The Year 2000 Problem in Manufacturing

Abstract

1. Introduction

1.1 The New Millennium
1.2 The Y2K Problem in Manufacturing
1.3 Overview

2. Embedded Chips in Manufacturing Systems

2.1 Overview
2.2 Classification of Manufacturing Systems
2.3. Automated Process Control Systems
2.4 Y2K in Automated Control Systems: Areas of Concern
2.5 Fixing Y2K Problems in Automated Control Systems

3. Supply Chain Reactions and Just-in-Time Manufacturing

3.1 Overview
3.2 Supply Chain Reactions
3.3 Just-in-Time Manufacturing
3.4 Finding Solutions: Managing Supply Chain Problems and Y2K
3.5 The Customer Perspective

4. Automobile Industry

4.1 Introduction
4.2 Source of the Problem
4.3 Waking Up to the Reality and Finding Solutions
4.4 Automobile Industry Conclusion

5. Chemical Industry

5.1 Introduction
5.2 Reasons for Concern
5.3 Y2K Safety Concerns: Chemical Industry Case Studies
5.4 Impact of the Chemical Industry
5.5 Trying to Fix the Problems

6. Progress Made Thus Far

6.1 Where Does Manufacturing Stand Today?
6.2 Why is Manufacturing Lagging Behind Some Other Sectors?

7. Potential Benefits of Y2K to Manufacturing

7.1 System Upgrades
7.2 Increased Communication Between Departments
7.3 Strengthening Relationships With Business Partners
7.4 Better Quality of Supplies 
7.5 Intra-Industry Cooperation
7.6 Higher Demand for U.S. Products

8. Summary

Abstract

1. Introduction

1.1 The New Millennium

1.1.1 Economic Impact

1.2 The Y2K Problem in Manufacturing

Manufacturing is one of the most vital industries in the economy as it is the industry most directly responsible for the actual production of consumable goods. If the manufacturing industry is caught unprepared by the Y2K bug, a tremendous supply shock could cause massive shortages of basic necessities such as food, gasoline, and healthcare products among other things. Relative to other industries, manufacturing firms were slow to address the enormous problem because factory managers were generally isolated from the company officials who made technology decisions. Most U.S. manufacturers have yet to take a plant-wide assessment of software and embedded systems and the impact of potential failures. Only when this preliminary work is completed can they begin work on actually fixing the problem.

1.2.1 Embedded Chips and Supply Chain

1.2.1.1 Embedded Chips

1.2.1.1 Supply Chain

1.3 Overview

2. Embedded Chips in Manufacturing Systems

2.1 Overview

2.2 Classification of Manufacturing Systems

In modern factories, manufacturing systems are responsible for controlling virtually every aspect of the manufacturing process. Tava Technologies of Englewood, Colorado, the world's largest systems integrator of process control and automation systems for manufacturing and process industries, and a leading provider of Y2K solutions for factory floors, has prepared a general classification of the manufacturing systems for its clients. According to this classification, a typical manufacturing plant consists of three general system structures that support its operation: manufacturing control systems, facility management systems, and external dependency systems. Unfortunately, all of these systems contain embedded chips and are liable to suffer from Y2K-related problems [5].

2.2.1 Automated Process Control Systems

2.2.2 Facility Management Systems

2.2.3 External Dependency Systems

Of these three systems, the automated control systems are, by far, the most vital to the actual process of manufacturing. Unfortunately, they also contain the highest concentration of embedded chips. In fact, about 75% of all embedded chips present in most factories are believed to be in these kinds of systems [6]. Thus, we will focus our discussion of Y2K problems involving embedded chips to automated control systems, though instances of their impact on other systems will be mentioned when appropriate.

2.3. Automated Process Control Systems

Let us examine the composition of an embedded system. The most fundamental unit within the system is an embedded chip that converts analog signals from measuring instruments into digital information that is then passed up the line for control purposes [7]. Embedded chips rarely operate independently; they form the building blocks of embedded systems. Embedded systems consist of embedded chips integrated with numerous layers of system software, application programs, hardware and machinery, thereby making them integral components of more sophisticated control systems. Embedded systems are, in turn, local components of more complex embedded systems, often with some kind of server control and network connections. At the highest level is the entire process control system. To complicate matters further, these complex, distributed manufacturing systems are often closely linked to plant business and financial processes and other external management systems. For example, Figure 1 below shows us what a Programmable Logic Controller (PLC) really looks like:

Figure 1.
Source: Tava Technologies Inc.

Automated control systems control virtually every aspect of the production process. They are used in scheduling and managing of events on assembly lines, and scheduling and monitoring of preventive maintenance. They are also used in ordering raw materials, managing inventories, tracking the flow of materials and products through the production process, recalibrating instruments, analyzing the performance of different product lines, and designing and configuring products.

2.4 Y2K in Automated Control Systems: Areas of Concern

The millennium bug can affect any manufacturing-related process that is measured over time, and even some that are not, but are integrated with systems that are date-sensitive. Since scheduling drives most manufacturing, practically all the processes listed in the previous section are susceptible to Y2K related problems. In a typical plant, time-and-date information is used for as many as 50 different purposes on the shop floor, ranging from product-data tracking and bar coding to scheduling and monitoring of preventive maintenance, and instrument calibration. Experts estimate that 60% to 70% of all manufacturing systems could be affected to some degree by Y2K related issues [8]. Further, about 85% of all Y2K related problems in the business as a whole are expected to occur on the plant floor, which makes factories the largest potential source of Y2K disasters for manufacturing firms [9]. As an example, in a chemical plant, because of the precision and inter-dependence of process controls, if a single temperature sensor in the complex chain of measuring instruments malfunctions, the composition of the ingredients in a product may be drastically altered, if any product comes out at all [9].

