Lego Group Supply Chain Management Transformation Essay Example For Students

Lego Group Supply Chain Management Transformation Essay In the recent times world-wide economic system has become extremely volatile and was vulnerable to a battalion issues. One such illustration is the latest fiscal crisis. Such volatility creates a assortment of challenges to little and big endeavors around the Earth. One of the biggest challenges for fabrication companies is to cover with quickly increasing globalisation and competition. The solutions require the development of agile and rapid supply webs in order to cut costs and fitting demand. Manufacturers are going more cognizant of supply concatenation direction. This consciousness shifts the focal point from internal logistics efficiency to the external web of relationships between assorted parties in the supply concatenation. The well-known Danish plaything maker LEGO has non been unsusceptible to these alterations. LEGO has faced major challenges, which required drastic alterations within the organisation. This included a transmutation of the company s supply concatenation direction system. LEGO Group had to cover with likely the most important fiscal crisis since the company was founded in 1932. LEGO s crisis was non clearly seeable from the exterior. In fact LEGO had maintained trade name acknowledgment. This earned them the rubric Toy of the Century from the British Association of Toy Retailers and Fortune magazine. LEGO was the 4th largest plaything maker in the word and had sold US $ 1.35 billion worth of playthings in 2004. In malice of this success, the company was losing money since 1998. LEGO had assorted internal operational issues. This included a complex and uneffective supply concatenation, which at one phase consisted of 11,000 contractors. In an effort to turn to this job, in 2004 LEGO board of managers set a end to cut 20 per centum of logistic costs. This resulted in the hazardous determination to outsource a major portion of the production to Flextronics, a Singaporean electronics fabrication services supplier. LEGO besides established a individual distribution centre in the Czech Republic operated by DHL. ( M. M. Larsen, T. Pedersen, D. Slepniov 2010 ; K. Oliver, E. Samakh, P. Heckmann 2007 ; J. A. Cooke 2009 ) Such a hazardous determination involved a long-run relationship with Flextronics that was non without challenges. In this research paper an overview of challenges and solutions of the instance company LEGO Group will be presented. The chief focal point will be on LEGO s supply concatenation direction system transmutation, which was a major measure towards success. The undermentioned research inquiries will function as guidelines for this paper: What challenges did LEGO Group face and what determinations were made to turn to those jobs? How did Supply Chain Management transmutation helped to cover with these issues? In this paper we will foremost research the Supply Chain Management ( SCM ) constructs. Next the instance company LEGO Group will be introduced. We will so show overview of the challenges that LEGO Group has faced. The focal point of this paper will be the SCM determinations that were made to cover with these jobs. Outline1 Supply CHAIN MANAGEMENT CONCEPT2 Introduction TO THE CASE COMPANY: LEGO GROUP3 Merchandise development4 Distribution5 Manufacturing6 Decision Supply CHAIN MANAGEMENT CONCEPT The globalisation is increasing competition and organizing new conditions for carry oning concern. This requires companies worldwide to quickly react to their clients demands and develop merchandises. These companies must besides use information engineerings in supply concatenation coaction ( J. S. Arlbjorn et Al. 2006 ) Such conditions increased the importance of logistics and SCM function within organisations as it can go a major competitory advantage. Normally, the major betterments in logistical maps may non be needed within the organisation itself. It may be more good to analyse the organisation s supply concatenation. This involves assorted mutualist parties. SCM co-operation is deriving in major strategic importance and normally includes such features: co-operating is based on terminal user demands, long term co-operation and high trust between histrions in the supply ironss or webs, shared hazards and benefits, cross coordination on assorted degrees between companies, shared visions and similar company civilizations. The advantage of such close co-operation is a more crystalline supply concatenation. This can take to cut down lead-time, lower uncertainness, optimisation of stocks and higher capacity use. ( T. Skjoett-Larsen 2000 ) The construct of SCM frequently represents the broader position of logistics as its chief map is to guarantee the smooth flow of stuffs from providers to organisation and so out to clients through the operations within the organisation ( D. Waters 2003 ) . The intent of SCM can be described as to take redundancies and communicating barriers through coordination, monitoring and control maps ( D. Power 2005 ) . The supply concatenation normally consists of different organisations and procedures, which are aimed to guarantee the smooth flow of stuffs from the initial provider to the terminal client. In many instances, makers get their stuffs from a big figure of providers and sell to different clients, which is the instance with LEGO Group. In figure 1, you can see an illustration of