Volvo 1998 Annual Report Download - page 26

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24
interest in having a smooth-functioning supply chain. The program to ensure that
Volvo’s suppliers of production materials, spare parts and transports can continue
to make uninterrupted deliveries is being conducted by a working group consisting
of representatives of each Volvo business area. In addition, Volvo has retained
independent consultants to evaluate the situation at a number of selected suppliers
and the suppliers’ preparedness for the year 2000. Review of Volvo’s suppliers is
scheduled to be mainly completed at mid-year 1999. Each local Volvo unit has
established contacts with suppliers of non-production-related materials, for
example energy and production equipment, to ensure that supplies and operations
will not be interrupted. Another important link in Volvo’s operations are the
many dealers worldwide. Most of these dealers are independent from Volvo and
have a varying degree of IT dependence. Volvo’s sales companies in each country
are responsible for contacts with dealers and monitor their preparations for the
year 2000 transition.
Volvo’s expenditures for the transition to the year 2000 have not been budgeted
nor monitored in separate projects, but are included in normal operations. Expend-
itures are expensed as incurred with the exception of acquisition costs for replace-
ment of certain equipment which can be capitalized. Volvo’s current estimate
of expenditures for the year 2000 transition amounts to SEK 800 M, from the
beginning of 1997 through mid-2000, with a peak at the end of 1998 and the
beginning of 1999. The amount is distributed among work to eliminate problems
in computer environments and applications, SEK 400 M, embedded systems, SEK
125 M, investments in new and updated equipment, SEK 175 M, and other, un-
foreseen measures before and after the millennium shift, SEK 100 M. It should
be noted that estimates of this type involve some uncertainty.
Despite Volvo working actively to ensure that suppliers and other key
partners take the necessary measures prior to the year 2000, Volvo has little
control over whether such necessary action is taken in time. A conceivable
scenario which could result in a substantial adverse effect on Volvo’s earnings,
liquidity and financial position would be if several “just-in-time suppliers” and
other important partners experience problems with deliveries to Volvo at the
same time in conjunction with the millennium shift.
Volvo is currently working with identifying suppliers, systems and other
elements of operations which, despite preparations, could represent a risk in the
transition to the year 2000. Based on the results of this inventory, contingency
plans are being developed by Volvo which are scheduled to be completed in the
third quarter of 1999.
BOARD OF DIRECTORS’ REPORT