2.4.1 Four Areas of Concern

2.4.1.1 Storage

For example, a number of smart process control sensors have the ability to track when they were last calibrated, and accordingly may issue a signal or shut down if they operate past their scheduled recalibration date. Suppose a device is last calibrated on 3/6/99 and this date is stored in its calibration memory. During the Y2K rollover, the sensor may decide that it was last calibrated 99 years ago and force itself to shut down [11].
 
 

2.4.1.2 Transfer

2.4.1.3 Output

2.4.1.4 Calculations

The implications of Y2K-related problems on the manufacturing plant as a whole are difficult to determine; a wide variety of views exist on this issue. While it is unlikely that the Y2K rollover will produce no glitches at all (a scenario known as a "non-event"), it is equally unlikely that the plant will come to a crashing halt or that the machinery may go completely haywire [12]. Performance, however, will certainly get degraded. According to Dan Miklovic, an analyst with the Gartner Group, the most likely scenario is one in which plant equipment and systems will enter a fail-safe operating mode - similar to the situation when a car fails in its internal diagnostics and enters a "limp-home" mode [6].

2.5 Fixing Y2K Problems in Automated Control Systems

Y2K problems in embedded systems can be fixed using a four-step approach: compiling an inventory of embedded chips and associated software that contain date references, identifying non-compliant systems and equipment, fixing or replacing non-compliant systems, and testing systems for compliance after any changes have been made.

Before we take an in-depth look at these four steps, it is important to note that fixing Y2K problems in embedded chips is much more complicated than fixing date references in the associated software present in embedded manufacturing systems because the process cannot be automated and is often tedious. For this reason, we shall focus our discussion on embedded devices in this section. Before we do that, however, we shall briefly consider the issue of associated software.

Conversion tools for the associated software in manufacturing systems tend to be more advanced and are comparable to those available for the remediation of conventional mainframe systems, such as information systems used in accounting and sales. Standard techniques used in remediation, include data "filters" or "bridge" programs, "pivots" or "windowing" mechanism, and date expansion algorithms.

There are certain tricky aspects, however, that arise in the case of manufacturing system software, which are not typically found in conventional systems. While these solutions may work for most conventional, COBOL-based systems, as much as half of standard manufacturing software packages are proprietary and are based on non-COBOL platforms. Further, these software systems are not rigorously managed and do not have well-documented control libraries, database managers, version management, or change control. To compound the problem, few manufacturing software packages are used off-the-shelf. Most packages are highly customized and uniquely configured to meet the specific needs of the company. These changes are rarely documented and the company may no longer employ the programmers who implemented them [6]. Thus, it is virtually impossible to develop a standard fix for these software packages.

Finally, even though individual systems may be checked and fixed, it is extremely difficult to estimate all the potential problems inherent in the various interconnections between systems. This process is usually done by visually inspecting thousands and thousands of lines of code by skilled coders. It can typically take three coders two weeks to examine a million lines of code, which may contain as many as 50,000 date references [9]. Certain solutions providers, however, have developed ways of mapping the flow of dates and protocols through interconnected systems. For example, Applied Microsystems has invented a device that can identify certain types of date information serial transmissions, which is the most common form of data transmission between automated control systems [11].

2.5.1 Inventorying and Identifying Non-Compliant Systems

If the device is date-sensitive, then the engineer has to determine whether it is Y2K compliant, which can usually be done by contacting the manufacturer. The make, model number, batch number, serial number, and other pertinent data can be used to check if the device is compliant. While this process may sound simple enough, it is often complicated because the manufacturers of the device may have changed names, locations, or may no longer be in business. Often, similar devices may have different Y2K compliance attributes if they were manufactured in different batches [8]. If this is the case, the engineer will probably have to decide for himself whether any Y2K problems may occur with the device by running simulation tests on it, or he may just replace the chip, if it is not worth his time to test it.

Once the engineer has identified a device to be non-compliant, he has to decide whether to fix it or replace it. Most low-level chips have their logic directly inscribed in their ROM and cannot be reprogrammed, in which case, they will have to be replaced. Unfortunately, most embedded chips are not socketed for easy removal and have to be removed and replaced with a soldering gun [4]. To further complicate matters, replacement chips are generally not available for systems that are more than three years old, since manufacturers are always introducing newer models [4].

If the devices can be reprogrammed, a whole host of other problems crop up. The low-level code is often written in an outdated proprietary language. Compilers, decompilers, and programmers for these languages may not be available or may be difficult to find [4]. There are, however, some automated tools to make this task a little easier. For example, Tava Technologies, as part of its comprehensive Plant Y2KOne package, offers a program that can read the "ladder logic" directing PLCs, and convert all two-digit date references to four-digit equivalents [9].

