As businesses search for lower costs, supply chains have evolved from local to regional to global, and are increasing levels for offshoring of component suppliers and contract manufacturers. As a result, new risks associated with Intellectual Property (IP) have been introduced into design and supply chains. Mitigating these risks is essential for the successful commercialization of new products. Gain 5 valuable insights about: • IP Leakage and where it typically happens • Where does it happen? • Current Supply Chain models • Key product considerations • Structural solutions to protect IP

1. Product Realization Group
Lunch Series
Managing IP Risk in Global
Supply Chains
….new paradigms in Supply Chain Management
Michael Keer
Founder and CEO
Product Realization Group
mkeer@productrealizationgroup.com
mkeer@productrealizationgroup com
408.427.4645
©Product Realization Group, Inc., 2012 Pg 1

2. Background
g
Product R li
P d Realization Group provides product
i G id d
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 high
high-
tech clients.
©Product Realization Group, Inc., 2012 Pg 2

3. Impact of Supply Chain in the
Product Lifecycle
©Product Realization Group, Inc., 2012 Pg 3

4. Introductions
Sandeep Duggal is the CEO of Extron, a supply
p gg
chain solutions provider that improves flexibility and
reduce risks for high technology OEM’s. He holds a
degree in Mech. Eng. from the University of Michigan,
a graduate degree in Industrial Eng from Stanford
Eng.
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,
Supply Chain,
S ppl Chain Asia So cing Financial Anal sis M&A
Sourcing, Analysis,
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 g
University of Limerick, and MBA from University of
Colorado.
©Product Realization Group, Inc., 2012 Pg 4

5. Introductions
Leland Witherspoon is a seasoned international
p
executive 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
a d &
and R&D. This included an IP portfolio of over
s c uded a po t o o o o e
40,000 direct and cross licensed.
He holds a B.S. EE from Rensselaer Polytechnic
BS
Institute, and advanced studies in Systems and
Biomedical Engineering at The University of
Vermont and University of Texas
©Product Realization Group, Inc., 2012 Pg 5

6. Agenda
 Intellectual property, defined
 What’s happening to companies
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
6
© Extron 2012

7. Intellectual 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
© Extron 2012

8. Globalization of supply chains
 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
– Beginning to swing back, f a number of
for f
reasons….
8
© Extron 2012

9. Questions to consider….
 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 customer’s eyes?
– How far ahead of your competition does it put
you? (i.e., time)
9
© Extron 2012

10. IP leakage - - epidemic 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
patents and illegally copying source code used in its routers and switches.
(Huawei settled by removing contested code.)
 In June 2004 an Asia-based OEM’s employee was caught afterhours diagramming
and photographing circuit boards from a competitor’s booth at SuperComm
competitor s 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
10
© Extron 2012

11. Where does it happen?
 Loss points:
– Employees
 Outright theft
 Exiting employees with trade secrets
– Partners
 Access to facilities, products, training, etc
– Competitors
 Reverse engineering
11
© Extron 2012

12. Current Supply Chain Model:
Highly linear - - results in risk
OEM (ORIGINAL EQUIPMENT MANUFACTURER)
GLOBALIZED LOCAL or GLOBAL
Component Demand Signal (EDI)
Supplier
Air or
Component Ocean
Contact Mfr (CM) Configuration Distribution Customer
Supplier Transport
Component Field engineering
and service Returns
Supplier
Warranty pool
Advance
replacement
Parts &
Accessories
© Extron 2012

13. Perceived IP protection is eroded
Cultural norms:
OK to copy it
Governments:
Accommodative
IP Protection
13
© Extron 2012

14. Solutions
 Considerations for IP security
– Partner selection
– Process design
g
– Product design
14
© Extron 2012

15. Key considerations: Partners
 Ch
Choose partners carefully.
t f ll
– 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.
15
© Extron 2012

16. Key considerations: Process
 D i your manufacturing process carefully.
Design f t i f ll
– How much at “arms length” is your critical IP?
arms length
– How much firewalling and siloing is there?
– What c ec s and balances a e in p ace
a checks a d ba a ces are place?
– What control processes are in place to secure IP?
 Who “locks up” your IP at night?
16
© Extron 2012

17. Key considerations: Product
 Is your product designed with IP p
y p g protection in mind?
– Are the components available from different suppliers?
– How much does a given vendor need to know about each
component,
component or about the entire assembly?
– How much training is required to manufacture your product?
– Where are the proprietary components added along the
manufacturing process?
f t i ?
 Can they be added at the end, closer to you?
 Integrative software / proprietary code
– Is your Test Process designed with IP protection in mind?
17
© Extron 2012

18. 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)
configuration, speed,
OEM (ORIGINAL EQUIPMENT MANUFACTURER)
FRONT END SC LAST MILE SC
(GLOBALIZED) (IN-MARKET)
Component Demand Signal (EDI)
Supplier
Air or
Component
C t Ocean
Contact Mfr (CM) Final Config Final Config Distribution Customer
Supplier Transport
Component Component Field engineering
and service Returns
Supplier Supplier
Warranty pool
Advance
replacement
Advantages:
More control points / levers Reduced IP Risk Parts &
Accessories
Lower landed costs Reduced concentration risk
Lower inventories More flexibility
18
© Extron 2012

19. Structural Solution: Silo / Firewall
IP-protected
Overseas: centers of excellence, low labor cost, etc.
, ,
geography
geograph
Component
Component Supplier
Contract “Last Mile”
Supplier
Manufacturers Integration
(Overseas) Critical-IP
component
Component
A
A+B+C
ABC+D
Component
B +
integrative
software
Component A+B+C
Component D
C
No cross-silo communication
© Extron 2012

20. Other considerations
 Bring economically justified jobs back to U S A
economically-justified U.S.A.
– Domestic supply chain jobs (“last mile” is here).
– Appeals in p
pp particular to socially-responsible execs
y p
 Requires an openness to becoming involved
with your supply chain
– Hands-on / deep involvement
– Tremendous return on time invested
20
© Extron 2012

21. Implementation steps
 St t small
Start ll
 One geography
 O product line
One d t li
 Design “IP protection” into your product
 R li risky steps i t “l t mile”
Realign i k t into “last il ”
solution
21
© Extron 2012

22. Summary
 IP leakage is a huge p
g g problem for companies with
p
global 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
22
© Extron 2012

23. Product Realization Group
Lunch Series
Managing IP Risk in Global
Supply Chains
….new paradigms in Supply Chain Management
Michael Keer
Founder and CEO
Product Realization Group
mkeer@productrealizationgroup.com
mkeer@productrealizationgroup com
408.427.4645
©Product Realization Group, Inc., 2012 Pg 23