Essay about The Lego Group: an Outsourcing Journey Case Analysis
2004 began an especially difficult period for The LEGO Group, which entered into a financial crisis resulting in a deficit of 1.8 billion DKK ($294.9MM USD). The internal turmoil lasted through 2009 as the leading toy manufacturer, famous for the signature LEGO brick, nearly went bankrupt. This experience was a first-hand lesson in the negative effects of not having a stable and organized supply chain design. Effective supply chain management is essential for a manufacturing firm to successfully coordinate the flow of materials and information with demand (Krajewshi, Ritzman, & Malhotra, 2010). A fundamental element of supply chain management is …show more content…
In order to create value for customers the organization went through several right-sizing and cost cutting activities (aided by an injection of $800MM DKK ($152MM USD) from the founding family) which involved selling non-core business units including properties in the U.S., South Korea and Australia (LEGO's practice had been to own all its buildings), its four theme parks and its videogames development division (Delingpole, 2009).
Knudstorp was the first CEO of the company who was not a member of the founding family. A former MiKensey consultant, he realized that the culture had to change as well. Frank discussions about LEGO’s profitability and performance took place. Performance-related pay was introduced and was a sense of urgency. It used to take two years to develop a product from idea to box, it now takes 12 months (Delingpole, 2009).
Outsourcing as a Fix
The most drastic change made by LEGO Group to turn around the business was outsourcing to Flextronics, a leading multinational electronics manufacturing services provider. Founded in 1969 in Silicon Valley, California; Flextronics was the first U.S. Company to start offshoring production in 1981. It has an