Some big manufacturers of industrial controls and automation equipment have come to the aid of manufacturing companies. Companies like Foxboro Co, Elsag Bailey Process Automation, Honeywell Co., and Rockwell Automation, have started offering tools and databases to their customers to help them determine the compliance status of their devices, and courses of remediation. Some of these vendors, like Foxboro, have even made their testing facilities available to clients to for equipment testing [8]. Unfortunately, most vendors are not as well prepared. When a manufacturing company approaches its vendor for a patch or a replacement, the vendor may not have a compliant version ready or may not have cataloged the compliance standards of older models. Even worse, some vendors may certify devices to be compliant without having adequately tested them.

2.5.2 Fixing Strategies

Since most companies have limited resources available, the manufacturer should prioritize non-compliant systems based on the severity of their impact on the production process. Mission-critical systems - the failure of which may have a high impact on production - should be targeted first.

For large companies with several factories, a piecemeal or phased approach to fixing all the facilities together is not effective. Instead, the company should choose pilot sites - two or three typical factories - and implement Y2K compliance at these test sites. The effectiveness of the methods and other useful information collected from the experience can be used to implement a cohesive plan across the company [6].

2.5.3 Testing

Detailed test criteria should be developed after closely analyzing the locations and functions of dates in the system. The systems should then be tested at various levels for various simulation conditions, including the actual rollover itself (December 31, 1999 to January 1, 2000), from September 9, 1999 (9/9/99) to September 10, 1999 (9/10/99), from February 28, 2000 to February 29, 2000 and March 1, 2000 (leap year dates), from March 31, 2000 to April 1, 2000 (the first 31-day month after February 29), from April 30, 2000 to May 1, 2000 (the first 30-day month after February 29), and other such high-risk date transitions [13].

Testing for compliance with manufacturing systems is particularly difficult because most firms cannot afford to simply shut down production lines. Some companies may be able to test their systems during off-peak hours or may buy backup equipment, but they rarely have spare, identical assembly line to simulate the test. It is much easier to dry-test conventional IT systems on an isolated computer [14]. If a company does decide to close its factory doors to perform Y2K testing on its machinery, the company's business could suffer dramatically. It would have to stockpile sufficient quantities of raw materials and components so that the manufacturing process can be resumed immediately after testing is completed [13]. Finally, some Y2K problems may not be identifiable in this simulated environment that is created by setting the clock ahead.

To conclude this section, we would like to remark that there really is no easy fix for embedded systems. Resources are limited, the problems are numerous, tools available are primitive, and plants just do not have the luxury of shutting their doors while they fix their systems. There is, however, another problem that manufacturers face in their battle against the millennium bug. Supply chain issues are another major source of concern in terms of Y2K preparedness. The next section takes an in-depth look at these issues.

3. Supply Chain Reactions and Just-in-Time Manufacturing

3.1 Overview

For many manufacturing companies, unreliability of suppliers is the most important Y2K challenge. For the purpose of this paper, we will focus primarily on suppliers, but we must note that the Y2K compliance of other business partners are also important issues to be considered by most companies. Further, there may be certain Y2K problems that arise from customers who purchase the goods that the manufacturer produces. Customer-related Y2K issues will be briefly described later.

3.2 Supply Chain Reactions

3.2.1 What is a Supply Chain? Why is it an Issue?

While most companies rely on suppliers, manufacturers depend upon a complex hierarchy of suppliers called a supply chain. The success of manufacturing companies at the top of the hierarchy rides on the dependability of those players at a lower level. If one supplier in the chain of suppliers fails to be Y2K compliant, a chain reaction could potentially disrupt the business of any company connected to the chain. Thus, the challenge for manufacturers reliant on supply chains is to maintain operational stability by ensuring supply chain continuity into the year 2000 and beyond. Figure 2 below is an illustration of a typical supply chain:

Figure 2.
Source: Y2K in Manufacturing Presentation, Dartmouth College, Bhaidani, Grewal, Vasudev.

3.2.2 Supply-Chain Continuity is Jeopardized

3.2.2.1 Suppliers Are Small

3.2.2.2 The Asian Connection

Figure 3.
Source: Gartner Group Survey.

To make matters worse, the survey also says that only the large companies in many Asian countries have undertaken any Y2K efforts. As part of the same survey, the Gartner Group estimates that 50% to 66% of companies in most Asian countries will experience at least mission-critical failure, while only 15% of U.S. companies will do the same [3]. At the World Economic Forum held at Davos, Switzerland in early February, 1999, Scott McNeally, the CEO of Sun Microsystems warned companies that they should buy as many computers as they needed in 1999, because the company may not be able to manufacture any computers at all, beginning the year 2000. He attributed this problem to supply chain failures involving Asian vendors, who he said are 3 years behind U.S. companies in fixing their Y2K problems [19].

3.2.3 The Potato Chips Case Study: Why Large Manufacturers Are Concerned

Thus, in the process of the purchase of a bag of potato chips, there are potentially hundreds of computer-controlled systems that all have to work without glitches. Since all of the systems use dates, they are all potentially susceptible to the Y2K problem. This example highlights the difficulty of the task faced by manufacturers. The dependency chain involved in manufacturing a good can be enormous, but each manufacturer controls only a small part of the chain. Consider the case of Boeing, which had a supply chain failure in 1997 that caused the production of 747 and 737 planes to be suspended for one month. The company lost $1.6 billion worth of business as a result [16]. Similarly, the August 1997 strike of United Parcel Service (UPS) employees serves as a strong reminder of the degree to which businesses can be disrupted when an important business partner is unable to provide the services required to maintain normal operations. The strike resulted in substantial losses in revenues for companies reliant on UPS and several companies were reported to have temporarily laid off workers because they were not receiving the goods and services required to keep their factories running and generating revenues [21].

