Lego Supply Chain

e. Logistics/Supply Chain System Assessment

As a relentless market slide in traditional toy market in the last decade and shape decline in sales have caused the LEGO Group to lose confidence in its core products- the LEGO brick, the company tried to develop some new growth engines by continuing broadening and diversifying its products line into completely new fields such as video games, movies and apparel. However, this move to rich current product lines placed additional stress on company’s ineffective and complex supply chain, which resulting in a hasty outsourcing decision and then a big internal crisis in 2004. It is obvious that the LEGO Group performed badly in designing, planning and operating a suitable supply chain to fit with its competence strategy, which is to ensure right components with adequate quantity in stock to respond to demand fluctuations at a low cost. Therefore, this strategy required a supply chain performance that focused more on efficiency but maintained a relatively high level of responsiveness. However, according to the case, the toy maker ineffectively used three logistical drivers (Facilities, Inventory and Transportation) and one cross-function drivers (Sourcing) to reach the performance required by its competitive strategy.

For the facility driver, the LEGO Group located majority of production in high-cost countries such as Denmark and Switzerland, which resulted in a quite high production cost and thereby strongly reduced the efficiency. In addition, the company’s decentralized structure of distribution centers around the world also decreased supply chain efficiency. With the inventory driver, the LEGO Group had to keep a very high inventory level due to excessive complexity of shapes and colors of many different components. This significantly generated a huge inventory management cost and thereby reduced system efficiency. On the transportation front, the LEGO Group self-owed and ran many distribution centers throughout the...