Managing IP Risk in Global Supply Chainseb

Product Realization Group

Lunch SeriesLunch Series

Managing IP Risk in Global Supply ChainsSupply Chains

.new paradigms in Supply Chain Management

Michael KeerFounder and CEOProduct Realization Groupmkeer@productrealizationgroup com

Product Realization Group, Inc., 2012 Pg 1

[email protected]

Backgroundg

P d R li i G id d Product Realization Group provides product lifecycle services for high technology businesses.

PRG enables rapid and cost effective introduction of products to the market, regulatory compliance, manufacturing, service, and lifecycle support.

Currently delivering services to over 400 highCurrently delivering services to over 400 high-tech clients.


Impact of Supply Chain in the

Product LifecycleProduct Lifecycle


Introductions

Sandeep Duggal is the CEO of Extron, a supply p ggchain solutions provider that improves flexibility and reduce risks for high technology OEMs. He holds a degree in Mech. Eng. from the University of Michigan, a graduate degree in Industrial Eng from Stanford a graduate degree in Industrial Eng. from Stanford University, and MBA from the Harvard Business School.

Colin Kavanagh is a senior Operations Executive with extensive experience in multi-site Global Manufacturing, Procurement, Product Development, S ppl Chain Asia So cing Financial Anal sis M&A Supply Chain, Asia Sourcing, Financial Analysis, M&A and Strategic Planning.Colin also acts as a mentor to several startups on manufacturing and marketing strategy. He holds a degree in Mech. Eng. From the


gy g gUniversity of Limerick, and MBA from University of Colorado.

Introductions

Leland Witherspoon is a seasoned international pexecutive with experience successfully leading multidisciplinary teams with companies such as IBM, PFIZER, and ROBODOC. He has directed the , ,manufacturing, distribution, customer support, regulatory, quality, clinical affairs, product design and R&D. This included an IP portfolio of over a d & s c uded a po t o o o o e40,000 direct and cross licensed.

He holds a B S EE from Rensselaer Polytechnic He holds a B.S. EE from Rensselaer Polytechnic Institute, and advanced studies in Systems and Biomedical Engineering at The University of Vermont and University of Texas


Vermont and University of Texas

AgendaAgenda

Intellectual property, defined Whats happening to companies

with Global Supply Chains?with Global Supply Chains? What contributes to the problem? Solutions: key considerations for partners, process, y p , p ,

product The IP-protected supply chain Summary / Q&A

ExtronExtron 201220126

Intellectual Property, definedIntellectual Property, defined

Creations of the mind that are used in commerce Inventions Literary and artistic works Symbols, names, images, and designs

(World Intellectual Property Organization).

Effectively also includes: Specifications, design plans, product blueprints, system architecture Chemical formulations, chemical compounds Methods, processes, instruction manuals, training information Proprietary equipment/devices, or software Proprietary technical or business-related learnings, financial materials Current/future product plans, strategies, prototypes


Scientific, clinical, or technical data Marketing strategies, employee/customer lists, business plans

7

Globalization of supply chainsGlobalization of supply chains

Search for lower costs has led to an Search for lower costs has led to an offshoring of component suppliers and contract manufacturers.

Hands-off management of suppliers Focus on sales/marketing, not supply chain

oversight Pendulum has swung very far

f f Beginning to swing back, for a number of reasons.


Questions to consider.

How important is your IP?How important is your IP? How much have you invested in it? What kind of competitive advantage does it p g

provide for you? What is your IP worth in your customers eyes? How far ahead of your competition does it put

you? (i.e., time)


IP leakage IP leakage -- -- epidemic statusepidemic status

86% of software sold in China is pirated: $19-24B market value (IDC) Shanzhai (Mountain Bandit) is the Chinese term for pirated electronics

Apple iPhone 4 shanzai launched ahead of the real iPhone 4, with more features. (Washington Post, 8/2010)

2010 iPhone4 sales in China: 800,000 real; 2,500,000 fakes. (BDA China)

Fake iPads selling for$150 in Shanghai (2010, ibid)

38% of the cellphone handsets sold in China are fakes 150 million shanzai cellphones sold in 2007 (13% of global market) (BDA China)

In February 2003 Cisco sued Huawei Technologies for allegedly infringing on its In February 2003 Cisco sued Huawei Technologies for allegedly infringing on its patents and illegally copying source code used in its routers and switches. (Huawei settled by removing contested code.)

In June 2004 an Asia-based OEMs employee was caught afterhours diagramming and photographing circuit boards from a competitors booth at SuperCommand photographing circuit boards from a competitor s booth at SuperComm. (OEM denied allegations, but employee was dismissed.)

