MNGT 4800 Lego Part 1
MNGT 4800 Lego Part 1 MNGT 4800
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This 4 page Class Notes was uploaded by Peyton Oglesby on Sunday April 17, 2016. The Class Notes belongs to MNGT 4800 at Auburn University taught by Dr. Peter Stanwick in Spring 2016. Since its upload, it has received 13 views. For similar materials see Strategic Management (Section 009) in Business, management at Auburn University.
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Date Created: 04/17/16
MNGT 4800 Case 18: LEGO Group LEGO History Privately held Danish company founded in 1932 o Headquarters in Billund, Denmark (focused on triple bottom line, environmental performance, etc) o 7,000 employees worldwide o 5th-largest toy producer in the world by 2009 Culture o Motto: “Only the best is good enough” o Vision: “Inspire children to explore and challenge their own creative potential” Management o CEO, CFO, plus 4 executive VPs o Jorgen Vig Knudstorp selected CEO in October 2004 LEGO Products&Markets • LEGO brick (“Toy of the Century”) introduced in 1958 • Sold in more than 130 countries • Product segments o Pre-school products (DUPLO) o Creative building o “Play theme” products o Licensed products o LEGO education o LEGO games • Percent revenues by region • Professor comments: o Corporate level strategy for LEGO- related-linked corporate level strategy o Multidivisional structure Supply-Chain Issues o Development • Proliferation of complex LEGO sets-Star Wars and the Death Star • Difficulty with inventory management • High investment in injection molds (production costs)-Darth Vader helmet o Production • Forecasting errors-highly cyclical and highly unpredictable. • Seasonal fluctuation in demand • Activities allocated by branding strategy • Solutions o Development • Limit growth in product components • Then gradually reduce product line o Distribution • Create clearly defined service policies with retailers • Centralize five European distribution centers in Czech Republic • Outsource operations of distribution centers o Production • Transfer production to lower-cost plants • Target large external subcontractors to achieve economies of scale Professor comments: o Retailers input is critical with forecasting Lessons Learned Outsourcing partners must provide good strategic fit Outsourcing is not a simple solution o Increased complexity o Increased need for communication Value of process documentation o Transparency o Control o Understanding of LEGO’s own processes and structures 3 Take-away points: o Increased complexity o Increased need for communication o Increasing the demand for a partner that strategically fits Lego – Flextronics a “troubled” marriage • Outsourcing collaboration with Flextronics canceled after three years • Failed to reduce LEGO’s operational complexity • Too rapid pace of transition-lego had to change from internal to external • Partner misalignment o LEGO Seasonal fluctuations and unpredictable demand Needed assistance with manufacturing and kit assembly o Flextronics Stable and predictable demand to achieve economies of scale Specialized in products with high technological content Professor comments: o They outsourced to Flextronics For cost savings Economies of sale And reduce complexity of operation o Why the picked Flextronics Values Safety Quality Overview of Flextronics Market Segment Portfolio (2007) • $31 billion in annual sales • 160,000+ employees worldwide o 120,000 in Asia o 90,000 in China • Operating in 30 countries • 27 million square feet of capacity in nine industrial parks • Multiple large customers • Professor comments: o Prior to their partnership with Lego, Flextronics NEVER had experience with toy manufacturing o FlextronicsàUnrelated diversified company See slide 9 for Exhibit 7 Professor comments: o Lego learned two critical lessons It is a lot harder to explain to someone else what you’re doing They undervalued their expertise in production, they had a significant core competency Communication Issues: • LEGO used word-of-mouth processes that were supported by its existing internal operations • Not clear how info was to be transmitted between the companies o LEGO needed to provide to Flextronics with: Product design specifications Manufacturing process info Accurate scheduling forecasts o Flextronics needed to provide LEGO with: Work process documentation Production scheduling info Variances in changes that it could accommodate Professor comments: o Word of mouth is dangerous, you’re relying on a small group of people transferring their knowledge Effective Supply Chain MNGT • Create a global sales & operations planning process o Address sales, production, & product development o Establish communications lines o Provide interface between production activities • Data consolidated at site level • Monthly executive sales & operations planning meetings
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