3.3 Just-in-Time Manufacturing

3.3.1 What is JIT?

JIT production is one of the most significant changes in modern manufacturing since World War II. Developed by the Japanese, this production management technique was adopted by some U.S. manufacturing companies in the early 1980s. Today, practically every manufacturer uses at least some elements of JIT in its production systems [18].

JIT manufacturing, is by definition, an integrated set of activities designed to achieve high-volume and top quality production using minimal inventory levels. In these systems, firms reduce inventory-carrying costs by having smaller quantities of raw materials and components delivered more frequently, sometime several times in the same day, to the point in the assembly line where they need to be used. The JIT model is based on the logic that nothing will be made available until it is actually needed [18]. As soon as one batch is used up, the next is "pulled" into its place. Thus, parts arrive at the next workstation "just in time" and are completed and move through the production process quickly.

3.3.2 Why is JIT so Important?

Most important, JIT manufacturing increases the degree of the company's dependence on suppliers transporting and delivering the right quantities of raw materials and components to the right locations at the right time. Disruptions in the receipt of even a single component at any point in this chain of dependencies can quickly affect the entire production process, crippling the whole plant.

3.4 Finding Solutions: Managing Supply Chain Problems and Y2K

3.4.1 Identifying Suppliers

After compiling this inventory, the manufacturer prioritizes suppliers based on business criticality, considering factors such as the severity of a supplier's failure to deliver materials and the timing of the impact (how long the production process can operate without the supplied goods). Other business risks such as legal and external reporting risks, safety risks, and service fulfillment risks could also factor in the decision [15].

3.4.2 Auditing Suppliers

3.4.2.1 Internal Audit

3.4.2.2 External Audit

3.4.2.3 Sharing Information

3.4.2 Working With Suppliers to Achieve Compliance

3.4.2.1 Dialogue With Suppliers

3.4.2.2 Demanding Warranties

3.4.2.3 The Hands-off Approach

3.4.3 Contingency Plans and the Inventory Blip

The most common contingency plan that manufacturers are adopting is to stockpile adequate quantities of important parts as a buffer against unpredicted disruptions in their supply chain. This form of supply chain insurance is being adopted by 38% of U.S. companies, according to a January 1999 survey by Cap Gemini, a big European software firm [1]. For example, Xerox Corp., plans to set aside one month's supply of all the parts required to produce its printers and copiers, four times the usual inventory level for some of their items [1].

This stockpiling of inventories is expected to result in an "inventory blip" - a macro-economic rise in the level of inventories - that could boost GDP by 0.1% in 1999, but cause it to drop by 0.3% in 2000 [1]. While this strategy may appear to be practical, most manufacturers cannot really afford to build up large quantities of inventories. Just-in-Time manufacturing has reduced the need to store large levels of inventories, driving most companies to reorganize their shop floors because they no longer require the space originally needed for boxes and parts [1]. As a result, most companies do not have enough storage space to stockpile inventories and will need to rent out expensive warehouses.

3.5 The Customer Perspective

First, many customers may demand strict Y2K compliance standards if they are to continue to maintain their current relationships. The manufacturer may have to spend considerable sums of money to get an independent assessor to certify its facilities as compliant [21]. Second, because of contingency plans, many customers may demand that the manufacturer supply extra quantities of their products to enable them to stockpile inventories. The manufacturer may not have the additional capacity needed to meet these demands [1]. Even worse, the customer may force the manufacturer to store these extra goods itself, in which case, the manufacturer will have to pay for the warehousing costs itself.

The manufacturer should also check that the customer's accounts systems are compliant to ensure that the customer will pay its bills on time in the year 2000. As part of a broader strategy, the manufacturer should assess the relative Y2K-related risks faced by each of its important customers. If a major customer is planning to shut down its production facilities in January 2000 to verify its Y2K readiness, it would be imperative for the manufacturer to learn about this plan ahead of time so that it can adjust its business plan to reflect the modified demand [17].

In concluding this section, we observe that supply chain management truly is a significant concern for manufacturers in the face of Y2K. By the domino effect, practically any firm along the supply chain can be brought to a standstill, if even just one firm is affected. Manufacturing firms' exposure to supply chain breakdowns is particularly increased by the prevalence of small manufacturers, Asian suppliers, and just-in-time manufacturing. Most manufacturers have awakened to Y2K issues in the supply chain, and have started working actively with partners to achieve compliance. They have also commenced on contingency measures in case suppliers fail to meet their commitments when the millenium arrives.

4. Automobile Industry

4.1 Introduction

In the remainder of this chapter, we examine the reasons for concern, and take a look at the solutions that different automobile manufacturers are trying to implement.

4.2 Source of the Problem

4.2.1 Just-In-Time Manufacturing and Long Supply Chains

4.2.1.1 A Lack of Inventory

4.2.1.2 Long Supply Chains and The Domino Effect

In light of the discussion in the previous paragraph, the key issue that needs to be addressed is whether the suppliers to automobile manufacturers are Y2K compliant. To debate the Y2K compliance of the assembly plants is inconsequential because if the smaller suppliers fail to deliver the components, they can potentially have a domino effect and thus paralyze production, as seen in the case of the GM strike. It is no wonder that people in automobile circles are referring to the strike as "a prelude to the Big Crash."