the supply concatenation around a maker. Materials move from several grades of providers though organisation to several grades of clients, such as jobbers, retail merchants and terminal users. Figure 1: Supply concatenation of maker ( D. Waters 2003, 9 ) The plaything industry is one of the oldest originative industries in the word. However, C. Y. Wong, J. S. Arlbjornand J. Johansen in their survey named Supply concatenation direction patterns in toy supply ironss ( 2005 ) province that such originative concern is really seasonal and volatile with strongly fluctuating demands, really short and specified merchandising Windowss every bit good as short merchandise life rhythms. Furthermore, the plaything industry can be described as intensely competitory on pricing and invention, where retail merchants frequently start viing with their providers. The writers conclude that most retail merchants and makers use a push concern theoretical account. This theoretical account includes low use of engineering and information sharing every bit good as slow execution of supply concatenation enterprises. Introduction TO THE CASE COMPANY: LEGO GROUP LEGO can be surely defined as one of the most celebrated trade names in the plaything industry. The Danish company s playthings are enjoyed worldwide by kids and grownups likewise, who use 1000s of different pieces to build edifices, automatons and other plaything. In 1932, Ole Kirk Christiansen, a Danish carpenter founded a company named LEGO ( Danish words Leg and Godt , intending drama good ) . Originally a carpentry concern for furniture, LEGO began bring forthing kids s playthings in 1934. The company presents itself by saying: It is LEGO doctrine that good drama enriches a kid s life and its subsequent maturity. With this in head, the LEGO Group has developed and marketed a broad scope of merchandises, all founded on the same basic doctrine of acquisition and developing through drama. In figure 2 the nucleus edifice blocks of LEGO Group are presented. ( M. M. Larsen et Al. 2010 ; LEGO Group, Corporate Communications 2009 ) Figure 2: The LEGO Company ( LEGO Group 2010 ) Prosecuting such a doctrine, LEGO has grown enormously since its constitution. By 2009 the company was the universe s 5th largest plaything maker in footings of sale with 290 Million US Dollars in grosss and about 7000 employees around the Earth. The LEGO brick which is perchance the best known plaything was foremost introduced and patented in 1958. It has since so represented the nucleus success and image of this company. With two merely bricks there are 24 different combinations and with six there are 915 million possibilities. This enables illimitable creativeness. As antecedently stated, before LEGO brick was named as Toy of the century by Fortune magazine and subsequently by British Association of Toy Retailers every bit good. ( M. M. Larsen et Al. 2010 ; J. Tidd, J. Bessant 2009 ) Self Reflection And Self Awareness EssayIn order to function clients in 130 states around the universe, LEGO had 11 warehouses and distribution centres in high-cost states like Denmark, France, Germany and Switzerland. LEGO besides employed 55 transit suppliers for inbound and outbound cargos. In order to travel its distributions closer to the client and cut down detonating transit costs, the company defined clear service policies. This helped to switch the focal point to major retail ironss. This besides provided for more accurate demand prognosiss, reduced complexness and surely the costs of distribution. Furthermore, LEGO Group decided to centralise its distribution by shuting five distribution centres in Europe, and making a individual distribution centre near Prague in the Check Republic. The state was chiefly chosen because of a high handiness of skilled low cost labour. LEGO leased big edifices from the commercial Realtor ProLogis. LEGO besides decided to outsource operation s to third-party logistics company DHL supply concatenation. ( M. M. Larsen et Al. 2010 ; K. Oliver et Al. 2007 ; J. A. Cooke 2009 ) By 2007 a freshly consolidated distribution centre was functioning all of LEGO s markets except the U.S. , where Exel Inc. was responsible for distribution operations. Such alterations reduced the complexness of supply concatenation, simplified the stock list optimisation and decreased mean distances to the market. This lead to increased client satisfaction and significantly reduced overall logistics costs. Despite the outsourcing, LEGO maintained close coaction with its bearers and still makes many determinations. The consequences of such coaction are reduced negative effects of market seasonality. Furthermore, by using developed Web-based transit direction system LEGO was able to alter the cargo programming and better burden consolidation. ( M. M. Larsen et Al. 2010 ; J. A. Cooke 2009 ) Manufacturing The improved production in the supply concatenation was likely the most of import and complicated measure. The challenges came from the manner LEGO organized its production installations and the complexness of fabricating operations. In some manner helter-skelter production operations resulted in low 70 per centum of overall capacity use. There were 100s of independent production units within the installations that could put their orders in any mode. This was frequently without equilibrating supply capablenesss, stock list degrees and demand demands. Consequently, such disconnected system did non