long lead times could delay the initial impact of Y2K for weeks or even months. “One scenario is that a shipment of blouses goes to the foreign country port that’s closest to the factory, but that it can’t get out of there,” said Hotka. “People are ingenious, they’ll take it to another port, but it could be delayed.
“We think it’s a possibility that everything is fine on Jan. 1, but by March 1, things may be sluggish — shipments could be delayed, and people might be inconvenienced,” she added.
Computer programs that count the number of days in the year could run into trouble later in the year. If no one has “informed” the computer that 2000 is a leap year, it will reach 365 days and mistake Dec. 31, 2000 for Jan. 1, 2001, beginning the new year one day early.
Information technology consulting firm GartnerGroup, Stamford, Conn., said Y2K-related problems could occur in 2000 due to frozen applications running for the first time during the year; non-Y2K-compliant packaged software being released to the market and businesses accessing noncompliant archived data and running it on compliant systems. Working out these types of bugs could take the entire year, according to the firm.
On the other hand, “given the lead times in apparel, people have been taking orders for 2000 and have made their buys for next year,” said apparel industry consultant Janet Murphy Simon, president of Ogden Associates, Morristown, N.J.
“This would tend to give a bit of assurance, because companies would already be seeing problems, and there have not, to my knowledge, been major Y2K problems reported,” she said.
“We’re already in September, and we’re placing orders for shipments in 2000,” said Sports Authority’s Quintana. “We would already have seen impacts from Y2K.”
Retailers like J.C. Penney Co., which has been working on Y2K remediation and contingency plans since 1995, are playing it safe. As one element of its Y2K program, Penney’s extended its “peak period,” when it bars any new program installations to its mainframe computer. The peak period normally runs from Nov. 1 to Jan. 1; this year, it will start Friday and end Feb. 1, 2000.
“We extended the peak period just for this predictable event, so we have more time to allow the mainframe to remain stable,” said Shirley White, manager of the year 2000 coordination group at the Plano, Tex., retailer.
Third World: Good News, Bad News
The apparel industry’s reliance on factories in developing countries is a good news/bad news story in terms of Y2K. Some factories are Y2K-compliant, not because their information technology staffs have spent time and money fixing the problem, but because there’s no problem to fix — they use no automated technology.
The NRF’s Hotka confirmed that low-tech apparel manufacturing is a reality in many overseas countries. “We thought it might have been apocryphal that some plants are manual, with no computers anywhere,” she said. “But there are a number of plants, in China for example, where the ladies are using foot-pedal sewing machines. There’s not a Y2K question about those factories — the questions there are about things like transportation.”
Both internationally and domestically, “apparel manufacturing is still not heavily automated compared with other industries,” said Murphy Simon. “That’s something of a security blanket — reverting to a lower level of automation won’t be as catastrophic because there aren’t as many embedded computer systems.”
Partly due to a lack of reliable information about the Y2K readiness of foreign countries, it’s difficult to predict the number and extent of sourcing problems that apparel manufacturers and retailers are likely to face.
“Anything associated with international issues is a bigger risk,” said Murphy Simon. “That applies to companies one would be importing product from, as well as the countries’ infrastructures and government agencies with a bearing on the exporting process. The word is that, particularly in Third World countries, there could be a relatively large amount of problems.
“But there are no blacks and whites in the Y2K arena,” Murphy Simon added. “Many of these same Third World countries are also less dependent on technology. In addition, they have to deal with [non-Y2K] power outages and infrastructure problems, which keeps them accustomed to manual ways of dealing with problems.”
“It’s a given that information about international readiness is unavailable,” said the NRF’s Hotka. She believes no news is not good news. “I agree with President Clinton’s Y2K czar, John Koskinen, when he says a lack of information means something is bad. If people are in good shape, they’ll tell you about it.”
To deal with this data deficit, “in the last six months apparel companies have been sending their own staff people overseas, to physically visit suppliers and manufacturing plants,” said Hotka. “There’s no substitute for sitting with people and seeing the whites of their eyes.”
