An Analysis of the Operations Strategy and Management Decisions in Lego Group Between 2004 and 2009

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An Analysis of the Operations Strategy and Management Decisions in Lego Group between 2004 and 2009

Summary
By 2004 Lego was in considerable trouble; it had made a loss of approximately £200m; sales fell by 40%. One reason for this was lack of success in moving into new markets, such as computer games and clothing. However, a major cause for the financial woe was due to issues in the supply chain; costs were not being squeezed out, and the increase in specialised LEGO models had led to an explosion in the total number of unique bricks; each requiring expensive moulding, production and inventory. LEGO rightly decided to address this supply chain cost issue, and turned to Flextronics, a company with considerable experience in outsourcing. Over the next three years, with help from Flextronics, LEGO transitioned to a low-cost supply chain. However, this process did not deliver all the success LEGO had hoped for, so in 2007, LEGO moved to control its own supply chain again. This report analyses the situation as it was in 2004, the current (2009) position, and addresses several questions concerning expectations, lessons learned, and the strategic challenges faced by LEGO during this period.

2

M.Sc. Management

BSMP27

Table of Contents
Summary ....................................................................................................................................... 2 1 2 3 4 5 Analysis for the Period to 2004 ............................................................................................. 4 Analysis for 2009 Onwards.................................................................................................... 6 Significant Success Features of Lego Design and Manufacturing Operation to 2004........... 8 Current Business and Operations Strategy ........................................................................... 9 Business Operational Strengths and Weaknesses .............................................................. 10 5.1 5.2 5.3 5.4 6 Business Strengths ...................................................................................................... 10 Business Weaknesses .................................................................................................. 10 Operational Strengths ................................................................................................. 11 Operational Weaknesses............................................................................................. 11

Operational Order Winners and Qualifiers ......................................................................... 12 6.1 6.2 6.3 Order Winners ............................................................................................................. 12 Order Qualifiers ........................................................................................................... 12 Possible Future Changes ............................................................................................. 12

7

Competitive Environment ................................................................................................... 13 7.1 Forces Acting on Strategic Choices ............................................................................. 13

8

The Flextronics Relationship ............................................................................................... 14 8.1 8.2 8.3 Main Expectations ....................................................................................................... 14 Lessons Learned .......................................................................................................... 14 Key Challenges in Maintaining Relationship with Flextronics ..................................... 14

9 10

Supply Chain Complexity: Key Issues .................................................................................. 16 Conclusions...
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