back up long-run planning and resulted in high costs and low efficiency. Furthermore, the production sites were located in high-cost states as Denmark, United States and Switzerland, while merely 10 per centum of production was outsourced to China. Production sites chiefly operated harmonizing the stigmatization scheme, where, for illustration, Swiss mills merely manufactured DUPLO and Techn ic merchandises. ( M. M. Larsen et Al. 2010 ; K. Oliver et Al. 2007 ) One of the first stairss was to put clear production rhythms for machines alternatively of holding them available to bring forth any component at any clip. This attack helped to cut down changeless and dearly-won retooling every bit good as balance production operations. Furthermore, orders were set in the monthly meetings in that manner extinguishing the figure of conversions ( K. Oliver et Al. 2007 ) . However, the major determination refering production operations was to outsource big portion of the production to external packaging and fabrication service suppliers. One of the grounds was to cut the costs by traveling the production from high-cost states. Another ground was to cut down the figure of subcontractors and use the economic systems of graduated table, holding in head that LEGO was bring forthing approximately 24 billion bricks per twelvemonth ( M. M. Larsen et Al. 2010 ) . Consequently, the production capacity in Denmark was reduced and sites in Korea and Switzerland closed. LEGO Group engaged into cooperation with packaging service providers: Sonoco , Greiner , Weldenhammer and 2B Pack . The most hazardous and complex partnership was made in 2006 with Flextronics, a Singaporean based electronics maker. Several merchandise lines, like Bionicle and Technic was still chiefly retained by LEGO, but the higher volume and more simple Duplo and System lines were handed to Flextronics production sites in Hungary, Czech Republic and Mexico. This helped to cut down the distance to clients. However, the relationship was non successful and contract with Flextronics was terminated from January 1, 2009, while LEGO continued with smaller outsourcing contracts. The chief grounds for the failure are connected with delicate nature of plaything industry and could be described in short ( H. B. Dinitzen, D. Bohlbro 2010, 71-72 ; M. M. Larsen et Al. 2010 ) : 65 % per centum of production had to be done during the 3rd one-fourth of the twelvemonth chief vacation season. Merchandises have a life-time of 16-18 month. Gross saless uncertainness is about 30 % . In figure 3, the timeline of LEGO and Flextronics cooperation is presented, including ends and challenges. Despite the failure, LEGO Group has learned a batch from this outsourcing effort, which had a positive impact in the terminal. Figure 3: The timeline of LEGO and Flextronics coaction ( M. M. Larsen et Al. 2010, 16 ) In 2008 LEGO started the procedure of sourcing back the production, while the first mill in the Czech Republic was taken over, followed by Hungarian and Mexican installations. In Mexico, LEGO Group finally moved the production to a new works, which started operating in first one-fourth of 2009. The concluding benefits of coaction were connected chiefly with gained experience in assorted operational Fieldss. It helped to set up new installations in Mexico and Hungary, while production units were no longer following branded attack, but alternatively functioning its several markets. Furthermore, LEGO significantly improved certification and standardisation of concern procedures. Standardization resulted in about halved size of constituents, from 12,000 in 2004 to 6000 in 2008. This enabled more flexible, efficient and smoothly running supply concatenation. ( M. M. Larsen et Al. 2010 ) Decision In the terminal it can be stated that by taking clearly defined and rough restructuring scheme, LEGO Group was able to get the better of the crisis and go one of the successful and largest plaything manufacturers once more. This statement can be backed up by fiscal figures, which indicate that in 2008 and 2009 company reached net income of DKK 315.6 million and 375 million U.S. Dollars, severally. This was the highest in LEGO Group s history. ( M. M. Larsen et Al. 2010 ) A significantly restructured supply concatenation helped to increase the efficiency of major concern operations every bit good as addition the overall client satisfaction. LEGO managed to make and, in some degrees, even go through its rivals, while still collaborating with biggest retail merchants in such Fieldss as joint prediction, stock list direction and mass customization. However, such transmutations required covering with many challenges, including terminated cooperation with Flextronics. Nevertheless, it gave LEGO valuable cognition about outsourcing operations and its interior features. In the terminal, unsuccessful outsourcing pattern resulted in mills in Denmark, Czech Republic, Mexico and Hungary, which gave the needful supply concatenation flexibleness in order to run into the planetary demands. Improved parts of supply concatenation such as merchandise development, sourcing, distribution and fabrication creates a good developed concern theoretical account that serves as a major competitory advantage. Finally, after successful supply concatenation transmutation, LEGO Group can switch more attending to increasing the satisfaction of its clients by developing well-liked plaything for kids and grownups.