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Hi, need to submit a 500 words paper on the topic Lego. Outsourcing Production Services The LEGO group company is among the top five toy companies in the word. It is located in a town known as Billund
Hi, need to submit a 500 words paper on the topic Lego. Outsourcing Production Services The LEGO group company is among the top five toy companies in the word. It is located in a town known as Billund, Denmark. It first came to existence in 1932 under its founder Ole Kirk Christiansen with a vision to inspire children explore and discover their own creative potential. The company has about 7,000 employees from all over the world and through them the company makes a net profit of 2.2 billion annually (Larsen et al, 2). Despite the company’s success for over 70 years it faced financial challenges, in 2003 that almost made it bankrupt. The management, therefore, decided to partner with Flextronics, one of the largest electronics manufacturers in US, to produce on their behalf. However, this decision turned sour and LEGO withdrew their production from Flextronics in 2009.
There are two major reasons behind LEGO’s decision to have 80 percent of their products produced in Flextronics. The first one was the introduction of new toys in the market by its competitors. This influenced the company’s decision to partner because it was during the same period the company had lost confidence in its key product, LEGO brick (Larsen et al, 3). The second reason that triggered partnership was the changes in the global market, as well as, the currency exchange rates in the major importing countries. Through partnership, the company had aimed at increasing its market shares and producing new products.
The partnership did not last long without challenges which with time led to the end of the relationship between the two companies. The fist challenge was ensuring that enough stock is constantly maintained. This was mostly contributed by the errors in forecasting and fluctuation of seasonal demand. In addition, the need to meet consumers’ expectations of large stock within a short period led to over production (Larsen et al, 5). The second challenge was the need for change in its retailers. This was a challenge, especially in supply chain management, considering the level of flexibility towards all retailers and smallest outlets.
Although the partnership between the two companies did not turn as expected, LEGO can use this failure as its strike back in handling supply chain complexity as well as knowledge sharing, flexibility and coordination (Larsen et al, 10). However, the company has to consider several aspects to achieve these. The first aspect is being open and putting into consideration consumer views. This can be achieved by working closely with the retail shops which in turn reaches the consumer. The second one is coming up with new policies that clearly define the different approaches to retailers. This will help in differentiating the approach towards small and big retail chains. It also not only reduces distribution cost but also give a totally different perception on demand.
In conclusion, failure to succeed in outsourcing production from Flextronics does not necessarily mean that LEGO should do away with outsourcing. LEGO can go ahead and outsource but putting into consideration two very important aspects. First and for most, the company must embrace cost saving principle on production. For instance, relocating its production to countries where the cost of production is low. Secondly, the company should put into consideration potential economies of scales and level of production complexity. For example, it can allocate production to many partners where one company does manufacturing, another packaging and another distributing the final product. Additionally, breaking down production stages and allocating each to different companies enhances efficiency and accountability. Therefore, outsourcing is not a dangerous move in the growth of any company but an added advantage if efficiently done.
Work cited
Larsen M., Pedersen T., and Slepniov D. Lego Group: An Outsourcing Journey. Richard Ivey School of Business (2010). 1-12. Print.