To emphasize the importance of supplier compliance, consider the example of a typically large manufacturer like Chevrolet. Chevrolet uses roughly 20,000 different suppliers to build an automobile. If there is even a 5 percent failure among their suppliers due to Y2K related glitches, Chevrolet will be unable to build a car in spite of the fact that 19,000 suppliers will still be working. If Chevrolet shuts down, a significant number of 19,000 compliant suppliers will also be forced out of business due to reduced demand for their products [9].

The entire debate on supply chain with regard to the automobile industry could be summed up by what Ralph Szygenda, Chief Information Officer at GM, had to say about the "catastrophic problems" in every GM plant. He sketched the grim possibilities as follows, "Let's say that a key sole-source supplier of brake valves shuts down as a result of a year 2000 problem. As a result, on day two, two plants that produce master break cylinders and clutch master cylinders have to stop production because they do not have those valves. On day three, as motor-vehicle assembly plants begin to run out of parts, production falls to about one-third of usual volume. By day four, all assembly plants shut down. And with no orders coming in because of the shutdown, hundreds of plants supplying parts to the assembly lines also shut down, from major engine plants to mom-and-pop subcontractors. That's the worst-case scenario-- and yet it's a very real threat" [9].

4.2.2 Problems With Software: Failure in Communication

A number of software packages control sophisticated ordering, depot management and delivery systems. This software is highly date sensitive, and not all packages are Y2K compliant. The presence of non-compliant systems means that the inventory control, ordering and delivery mechanisms along the supply chain could completely breakdown. For example, the ordering software could delete all orders to suppliers placed in the year 2000 because it believes that these orders are over a hundred years old. Thus even though individual suppliers may be capable of manufacturing the components, the communication failures between these suppliers and the assembly plants would eventually cause the later to shutdown. Thus the net effect would be the same as in the case where suppliers were physically unable to make the parts.

4.2.3 Problems With Embedded Systems on the Factory Floor

The Chrysler experiment was an eye opener for the industry because it showed how vulnerable embedded chips really were. In addition, chips that controlled safety mechanisms in the plant were also found to be susceptible to the Y2K bug. Embedded chips in fire and security alarms, as well as heating, ventilation and air-condition controls were found to be date sensitive. Thus in the aftermath of the Chrysler experiment, automobile manufacturers were suddenly compelled to confront the issues related to Y2K and its impact on the factory floor.

4.3 Waking Up to the Reality and Finding Solutions

4.3.1 Ensuring Compliance at the Plant Level

4.3.1.1 Nissan's Efforts

4.3.1.2 Rover Group (UK) Claims Compliance

4.3.2 Looking at Suppliers: Freudenburg-NOK Leads the Way

4.3.2.1 Freudenburg's Efforts

4.3.2.2 GM's Survey of Suppliers

Detractors of these kinds of surveys argue that these studies are an exercise in futility. According to Lou Marcoccio, year 2000 research director at the Gartner Group, although most companies have started communicating with suppliers through paper surveys, the latter simply don't have enough information to answer the questions accurately. As a result, only 20% of suppliers respond, of which only 3% are accurate. Audits show that in most cases suppliers overestimate their own preparedness [3].

The one positive aspect of GM's survey was that it brought attention to the supplier's lack of preparedness. Taking a cue from GM's experience, major companies in the industry like Chrysler, Ford, Volvo, Toyota North America, and GM itself, with the assistance of Pricewaterhouse Coopers and Deloitte & Touche Consulting Group, are developing a Year 2000 Toolkit to guide suppliers through the evaluation and remediation process [26]. This self-assessment is the first step in that process.

4.3.3 The Collective Approach: Is AIAG the Answer?

In response to the automakers need for a joint effort to tackle the Y2K bug, the Automotive Industry Action Group, a trade association in Southfield Michigan, has emerged as one of the major forces in the struggle to minimize Y2K disruptions in automobile manufacturing. The AIAG has been working to develop a common approach to supplier year 2000 readiness and to provide as much information to manufacturers as possible.

The focus has been on direct suppliers and service providers to ensure the continuity of supplies for components, materials, equipment, and services that the manufacturers require. Moreover, the AIAG has developed a database containing year 2000 compliance information on plant floor equipment. The Plant Floor Equipment Knowledge (PFEK) database assists automotive OEMs and Tier 1 suppliers in assessing the Y2K compliance of their manufacturing facilities [104]. According to Joe Bione, lead partner in the AIAG for Deloitte and Touche Consulting Group, "The AIAG initiative is an important wake-up call for the North American auto industry, which has been late in responding to the supply-chain issue" [8].

Evidently, the automobile manufacturers have finally realized that working in isolation is clearly going to be counter-productive given the nature of the industry. This collaborative effort is their best bet in countering the potential impact of the Y2K bug on manufacturing.

4.4 Automobile Industry Conclusion

5. Chemical Industry

5.1 Introduction

In the remainder of this section, we look at the major safety issues that chemical manufacturers must address, the impact of chemical manufacturing on the economy, and examine some of the solutions that the industry has tried to adopt.

5.2 Reasons for Concern

5.2.1 Embedded Chips in Safety Devices are Unreliable

In December 1998, Chris Clarke, editor of Earth Island Journal, expressed fears about the reliability of embedded chips in the safety systems deployed in most chemical plants. Since a majority of these chips are date sensitive, there is a distinct possibility that they may malfunction at the turn of the century. According to Clarke, "Refineries may fail to detect toxic leaks, or may open valves at the wrong time" [27]. Industry experts doubt that a single chip failure could cause such a major catastrophe, but concede that numerous failures at a plant could be a significant safety hazard.

