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.
2004 2005 2006 2007 2008 2009 2010
2011
$60 755,00 $63 507,00 $67 030,00 $78 088,00 $77 224,00 $79 552,00 $83 900,00 $85 000,00
Billion $
World Toy Market
LEGO Group
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
children's 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 world's 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
“LEG GODT” – “PLAY WELL”
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
Flextronics Other company
Main parts Not the main parts
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 Community Effect
ü Enlarge demand ü SegmentaLon of the
demand ü Increase the willingness
to pay ü Enhance customers
loyalty ü Increase Brand
Awareness
! Costs of producLon of customized goods
! ImitaLon ! Not applicable to alone
young users ! Confusion of demand ! High Development Costs
Hungary Denmark Mexico Czech Republic
Supply Chain Today
Granulate Moulding Prepack Finish pack DC Costumer
Processes through supply chain:
ProducLon site
Subcontractors
Europe
Mexico China
• 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 world's 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 world's
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.
InteresLng facts
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
Higher Level of Core Competence
Lower Savings Higher Savings
INHOUSE
OUTSOURCE