“The biggest area of uncertainty is with foreign contractors,” said Morgan of Hartmarx. “The level of response and information from foreign sources is less than what we’re getting domestically. However, we deal with such long lead times that I wouldn’t characterize Y2K in this area as mission-critical. And we’ve satisfied ourselves as to the readiness of our significant suppliers.”
“If there are any kind of ‘cautionary flags’ about Y2K, it’s that the rest of the world is lagging behind the U.S. in remediation efforts,” said Harry Roberts, chief information officer of Boscov’s Department Stores, Reading, Pa. “But much of what goes on in other countries is a fairly manual process, so we shouldn’t see too much ripple effect.”
The Human Touch
Sourcing issues could be further complicated if affected computers provide incorrect information rather than simply shutting down. In apparel retailing, such faulty data could affect budgets, merchandising and inventory programs.
“Any programs that trend inventory levels could conceivable be thrown out of wack by Y2K,” said de Jager. “These programs are all about calculating a span of time, and when you’re doing inventory analysis, that’s what you’re doing. All of a sudden, a problem can spin out of control on you — Wal-Mart could order 50,000 blouses for one store, and the manufacturer could gear up to make them.
“There should be ‘reasonableness control;’ some human oversight of automated systems,” he added. “Someone needs to ask, does it make sense that we’re ordering 50,000 blouses for a store that only sells 100 a week?
“My advice is, don’t believe everything you hear from your computer, and double-check the instructions it’s giving you,” de Jager said. “It could say a garment has been in the store for 100 years, so mark it way, way down.”
Such surveillance is crucial, de Jager believes. “When [inventories] start getting out of wack, the store or chain can lose credibility with the customer, which is one of the more difficult things to manage,” he said. “This is one of the only things that are significantly at risk in the apparel industry.”
Store-level Y2K problems are more likely to affect smaller retailers, experts told WWD, and the most likely area to be affected is the point-of-sale system. Susan Travali-Halley, MIS manager at Alfred Dunhill North America, New York, admitted that insuring the chain’s POS systems were ready was one of the most difficult parts of its Y2K efforts.
“The software was proprietary, and it had been written in-house,” she explained. “We also had to do all the testing in-house. We had to take that responsibility on ourselves — it’s an extremely important system.”
The retailer has all but completed its Y2K preparations, she added.
For retailers smaller than Alfred Dunhill, which has only 12 stores in the U.S. — the bulk of its stores is overseas — “If they have no IT [information technology] staff, they may not start doing anything until the world turns upside down on Jan. 1,” said Bryan Amaral, president of ImageWare Technologies, Atlanta. “They may have spent $6,000 on a system five years ago and assumed it would last forever, or they may not know what questions to ask” about dealing with Y2K.
With Jan. 1 less than 100 days away, companies in this position should focus on contingency plans and making sure they have “a manual fallback,” said Amaral. “If you turn on the computer Jan. 1 and it doesn’t work, make sure you’re able to teach your employees to use a cigar box as a till and hand-write a receipt.”
In general, most sources agreed Y2K problems posed less threat in the apparel industry than they do in other industries. “If there’s a Y2K problem with an apparel product, it won’t cause injury to anyone,” said Morgan. “In that sense, we’re in better shape than a chemical company or an electric utility — the worst that happens is [the product] doesn’t get made or delivered on time.”
Murphy Simon sounded a more positive note about the apparel industry’s readiness for whatever the Millennium Bug could dish out.
“In retail and in apparel, contingency planning is, to a certain extent, part of the business,” she observed. “We’re somewhat accustomed to this supplier not coming in on time, but getting things to the store, no matter what. There’s a very robust and complex infrastructure for retail distribution, and companies have multiple levels of fallback. It’s really the nature of the business to recover from the unanticipated.”
Even given that, Y2K’s global nature — in both senses of the word — could make it the biggest challenge the industry has faced. Penney’s, for example, based its extensive Y2K preparation on the retailer’s existing contingency plans for business continuity during natural disasters of every stripe.
“The difference with Y2K is that this is the only time every aspect of our business has been affected,” said Penney’s White. “In a natural disaster, there’s only one geographic area that’s affected. This is the first time that I’m aware of that we’ve had something this large. The key word for everything [with Y2K] was volume.”