In light of the discussion above, we see that for the chemical industry the consequences of the Y2K bug are far more severe than those faced by automakers. In most automobile plants, if embedded systems fail, the worst case scenario is the shut down of the factory. In chemical plants, on the other hand, most embedded devices are found in safety systems. Therefore any Y2K related breakdown in these devices could jeopardize the lives of thousands of people. Thus the defective chips need to found beforehand. Since these chips are hidden away in machinery, however, finding them is extremely difficult.

The other major problem facing chemical manufacturers is that non-compliant chips are likely to go undetected for months. Since single failures are unlikely to cause much damage, they could go unnoticed. Repeated Y2K related errors, however, could have a cumulative effect resulting in a large scale disaster. Thus the probability of an accident increases over time. The fact that there are no major mishaps in January 2000 would not be a cause for celebration. Due to the cumulative effects, most experts consider embedded systems to be the real threat.

5.2.2 Insufficient Testing is a Problem

Unlike the automobile industry, the chemical industry is more fragmented. This implies a greater number of small to medium sized firms. Complicating matters further is the fact that most chemical manufacturers are unable to conduct a sufficient amount of testing to detect errors. Not many companies have the infrastructure and money to invest in rigorous testing. Y2K consultants report that the small and medium sized chemical companies are at greatest risk, depending on their ability to spend enough time and resources to address the problem. Even the larger players in the industry like DuPont are uncertain regarding their Y2K compliance levels. This uncertainty is borne out of the fact that no one has the requisite resources to take out of production and invest in testing. Given the fact that non-compliant embedded systems are hard to find, this lack of testing only compounds the problem.

5.2.3 Utility Failures

In other industries, the option of using manual processes in manufacturing does exist. Chemical manufacturers, however, do not have this luxury. Due to the reasons listed above, chemical plants will be forced to shut down in the event of massive utility failures. The questions of continuing production does not exist.

5.3 Y2K Safety Concerns: Chemical Industry Case Studies

5.3.1 Tiwai Point Meltdown

5.3.2 Johnston Atoll Agent Disposal System

In late 1998, the Defense DepartmentÕs Inspector General reported that the Army's project manager at the facility did not begin checking for Y2K bugs in critical computer systems. According to a recently released report, there is a distinct possibility that the government might have to shut down the site. The estimated cost of doing this will be approximately $2 million a week. In addition to this, the report added that officials at the Johnston Atoll chemical disposal site for nerve gas and blister agents had mismanaged Y2K fixes to mission critical systems. Moreover, according to the Inspector General, the program office had failed to prepare the necessary documentation for these year 2000 fixes and had been unsuccessful in developing any kind of contingency, system testing, and risk management plan. Above all, the report accused the Army of incorrectly reporting the Y2K compliance status of computer systems at the plant [29].

The major issue associated with the above mentioned cases is that the solution in both instances proved to be extremely expensive. In the Tiwai Point meltdown, smaller chemical manufacturers would have been unable to take a $1 million loss in a single day. As for the Johnston Atoll System, the solution of shutting down until compliance is achieved would have driven small and even medium sized plants out of business. Clearly, the safety aspect of the Y2K bug has strong economic implications.

5.4 Impact of the Chemical Industry

Chemicals are the raw materials for a variety of other manufactured products such as paints, inks, coatings, solvents, medicines, and computer equipment. Almost all finished goods and agricultural products involve chemicals in their production process. Thus the consequences of the Y2K bug in the chemical industry could permeate into the rest of the manufacturing sector. To illustrate this point, consider the example of a gum rosin plant in China. This plant could be the large supplier of a majority of raw materials required in polymers that are used in the making of inks and coatings. Thus if the plant in China suffers a Y2K related meltdown, the ink and coating industries in the U.S. would suffer adversely. With the coating industry working at less than full capacity, manufacturers of packaging materials would be driven out of business since they would be unable to procure the requisite amount of coatings as raw material. To take this analysis a step further, the absence of packing materials would effect almost all industries that package their goods before selling them to their customers [30].

Grabow adds, "From a financial perspective, chemical processing is a foundation industry that can dramatically impact the financial performance of any dependent organization. We fully expect that the chemical industry will be a barometer for how companies will perform because disruptions within this industry will be the first indication of financial problems" [30]. Grabow further adds that Y2K problems in the chemical industry will cause adjustments in the earning projections of most companies, thereby resulting in downward corrections in the market. Grabow anticipates "price earnings multiples to decline in an environment where business enterprises are, at a minimal, going to suffer inefficiency, margin deterioration, loss of market share and reduced earnings" [30].

5.5 Trying to Fix the Problems

5.5.1 Shutdown: Is it Worth it?

This approach, however, is not always the best one to take. According to Dr. Sam Mannan, director of the Mary O'Connor Process Safety Center at Texas A&M University, shutting down the plants will only delay the outcomes. A number of accidents could occur at start up [27]. In a sense, this approach would be akin to the "ostrich method" of digging your head in the sand in the hope that the problem will mysteriously disappear.

A modification of this approach is to shut down plants until they achieve compliance. The drawback with this solution is that it would drive smaller companies out of business because they would be unable to absorb the losses due to lack of production.

