LEGO 4

[robharris]

Discuss the key considerations when outsourcing of offshoring
production.

[robharris]

Describe the competitive environment of the industry and how it
related to LEGO’s strategic choices.

[rddiaperman]

The competitive environment was extreme in the toy making industry in
general and for LEGO and construction toys in particular it was even
more extreme. LEGO faced market share losses in numerous countries due
to competition from Tyco, Coko, Best-Lock, and Mega Bloks. Although
not mentioned in the article a quick search produced the names of
LEGO's major competitors. With so many major competitors, LEGO has to
defend its market share all around the world. This puts additional
financial strain on the company as the Denmark Krona is not viewed as
a major hard currency. Almost two thirds of their revenues come from
North America and Europe where the dollar and Euro are the leading
currencies. Most of their production facilities were located in high
cost countries and this lead to the decision of outsourcing to a lower
cost country as management saw the major potential for cutting
costs.

[rddiaperman]

The key considerations include communication (a common theme
throughout this case analysis), some sort of engagement model that
shows in detail exactly how the outsourcing will be implemented,
service level agreements that state minimum accepted standards the
outsourcing will provide, mobilization and start-up steps listing what
personnel will be used to ensure a proper knowledge transfer exists
between the two companies, organizational structure changes showing
exactly who report to who and what responsibilities belong to each,
also any supply chain changes that will be required due to the
relocation of production facilities.

On Nov 18, 4:34 pm, robharris <rob.harris....@gmail.com> wrote:

[erzim...@yahoo.com]

There are a few other big hitters in the industry but LEGO is a
dominant force and has good brand awareness among consumers. A strong
force in the industry is the threat of substitute products. Different
toys are constantly popping up. Yes LEGO has undertaken some of these
and included them in their product mix but they must be careful not to
cannibalize what sells best. The case discusses when they diversified
a little too much and it started having negative impact. Anyways,
along with a focus on innovation LEGO is trying to compete cost
effectively and keep pricing down, so they can reduce the risk of
people picking up on substitutes. This low cost rationale is evident
in the choices they are making.

On Nov 18, 4:34 pm, robharris <rob.harris....@gmail.com> wrote:

[Curtis Lucas]

I think the one point that needs to be stressed is understanding what
you are outsourcing. LEGO looked to outsource two of it core
competenencies. If you were the leader at LEGO which areas would you
have looked to Out source?

On Nov 18, 4:34 pm, robharris <rob.harris....@gmail.com> wrote:

[tiffany neff]

When outsorucing production it is imparative to understand the culture
that a company is outsorucing too, and for that country to understand
the culture they are working with. Also how an organization is going
to relate to language barriers. Another consideration an
oragainzation needs to foucus on is how they are going to train an
outsroucing organization to understand their processes and
expectations. There also needs to be local leaders that understand all
aspects of cross training from one country to another.

On Nov 18, 4:34 pm, robharris <rob.harris....@gmail.com> wrote:

[rddiaperman]

To answer Curtis's question about what to outsource if I was CEO the
answer is I would outsource the exact same thing the LEGO CEO did. He
had the correct thought of reducing costs by moving the high volume
production from high cost countries to low cost countries. The mistake
was not completing all the required prework on the supply chain.
Flextronics did not posses the needed core competenencies in this case
and to hand them a supply chain that was not tailored for them was the
same as throwing water on a drowning person. Agree or disagree?

> > production.- Hide quoted text -
>
> - Show quoted text -

[tiffany neff]

I agree with you Mark that LEGO had the correct idea of reducing cost
and moving high volume production from high cost coutnries to low cost
countries. But I also think moving outsroucing in generall there is
barriers with cross training, lack of traning and expectations from
LEGO to Flextronics. I don't think that LEGO could do prework on the
supply chain becuase I don't believe they even had a clue of their
faults as a company with their own supply chain. I believe the supply
chain manager only realized these problems after the fact of
outsroucing to Flextronics.

> > - Show quoted text -- Hide quoted text -

[Emily Hackett]

You have a point Tiff. I am not sure that cross-training is the key
here, though. Not that Flextronics could have benefited from
some...but... the work that LEGO needed to do prior to outsourcing at
all included relatively simple things that the executives at LEGO
should have seen and done (and maybe did, but were overruled) well
before the giant leap to 80% production of their major lines to
Flextronics. A demand forecast at +/- 30%??? A supplier base of
around 11K??? Very little process documentation??? I do think that
the major problems were highlighted with the disaster that became of
outsourcing so much production to Flextronics so quickly, but that
could have been avoided by simply incrementally ramping up production
levels over a 3 or 5 year period. Still saves LEGO $, but allows
them the opportunity to discover major issues without having the major
production issues.