The Lego Group Case
Introduction
Founded in 1932, the LEGO Group is a privately held company headquartered in Billund, Denmark. The vision of Lego Group is to “inspire children to explore and challenge their own creative potential”[1] Lego now ranks 4th in the world as a toy manufacturer. The Lego Group employs nearly 9,000 workers and its own product, Lego Brick can be found in over 130 countries. The financial performance of Lego declined drastically through the 1990’s and early 2000’s. In 2004, the company accumulated losses of DKK1.9 billion.[2] Therefore, Lego tried to implement some changes in order to cut the production cost and reverse the poor situation. In the last step of the process of restructuring Lego’s supply chain, the Group tried to close some of its’ own factories in Korea and Switzerland, upgrade the procurement process and outsource 80 percent of the production.
Prior to outsourcing to Flextronics, production plants were located in high-cost countries including Denmark and Switzerland. Apart from the famous Brick, the company entered into other industries including computer games, clothing, licensed products and television. The product diversification was very large since they lost confidence in their core product. This catalyzed inefficiencies and confusion for customers. The result was a disastrous net loss and forced the company to find solutions to cut the cost and recapture the market share.
In 2009, the Lego Group ended the outsourcing contract with Flextronics as they claimed that it would be more optimal for them to manage their global manufacturing set up. They gain back the control over its production plants. Now, they need to adapt to the changing demand on their own and to maintain the relationships with different small external suppliers. As they focus on the internal production now, they need to re-think the structure and the production process. This paper will analyze issues facing LEGO, mainly with the global supply chain, and then examine
Founded in 1932, the LEGO Group is a privately held company headquartered in Billund, Denmark. The vision of Lego Group is to “inspire children to explore and challenge their own creative potential”[1] Lego now ranks 4th in the world as a toy manufacturer. The Lego Group employs nearly 9,000 workers and its own product, Lego Brick can be found in over 130 countries. The financial performance of Lego declined drastically through the 1990’s and early 2000’s. In 2004, the company accumulated losses of DKK1.9 billion.[2] Therefore, Lego tried to implement some changes in order to cut the production cost and reverse the poor situation. In the last step of the process of restructuring Lego’s supply chain, the Group tried to close some of its’ own factories in Korea and Switzerland, upgrade the procurement process and outsource 80 percent of the production.
Prior to outsourcing to Flextronics, production plants were located in high-cost countries including Denmark and Switzerland. Apart from the famous Brick, the company entered into other industries including computer games, clothing, licensed products and television. The product diversification was very large since they lost confidence in their core product. This catalyzed inefficiencies and confusion for customers. The result was a disastrous net loss and forced the company to find solutions to cut the cost and recapture the market share.
In 2009, the Lego Group ended the outsourcing contract with Flextronics as they claimed that it would be more optimal for them to manage their global manufacturing set up. They gain back the control over its production plants. Now, they need to adapt to the changing demand on their own and to maintain the relationships with different small external suppliers. As they focus on the internal production now, they need to re-think the structure and the production process. This paper will analyze issues facing LEGO, mainly with the global supply chain, and then examine