In spite of these economic implications, the push to shut down potentially hazardous plants is gaining momentum. In December 1998, Chris Clarke, editor of Earth Island Journal, advised readers, "to contact your representatives in government to demand legislation to shut down all non-essential, non-Y2K-compliant chemical and atomic industrial facilities before January 1, 2000" [27].

5.5.2 Getting to the Root of the Problem

5.5.2.1 Kodak's Efforts

5.5.2.2 UniChem is Prepared

 
 

ACTUAL RESULTS OF ANALYSIS (AGAINST LIVE PRODUCTION SYSTEMS) ANALYSIS TO IDENTIFY NON-COMPLIANT DATES AND DATE INFORMATION
TASK	NUMBER OF ITEMS	TIME U.S.ING INTO 2000	TIME FOR MANUAL APPROACH
Field Reference Files	From 1500+items, dates identified and confirmed	1.5 man days	5 man days
Physical Files	Dates identified and confirmed for 1000 files	1.5 man days	20 man days
Programs	Data usage analyzed and displayed for 200 programs including Physical, Logical, Display and Printer files, Local Data Areas, Internally defined files and all RPG and CL	1.5 man days	100 mans days
ACTUAL RESULTS OF ANALYSIS (AGAINST LIVE PRODUCTION SYSTEMS)  RECONSTRUCTION TO AMEND STANDARD NON-COMPLIANT DATES TO A COMPLIANT FORMAT FIELD REFERENCE
TASK	NUMBER OF ITEMS	TIME U.S.ING INTO 2000	TIME FOR MANUAL APPROACH
Field Reference Files	Rebuilding a field reference file of 1,500 items and 100 dates	15 minutes	1 hour
Physical Files	Rebuilding 1000 files	1 man day	20 man days
Programs	Rebuilding 10 RPG programs including display files, printer files and copy files (excluding recompilation)	10 minutes	5 man days

 

5.5.3 Contingency Measures

McKesson Corp., the large drug maker, has a similar contingency plan to tackle the Y2K problem. In fact, the company had the opportunity to test its backup system during Hurricane Georges in September 1998, when one of the distribution centers had to be shut down Fortunately McKesson had in place a backup system and were able to reroute those orders [34]. Evidently, the contingency measures adopted by the firm seemed to have paid dividends.

5.5.4 Cooperation is the Key

This kind of intra-industry alliance is similar to the Automotive Industry Action Group discussed earlier in the paper. Thus we could conclude that companies across different industries realize that the best way to deal with the Y2K beast is to confront it in unison.

The discussion above takes an in-depth look at the Y2K related issues in the context of the chemical industry. The significant source of concern is the ability of safety systems to operate correctly at the turn of the century. Any malfunction could possibly result in a Bhopal-scale catastrophe. Clearly, the stakes are much higher for chemical manufacturers. Failure to achieve Y2K compliance would not only jeopardize the lives of thousands, but would also place the companies under intense pressure to close down facilities for fear of a major mishap. In light of these problems, manufacturers are working against the clock to ensure that all systems are fully compliant by the year 2000. The preceding paragraphs provide details on some of the efforts that have been taken to minimize the impact when the new millennium arrives. Until then, we can only wait with baited breathe in the hope that chemical manufacturers will not be adversely affected by Y2K problems, because the negative effects in this industry are likely to manifest themselves throughout the manufacturing sector.

6. Progress Made Thus Far

6.1 Where Does Manufacturing Stand Today?

Figure 4.
Source: Purchase Magazine.

The manufacturing industry certainly does not lead the pack in terms of achieving Y2K compliance. Sectors such as financial services and technology have been receiving kudos for their superior compliance efforts. At the same, manufacturing does not figure at the bottom of the pile either. This end is occupied by education and government agencies whose compliance efforts have been lagging far behind. In the recent Cap Gemini survey of Y2K readiness, manufacturing ranks fourth among 12 industry segments on the Y2K compliance scale [8].

These findings are backed by the Gartner Group survey of Y2K preparedness presented to the U.S. Senate Special Committee on the Year 2000 Technology Problem on October 7, 1998 [3]. This survey classifies different sectors into four categories under one scheme (see Figure 5). Although this survey does not consider manufacturing as an independent sector (the survey monitors 27 different sectors), most of the manufacturing-oriented sectors such as heavy equipment, discrete manufacturing, chemical processing, etc. fall into the middle two categories, with 33% to 50% risk of experiencing at least one mission-critical system failure. This survey also indicates that there is a wide disparity in the levels of Y2K compliance among various industries within the manufacturing sector. While pharmaceuticals and computer manufacturers come out with flying colors, food processing appears to have its task cut out. The broad definition of manufacturing makes it difficult to make generalizations across the industries.

Figure 5.
Source: Gartner Group Survey.

Additionally, the range in sizes of manufacturing companies is typically larger than other sector, which, once again, makes generalization harder.

 Figure 6.
Source: Gartner Group Survey.

6.2 Why is Manufacturing Lagging Behind Some Other Sectors?

6.2.1 Disproportionate Emphasis on Corporate Systems

6.2.2 Management Problems

6.2.3 Lack of Accountability

Although manufacturing's late start is the primary reason for its lagging behind some other sectors, manufacturing's actual progress in achieving Y2K compliance has been relatively slow. Reasons for this performance have already been discussed in depth earlier, so we will not dwell upon them further.

