Supply chain hinders euro conversion

IT managers could be hit hard by E.U.'s transition to single currency standard

With only four months left before 12 of the 15 European Union countries will be required to use a single currency, IT managers are worrying that their companies' supply chains are unprepared for the euro and that even those suppliers that think they're ready really aren't.

Companies that haven't already started their euro transition planning won't be ready by the Economic and Monetary Union's Jan. 1 deadline, according to Boston-based AMR Research Inc. And 40% of European businesses—mainly small to medium-size companies—have yet to begin their euro projects, said Simon Pollard, an analyst for AMR working in London.

Of those firms that will be ready, nearly half said they will be forced to help others that aren't prepared in order to avoid supply chain problems, according to a survey of 400 European executives by the Paris-based Association for the Monetary Union of Europe.

GM Europe put together a euro advisory package for its 3,200 independent car dealers and second- and third-tier parts suppliers. It has also set aside staffers to assist businesses that are ignoring the impending deadline. GM spent two years and millions of dollars converting its internal IT systems in a project that's expected to be completed in three weeks.

"Since very early in 1999, we've given our dealers the option of working in euros or the local currency. Ten percent have taken the option of being dealt with in euros now, which is a very low percentage," said Roger Aze, who managed the EMU compliance project at GM Europe.

Only 7.9% of companies in the euro zone currently maintain their accounts in euros, according to statistics from the European Commission, three years after European brokerages and banks converted to the euro.

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Currency Converts

The following European countries are participating in the EMU or plan to use the single euro currency as of Jan. 1, 2002:

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Austria

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Belgium

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Finland

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France

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Germany

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Greece

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Ireland

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Italy

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Luxembourg

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The Netherlands

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Portugal

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Spain

Only the U.K., Denmark and Sweden voted against joining the EMU.

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Pollard said the unpreparedness of vendors and suppliers won't create a catastrophe in the European marketplace, but it will cause supply chain slowdowns and force some small and medium-size businesses to revert to using paper invoices, bound ledgers and filing cabinets.

But Noel Hepworth, head of the euro conversion project at the European Federation of Accountants (FEE), an industry trade group in London, said companies that aren't ready will quickly be forced out of business by large manufacturers that will refuse to deal with them.

The problem with not planning for the euro is that conversion projects are complicated, take from three to nine months and involve multiple software programs that must link payroll, accounting, invoicing, bank reconciliation systems and other applications, Hepworth said.

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The Bottom Line

Many euro zone businesses haven’t fully addressed tactical compliance, despite the ticking clock.

Compliance Status

(by company size)



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Over $1.45B (£1B)

$360M to $1.45B

Less than $360M (£250M)
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compliant
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planning
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outstanding


















Source: AMR Research Inc., Boston; 2001











FEE recently sent "euro survival kits" to hundreds of companies requesting that they in turn send kits to their supply chain partners at $55 per copy. Each kit includes information on conversion techniques, the risks of failing to convert and the specific changes necessary for IT systems.


"If [an enterprise] bought 500 copies, for example, it would have cost them 25,000 euros. That's a very small amount of money in order to protect your supply chain," Hepworth said. "We've had no response."


But progress is being made. According to Hans-Joachim Wurth, EMU program director at SAP AG, three-quarters of the 6,700 SAP installations in the euro zone have successfully converted to euro accounting, and the rest of the company's customers are expected to be in compliance by Jan. 1.


The euro conversion for SAP costs a company about 1% of its annual revenue, according to an SAP spokesman.


Udo Ludwig, CIO at Du Pont Europe, said he is less concerned about his supply chain partners. Ludwig said Du Pont began its project last fall and is ahead of schedule. The company has already converted its SAP software and most of its supply contracts, said Ludwig, who added that smaller suppliers will have an easier time converting closer to or on the EU deadline date.


The other conversion issues for Du Pont have been related to converting balance sheets or installing fixes on PCs to ensure that they can display and print the euro sign, Ludwig said.


"The issue isn't what happens after Jan. 1; it's what to do with payables and receivables generated in 2001 but only received in 2002," he said. "That's why we encourage our people to use the euro today."


Patrick O'Beirne, a principal at Systems Modelling Ltd., a consulting firm in Wexford, Ireland, said a majority of companies fail on their first attempt to convert their systems to the euro.


Only 20% of companies' euro conversion software has been certified by the London-based Business Application Software Developers' Association Ltd., O'Beirne said. Furthermore, "on the basis of figures I've found so far, the majority are converting incorrectly and don't know it," O'Beirne added.


Then there are the issues related to converting local currency to euros and then to pounds or francs for countries that aren't part of the EMU. For example, a database field based on French francs would have to be expanded from two decimal point places to six to accommodate the euro.


"The euro has impacts right down into areas you don't think it will," GM's Aze said. "You don't tend to think of them because you tend to think of only your own currency."


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Copyright © 2001 IDG Communications, Inc.

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