Total expected fake item sales in 2015: $1.7Trillion (Business Action to Stop Counterfeiting & Piracy, 2011)


Loss areas: Economic, Brand, and Technology

Where does it happen?Where does it happen?

Loss points: Employees

Outright theft Exiting employees with trade secrets

Partners Access to facilities, products, training, etc

Competitors Reverse engineeringReverse engineering


Current Supply Chain Model: Highly linear - - results in risk

OEM (ORIGINAL EQUIPMENT MANUFACTURER)

Component Demand Signal (EDI)


GLOBALIZED LOCAL or GLOBAL

Contact Mfr (CM)

Component Supplier

Component Supplier

Air or Ocean Transport CustomerDistribution

Demand Signal (EDI)

Configuration

Component Supplier Returns

Warranty pool

Field engineeringand service

Parts &Accessories

Advance replacement


Perceived IP protection is erodedPerceived IP protection is eroded

Cultural norms: OK to copy itGovernments:Governments: Accommodative

IP Protection


SolutionsSolutions

Considerations for IP securityConsiderations for IP security Partner selection Process designg Product design


Key considerations: PartnersKey considerations: Partners

Ch t f llChoose partners carefully.

Where are your partners located? Where are your partners located?How closely can you monitor the process?What country are they in (high-risk)? What legal / governmental / business constructs protect you?

Employee theft - - constant risk, so study controls carefully.


Key considerations: ProcessKey considerations: Process

D i f t i f llDesign your manufacturing process carefully.

How much at arms length is your critical IP? How much at arms length is your critical IP? How much firewalling and siloing is there? What checks and balances are in place?a c ec s a d ba a ces a e p ace What control processes are in place to secure IP?

Who locks up your IP at night?


Key considerations: ProductKey considerations: Product

Is your product designed with IP protection in mind?y p g p Are the components available from different suppliers? How much does a given vendor need to know about each

component or about the entire assembly?component, or about the entire assembly? How much training is required to manufacture your product? Where are the proprietary components added along the

f t i ?manufacturing process? Can they be added at the end, closer to you? Integrative software / proprietary code

Is your Test Process designed with IP protection in mind?


New Last Mile Supply Chain: Improved IP protection

A more flexible structure (allows freight cost mgt, inventory mgt) A differentiation factor (customized configuration speed cost) A differentiation factor (customized configuration, speed, cost)

FRONT END SC (GLOBALIZED)

LAST MILE SC (IN-MARKET)


Component Supplier

C tAir or

(GLOBALIZED) (IN-MARKET)

Demand Signal (EDI)

Contact Mfr (CM)Component

Supplier

Component Supplier

Ocean Transport

Final Config CustomerDistribution

ReturnsField engineering

and service

Final Config

Component SupplierSupplier

Parts &

Warranty pool

Advance replacementAdvantages:

More control points / levers Reduced IP Risk

Supplier


Parts &Accessories

More control points / levers Reduced IP RiskLower landed costs Reduced concentration riskLower inventories More flexibility

Structural Solution: Silo / FirewallStructural Solution: Silo / Firewall

Overseas: centers of excellence, low labor cost, etc. IP-protected geograph

Component Supplier

Component Supplier Contract

ManufacturersLast Mile Integration

, , geography

(Overseas)

Component A

Critical-IPcomponent

Manufacturers Integration

A

Component B

A+B+CABC+D

+

Component C

Component D

A+B+C

integrativesoftware


C

No cross-silo communication

Other considerationsOther considerations

Bring economically-justified jobs back to U S A Bring economically justified jobs back to U.S.A. Domestic supply chain jobs (last mile is here). Appeals in particular to socially-responsible execspp p y p

Requires an openness to becoming involved with your supply chain Hands-on / deep involvement Tremendous return on time invested


Implementation stepsImplementation steps

St t ll Start smallOne geographyO d t liOne product lineDesign IP protection into your product

R li i k t i t l t il Realign risky steps into last mile solution


SummarySummary

IP leakage is a huge problem for companies with g g p pglobal supply chains

Companies rethinking supply chain architecture Partners Process Product

New last mile solution solves significant cost, flexibility, and IP security issues.

Easy to implement in stages U.S. jobs benefit


Product Realization Group

Lunch SeriesLunch Series

Managing IP Risk in Global Supply ChainsSupply Chains

.new paradigms in Supply Chain Management

Michael KeerFounder and CEOProduct Realization Groupmkeer@productrealizationgroup com


[email protected]

Documents

Managing IP Risk in Global Supply Chainseb