7. Potential Benefits of Y2K to Manufacturing

7.1 System Upgrades

7.2 Increased Communication Between Departments

7.3 Strengthening Relationships With Business Partners

7.4 Better Quality of Supplies

7.5 Intra-Industry Cooperation

7.6 Higher Demand for U.S. Products

8. Summary

From a manufacturing firm's point of view, there are two broad areas in which Y2K could strike: internal and external. Internally, the biggest area of concern is embedded systems in automated process control. Externally, supply chain continuity is threatened by Y2K. In a typical factory, there are three categories of systems: automated control systems, facilities management systems, and external dependency systems. Automated control systems are the most important, both to the actual manufacturing process, and from a Y2K-risk perspective. They are essentially embedded systems that control, monitor, analyze, and protect the operation of equipment in the factory.

Y2K can affect any manufacturing process that is measured over time since scheduling drives virtually every operation on the shop floor. There are four functional areas of date usage, each of which can be affected by Y2K: storage (of dates in registers, files, databases, etc.), transfer (of dates between systems), output (of dates to external systems), and calculation (of time spans in rate and trend calculations).

A four-step approach is usually adopted to tackle Y2K problems in embedded systems: compiling an inventory of embedded chips and associated software that contain date references, identifying non-compliant systems and equipment, fixing or replacing non-compliant systems, and testing systems for compliance after any changes have been made. For the software and data associated with embedded devices, standard techniques and conversion tools are applicable, although there are certain tricky aspects that need to be considered.

The process is far more complicated, however, in the case of the embedded chips themselves since it cannot be automated, standard tools are not available, embedded chips are often buried within layers of equipment, suppliers are highly unreliable and most manufacturers do not have the luxury of being able to shut their doors while they fix their systems. Given the limited resources and the inflexible deadline, prioritization of non-compliant systems is critical. Large manufacturers of industrial controls and Y2K solution vendors have provided some assistance in the form tools, databases, and testing facilities.

Y2K is not, however, a strictly internal problem. If any of the manufacturing firm's business partners (suppliers, customers, service providers) experience Y2K problems, the firm itself can be at risk because of the complex web of interdependencies and the domino effect of supply chain disruptions. The largest - and least manageable - challenge for most manufacturers is to maintain operational stability by ensuring supply chain continuity into the year 2000 and beyond.

This task is complicated by the fact that suppliers are numerous and not easy to identify, and a large proportion of them tend to be small firms or Asian, both of whom are lagging in their compliance efforts. The problem is also compounded by the prevalence of just-in-time manufacturing, a highly efficient and streamlined method of handling parts delivery and inventory that has increased manufacturers' reliance on suppliers.

Supply chain management in the face of Y2K requires a similar approach as embedded systems: identifying and prioritizing suppliers, auditing them to determine compliance, working with suppliers to achieve compliance, and preparing contingency measures. The process of auditing suppliers can be done in three different ways: internally, through a third-party agency (which avoids repetitiveness) and through sharing information within the industry. Contingency measures include alternate suppliers or other workaround mechanisms, and most commonly stockpiling inventories of important supplies, which is expected to boost GDP growth in 1999 and make it drop in 2000.

The automobile industry exhibits an overwhelming reliance on just-in-time manufacturing and long supply chains. As a result, this industry provides some concrete examples of Y2K related breakdowns in the supply chain. In addition to supply chain issues, manufacturers also have to deal with Y2K bugs in management software and embedded systems on the plant floor. Some manufacturers like Nissan got an early start to tackling the problem by ensuring that all equipment and software in their plants was compliant. Other firms like Freudenburg looked at supplier and customer compliance to ensure that production would remain unaltered in the next millennium. The Automotive Industry Action Group has emerged as a dominant force in the automobile industry to ensure that the supply chain is not adversely affected by Y2K related problems.

Y2K bugs in safety systems constitute the core area of concern for chemical manufacturers. Embedded system failures in safety devices could have life threatening consequences. Moreover, due to the fragmented nature of the industry, there are a number of small firms which do not have the requisite resources to invest in testing, thereby compounding the problem. Since chemical manufacturers provide raw materials to a host of other industries, any Y2K problems in the chemical industry are likely to be manifest in all sectors of the economy. To counter the millennium bug, certain firms like Kodak and UniChem have catalogued all non-compliant systems and are using automated tools to detect and fix software bugs. Other firms like DuPont have contingency plans in place. Finally, in an attempt to combat the problem, even arch enemies within the industry are now working together.

In relation to other sectors, manufacturing lies in the middle of the pack in achieving compliance. It is neither as advanced as the financial sector, nor is it as far behind as government services. Generalizations are hard to make about manufacturing because of the breadth of industries that it covers (ranging from toothbrushes to computers) since different industries are in different stages of readiness. Additionally, the range in sizes of manufacturing companies is typically larger than other sectors, which, once again, makes generalization harder.

Reasons why manufacturing is lagging behind the leaders include an undue emphasis on fixing corporate IT systems and a lack of attention to the factory floor, a poorly managed environment in plant systems, and a lack of clear accountability for these systems. Finally, even the Y2K cloud has a silver lining for manufacturers. Potential benefits of Y2K include the opportunity to modernize and upgrade systems, increased communication between departments within a firm, strengthened relationships with business partners, better quality of suppliers, and a higher demand for U.S. products. Although, manufacturing has been late to address the Y2K problem, there is increasing awareness and momentum in achieving compliance, both internally and externally.

References