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SCM || GROUP 1 || LEGO Case

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Shobhit Saxena

on 15 September 2013

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Transcript of SCM || GROUP 1 || LEGO Case

Abhishek Chaudhary M004
Ejaru Sagar M016
Sandhya Negi M030
Shobhit Saxena M035
Swati Shalini Kujur M043
LEGO: An Outsourcing Journey
LEGO: Only the best is Good Enough
Founded in 1932 by Ole Kirk Christiansen
Vision: Inspire children to explore and challenge their own creative potential
Motto: Only the best is Good Enough
5th Largest Toy Manufacturer in 2009
LEGO: Building a Giant
Loss of confidence in core product
Too much diversification- confused customer
Too many suppliers- 11000 suppliers

“We have been pursuing a strategy which was based on growth, increase in market shares and growth by focusing on totally new products. This strategy did not give expected results.”
- Kjeld Kirk Kristiansen, former CEO
Cause of Internal Crisis
Packaging Products & Services
2B pack

Electronics & Plastics Manufacturing
Strategic Move to Large Subcontractors
Outsourcing Journey
Internal Crisis
LEGO: Only the best is Good Enough
Financial Condition: 2009
In 2009, LEGO had:
7000 employees
Revenue: DKK 11.7 B
Net Profit: DKK 2.2B
5th-largest toy manufacturer
Offers products in more than 130 countries
4.8% market share
Market-wise Revenue contribution (2007)
Product Lines
Internal Crisis: 2003-04
-Sales decreased by 40%
-Accumulated Loss of DKK 1.8 Billion (2004)
-Shifted focus from core product while facing dynamic competitive market
2004- new CEO appointed
Became aware of inflexible supply chain undermining business platform
“Shared Vision”
Be the best at creating value for our customers
Refocus on value we offer customers
Increase operational excellence
Divested Theme Parks
Changes Due to Crisis
Multinational Electronics Manufacturing Service (EMS)
30 Billion in Sales 2012
Based in Singapore
160,000 Employees
Operates in 30 countries
Flextronics as the Solution
Outsource finalized in 2006

Key factors in outsource decision:
Economies of Scale
Locked in Pricing
Targeted 80/20 outsource/in-house structure
Optimization of LEGO’s global supply chain
Unforeseen Complexities
Production Inefficiencies
Cyclical production demand
Varying Product Lifespan

2008 LEGO phased out cooperation with Flextronics
Unforeseen Complexities
Outsourcing Journey
After Flextronics
Took over control of factories used by Flextronics
Opened new site in Monterrey, Mexico in 2009
“Not satisfied with the effectiveness in the outsourced facilities.”—Jorgen vin Knudstorp
Took too much time to teach people what Lego expected
“We have learned that even though everything points at outsourcing, it might still not be the best solution.” - —
Niels Duedahl
LEGO learned more about its own process and structures
“More special than we expected to be.”— -
Needed to spend more time on integral production process
Importance standardization & documentation
Even when everyone knew exactly what to do
especially for off-shore operations
Too many products resulted in high cost
Tackling the supply chain hurdle of handling - 11,000 suppliers & delivery to 130 countries
Lessons Learned
LEGO Success Criteria:
Build competencies
Develop plan for training and education
Have local leaders that know working culture of country
Ensure measurable statistic present for benchmark/KPI
Outsourcing seemed to be the answer, was unsuccessful for LEGO
New structure has proven to be very successful for LEGO group
Company Analysis
SWOT Analysis
Porter's 5 Forces
Lessons Learned
Sales & Operations Planning
Focus: sales, production, and product development
Need to standardize processes
24 billion bricks per year, standardization required.Example: Went from 16 different police officers to 4
70 percent “evergreen” bricks—used in more than one product
VRIO Framework


costly to Imitate?

Organized to capture value?
So what was the solution???
Why outsourcing FAILED?
Use of Forecasting Models
Time Series methods
Causal Forecasting Methods
Qualitative Methods
Phase Wise Analysis

Written Documentation
Documentation of all supply chain processes
Consistent through entire company
Provides clear communication lines
"Production in another country - even within the same company - requires ten times more documentation than in the company it moved from." 
Integration of Work Processes
S&OP - sales and operation planning
Integrates and coordinates all the production facilities roles and responsibilities
Standardization - Three Levels
Upper Level -  Way of thinking, values, attitudes
Middle Level - Planning processes, Follow up processes
Lower Level -Hardware and factory layout
Efficient factories with achievable goals
Branded factories switched to Regional Markets
Quicker Response to regional demand
Clear attainable goals with attainable benchmarks

ERP systems: multimodule software application platforms organize and manage enterprise-wide processes records every business transactions to tie together and automate processes
LEGO and its partners would be able integrate financial information and customer information
ERP would help to standardize and speed up manufacturing processes
Standardizing its products and facilities will allow LEGO to optimize a total cost advantage
ERP helps to reduce inventory and duplicate information - the partners will be able to consolidate data
ERP will improve LEGO's issues with demand fluctuations and forecasting errors by planning sales and operations processes
Full transcript