In this Q&A, Admiral Dennis Blair, Chairman and CEO of Sasakawa Peace Foundation USA, talks with Panasonic executives Hide Kaneko and Merwan Mereby about the insights they imparted at a recent conference focused on promoting U.S.-Japan cooperation on “Supply Chains, Security and Cyber Risks.” The conference was brought together for U.S. and Japanese headquartered companies to share best practices and insights. The executive exchange was co-sponsored by the Sasakawa Peace Foundation USA and the Center for Responsible Enterprise And Trade (CREATe.org).
In the first half of the Q&A, Hide Kaneko provides an overview of key issues facing Panasonic in working with supply chain partners. In the second half of the Q&A, Merwan Mereby talks about how the company is addressing security and cyber risks.
Addressing Supply Chain Challenges
Hide Kaneko, Vice President of Supply Chain Management, Customer Experience, & Engineering, Panasonic Consumer Electronics Company
Question: As a company that delivers digital third party offerings along with Panasonic consumer products, what are the supply chain challenges you are facing today?
Panasonic has three primary supply chain challenges today. The first is the issue with “grey market” goods — the unauthorized sales of Panasonic goods. The second deals with “counterfeit” or fake goods. The third issue relates to privacy and data security issues.
Question: What is driving the rise of the sale of grey market goods?
The “grey” market issue means that unauthorized foreign dealers or individuals are selling our products to consumers. In the era of boundaryless markets in which individuals and companies can freely sell any products “online,” this issue has become more conspicuous over the past decade. Driving this trend is the fact that the Japanese yen has become weaker over the past few years and as a consequence, the products that are designed to be sold in Japan are easily marketed in the USA at a cheaper price. This tactic deteriorates the market price and our channel distribution. This is not illegal, however, for those global corporations that try to manage channel distribution tightly in the world; this is a big challenge as it impacts both domestic sales and profitability.
Question: You also mention privacy and data security issues related to supply chain management. Can you elaborate?[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]In the era of boundaryless markets in which individuals and companies can freely sell any products “online,” the “grey” market issue has become more conspicuous over the past decade.[/perfectpullquote]
Panasonic has a wide variety of products ranging from TVs and Blu-ray players to home monitoring systems, and the products have become smarter and smarter and more “connected” every year. For example, we have Netflix or YouTube applications (apps) in every TV that we manufacture and sell. Panasonic is concerned with making sure that these third-party apps are not facilitating the ability for consumers to steal copyrighted content or enable hackers to steal content and personal data. Every touchpoint where the data is stored or transmitted has extra layers of protection to mitigate these risks. We also have cyber risk insurance too.
These are examples of how relationships with consumers no longer end with delivery of a product and a warranty. With this new imperative in mind, Panasonic has been a key player to enhance controls related to music, film and TV content usage and the distribution of movies from the studios to theaters—an example of the type of collaboration needed to reduce these types of risks.
Question: How does Panasonic work with governments and suppliers to reduce counterfeit risks in your value chain?
Tight control of suppliers in collaboration with government can be a very powerful way to mitigate supply chain risks from counterfeit or pirated goods. Panasonic in the U.S. works very closely with the U.S. and foreign governments to be clear about Panasonic’s in-house factories as well as authorized Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs), so that essentially the only imports permitted are those from vendors approved and listed in government databases. As such, the consumer division has relatively few challenges with counterfeiting and piracy in their supply chain.
At the retailer level, particularly some major online dealers, companies are trying to come up with new systems to allow each of the supply chain touchpoints – whether at a factory in Asia, our warehouses or retailers distribution centers – to scan a unique bar code so we know the products that are sold online are properly recorded in each of the physical touchpoints and authenticated. Since any of the counterfeit products or grey products will not be authenticated, that is how the consumer can differentiate authenticated products from others. Also, using the bar code labels enables the consumer to see on their smart phones some key information for authenticity such as “country of origin,” “production date,” “shipment date” and others. We should see this kind of authenticity program via some of the online retailers in the next few years.
Enhancing Security in Products
Merwan Mereby, Vice President of Global Connected Products Strategy and Business Development, Panasonic Corporation of North America
Question: It’s one thing to secure something you control, like a corporate network, but how do you design security into your products?
From the product design and quality control perspective, and as a matter of corporate governance, Panasonic builds security into its devices intended to provide services and communicate data. The Panasonic device certification process includes a full check of the device as well as its processes, including some proactive “ethical” hacking. We also do testing before products are shipped to market.
Going forward with the connected devices of the future, being able to protect against hacks will become increasingly important – and challenging – particularly with smart devices like self-driving cars and drones.
Question: Security is, on the one hand, a black hole for resources and focus, and on the other hand a threat that some companies discount because they don’t think they are targets. What are the trade-offs associated with investing in security and how do you balance resources across a large organization?[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Going forward with the connected devices of the future, being able to protect against hacks will become increasingly important – and challenging – particularly with smart devices like self-driving cars and drones.[/perfectpullquote]
It’s clear that security requires significant investment and can impact the timing of getting products to market. For a company that has commercial and end user customers, customer demand for secure products and willingness to play a role in keeping the products secure may vary widely. One size does not fit all, and it’s an ongoing dialogue as to what investments need to be made for what products.
Question: How important is it to collaborate with others in the industry to address information and cybersecurity problems?
Panasonic Global Connected Products include millions of devices connected to the company’s servers. All communications between the devices and the cloud are heavily protected to reduce risks of cyber threats which may cause leakage. Panasonic does not do this in a vacuum but works closely with other partners who are also providing Internet-based services for the devices to ensure they are also protected against hacking or information theft.
Panasonic also works with third party security technology providers to deploy technologies to secure its data. If a breach occurs, Panasonic coordinates with its partners to comply with the applicable laws and regulations.
Admiral Dennis C. Blair is the Chairman of the Board and CEO at Sasakawa USA and a renowned expert on Asia Pacific policy and issues. He also serves as a member of the Energy Security Leadership Council and the Aspen Homeland Security Council; and he is on the boards of Freedom House, the National Bureau of Asian Research and the National Committee on US-China Relations. He additionally has served as Director of National Intelligence and Commander in Chief of the U.S. Pacific Command. Read Blair’s Chairman’s Message column here or view more of his commentary and analysis here.