E Procurement

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LEGO GROUP

Introduction
Lego group, a privately held company which is a construction toys company based in Billund, Denmark. The company was founded and formed by the Krik Kristiansen and his family in 1932.

The company's main flagship product, Lego, consists of coloured interlocking plastic bricks and a collection of gears, mini-figures and various other parts. Lego bricks can be assembled and connected in many ways, for example, to construct objects such as vehicles, buildings, etc. Anything constructed can be taken apart and then the pieces can be used to make other different objects in different shapes. The toys were first designed in the 1940s in Denmark and from then onwards it has achieved an international appeal, with an extensive branch of activities that supports Lego in movies, games, video games, competitions, and also in four Lego themed amusement parks in Germany (Gunzburg), Denmark (Billund), United States (San Diego) and United Kingdom (Windsor). Around 5 billion hours a year are spent by the world’s children playing with LEGO bricks. LEGO also employees over 5000 people worldwide.

E-Procurement
“E-procurement is the incarnation of the buying-process where routine tasks (such as purchase requisition creation and approval, placing purchase orders, receiving products, processing invoices and paying invoices) get automated and tasks in the enterprise are redesigned”.

LEGO group uses IBX software which provides scalable on-demand solutions for sourcing and procurement of raw materials paired with purchasing know how and managed services.

The materials procured by the company through their IBX software are the direct raw production material, the packaging material and some indirect operating resources (ORM).

The direct raw materials are Acrylonitrile Butadiene Styrene (ABS), rubber and electronic. ABS is mainly a plastic granules sheet. This ABS is then moulded into different shapes to make the various types of LEGO bricks. They also make tiny tyres using the rubber sheets. The packaging materials are the plastic boxes, cardboard boxes and polythene bags and other packaging items. The electronics are used in their new range on robotic toys.

The Indirect Expenses include items such as office equipments and stationeries. Lego recently signed a contract with Flextronics for its electronic goods. But Lego didn’t stop their e-procurement with only purchase; they also implemented it for their online shopping portal. The firm is now integrating the e-procurement service into customer and billing services so that delivery and payment for the product ordered can be ensured.

Lego: Savings through E procurement

Initially uptill 2004, before the deployment of the IBX e-procurement software, Lego had difficulties with a budget deficit for a couple of years. So there was an organizational change in the management and they implemented a major strategy for their recovery which included three phases:

-Survival (2004-05),
-Profitable core platform (2006-08)
-Organic growth (2009+)

In the first phase, the survival stage, LEGO mainly concentrated on achieving three main objectives which were:

1) To set a clear direction for the LEGO Group and fundamentally change the way they do business.

2) Restore competitiveness by focusing on customers

3) Reduce the level of risk by optimizing our activities, cost base and assets to a lower revenue base LEGO’s e-procurement implementation has helped in achieving the third objective. The figures below show us the details on how it was possible. (source: http://cache.lego.com/downloads/aboutus/LEGO_company_profile_UK.pdf)

In 2004, the statement shows that the company had been suffering from major loss. The operating loss which was 99 million DDK is shown in brackets above indicating it was a deficit/loss.

When we compare the 2005 and 2006 income statements, we can see a difference in the restructuring expenses. The restructuring expenses...
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