The toy industry in Europe The toy industry is one most dynamic business sectors in Europe. 60% of toys on the market each year are newly developed products. The toy business is highly seasonal with consumers making the majority of toy purchases approximately 60% during the Christmas period. In terms of revenue (turnover at retail including tax), the European toy market was the second largest in the world in 2010 with the US as the largest market for tradiLonal toys. Total world toy sales in 2010 were approximately €62 billion in 2010, which means that the European market consLtuted around one quarter of the global toy market. World Toy Market $78 088,00 $77 224,00 $79 552,00 $83 900,00 $85 000,00 $67 030,00 $60 755,00 $63 507,00 2004 2005 2006 2007 2008 2009 2010 2011 Billion $
LEGO Group “LEG GODT” – “PLAY WELL” Lego is a line of construcLon toys manufactured by the Lego Group, a privately held company based in Billund, Denmark. The LEGO Group is engaged in the development of childrens creaLvity through playing and learning. Based on the world-‐famous LEGO® brick, the company today provides toys, experiences and teaching materials for children in more than 130 countries. The LEGO Group has approximately 10.000 employees, and it is the worlds third largest manufacturer of play materials. The toys were originally designed in the 1940s in Denmark and have achieved an internaLonal appeal, with an extensive subculture that supports Lego movies, games, video games, compeLLons, and ﬁve Lego theme amusement parks. The LEGO® Brand values
LEGO’s Main ExpectaLons ! Understanding and appreciaLon of the LEGO DNA that is the unique values that LEGO products represent by Flextronics – in parLcularly the importance of quality and safety ! Supply chain collaboraLon providing strategic and eﬃcient cost-‐savings to improve the overall market posiLoning ! RealizaLon of rapid cost-‐cueng sourcing advantages ! Flextronics’ size, professionalism and experience with serving other global companies successful relocaLon of major parts of the producLon from high-‐cost to low-‐cost countries ! Locking of prices over a long period, leading to the eliminaLon of the risk of producLon price ﬂuctuaLons ! ReducLon of LEGO’s in-‐house producLon capacity from 90 or 95 per cent to 20 per cent ! Beneﬁt from Flextronics’ long history and vast experience in standardizing and documenLng work rouLnes ! Reducing the complexity of the LEGO producLon and organizaLon in general
LEGO’s Main Learnings ! There is a need to monitor and coordinate the diﬀerent producLon faciliLes roles, capaciLes and responsibiliLes in relaLon to the supply ! StandardizaLon of mindsets, operaLons and producLon is used more strategically to overcome and manage the mulLtude of complex issues deriving from a global producLon network ! Building competences, training and educaLon of staﬀ takes more Lme than moving technology ! Outsourcing isn’t always the best soluLon for cueng costs and reducing complexity; it might even complicate maiers instead of simplifying them ! Understanding one’s own processes and structures is key to opLmizing them in order to manage the constant change of market demands and aiain compeLLve advantage ! “We have learned that we are more special than we expected to be”. This quote of LEGO vice president Niels Duedahl points to the fact that LEGO was expecLng a contractor (Flextronics) to know more about its operaLonal acLviLes and processes than LEGO itself ! DocumentaLon of work processes, communicaLon lines and interfaces between producLon acLviLes is indispensable for the coordinaLon, transparency and control of global operaLons. It contributes to idenLfying strengths and weaknesses of the producLon network
Decision tree LEGO Group Outsourcing Not outsourcing Main parts Not the main parts Flextronics Other company Considering the sudden change of it’s sourcing strategy that posed LEGO’s management with more problems than soluLons, the quesLon of LEGO’s main expectaLons and learnings from the relaLonship with Flextronics arises. It is obvious that the LEGO Group expected outsourcing to be the holy grail of resolving its ﬁnancial crisis and the vast complexity and ineﬃciencies in it’s value chain.
Advantages of outsourcing ü Leverage on the ! Costs of producLon of Community Eﬀect customized goods ü Enlarge demand ! ImitaLon ü SegmentaLon of the ! Not applicable to alone demand young users ü Increase the willingness ! Confusion of demand to pay ! High Development Costs ü Enhance customers loyalty ü Increase Brand Awareness
Supply Chain Today ProducLon site Czech Hungary Denmark Mexico Republic Subcontractors Mexico China Europe Processes through supply chain: Finish Granulate Moulding Prepack pack DC Costumer
InteresLng facts • The LEGO Group made over 31 billion LEGO elements in 2010, or 1,000 per second. • There are over 3,900 LEGO elements and 58 diﬀerent LEGO colors. • There are over 915 million ways to combine six LEGO bricks. With over 300 million Lres produced each year, LEGO is the worlds largest Lre maker. • Nearly half a TRILLION LEGO elements have been manufactured over the years. • Laid end to end, the number of LEGO bricks sold in a year would reach more than ﬁve Lmes round the world. • Over 400 million children and adults will play with LEGO bricks this year. • Over the years, an esLmated four billion LEGO miniﬁgures have been produced, making them the worlds largest populaLon group! • With a producLon of about 306 million tyres a year, the LEGO Group is the world’s largest tyre manufacturer. • There are 4 LEGOLAND parks in the world, including Denmark, England, California and Germany. • The world record for the largest Lego castle used 400,000 bricks. • If there was a column that was built with 40,000,000,000 bricks, it would reach the moon. • The highest Lego tower is in Japan. It consists of 430,000 bricks. • The are ﬁve Lego amusement parks, one of them is in the US, in California. • The LEGO Club has 2,7 million members worldwide.
LEGO’s summary Despite LEGO’s extraordinary hold on the imaginaLon of children around the world, the Billund, Denmark, company was in trouble. The Lego Group had lost money four out of the seven years from 1998 through 2004. Sales dropped 30% in 2003 and 10 percent more in 2004, when proﬁt margins stood at –30%. The LEGO Group turned it’s 50 year old strategy of high-‐cost but high-‐quality producLon upside down to follow a new mantra: aggressive outsourcing to low-‐cost countries. A supply chain transformaLon helped put the beloved toymaker back together again. Lower Level of Core Competence OUTSOURCE Higher Level of Core Competence INHOUSE Lower Savings Higher Savings