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Lego Group An Outsourcing Journey

Solution Id Length Case Author Case Publisher
2603 1545 Words (6 Pages) Marcus Moller Larsen, Torben Pedersen, Dmitrij Slepniov Ivey Publishing : 9B10M094
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Lego Group was faced with a decision to manage its supply chain activities efficiently which is why it decided to offshore its production activities in an attempt to save its costs. However, it soon terminated its agreement with Flextronics with whom it had signed the outsourcing agreement. There were a number of reasons for that as Lego had signed the agreement with Flextronics in haste without doing any business research. The business model of both the companies did not align with each other as Lego Group experienced seasonal demand which was not aligned with the production processes of Flextronics and made it difficult for Flextronics to generate economies of scale for the company. Also, Flextronics had a strong history in standardizing and documenting work routines which made it an ideal partner for the Lego Group but with the pace of the transition, it actually became challenging for the Lego Group to manage its highly complex global network of production facilities. Conclusively, although it was easier for the business to move technology but it was quite challenging for it to train its staff at the same pace which caused it to face setback on the collaboration. Although the collaboration was a failure, but it still managed to enable Lego Group to expand its footprint and it realized the importance of documenting the work processes that allowed for a higher degree of transparency and added value to the business.

Following questions are answered in this case study solution:

  1. What were LEGO's main expectations and what did they learn from the relationship with Flextronics? 

  2. What are the key challenges in maintaining a relationship like the one between LEGO and Flextronics? 

  3. How can LEGO handle the supply chain complexity to improve knowledge sharing, flexibility, and coordination? 

  4. Discuss the key considerations when outsourcing or offshoring production. 

Case Study Questions Answers

1. What were LEGO's main expectations and what did they learn from the relationship with Flextronics? 

Lego’s main expectations from its relationship with Flextronics revolved around a lower level of complexity associated with the production processes at Lego. Also, it would provide Lego with a greater focus over its core competencies as it would outsource a major percentage of its overall production. Thirdly, Lego expected that its relationship with Flextronics would open new avenues of cost savings for the business. The company would therefore be able to benefit from economies of scale and at the same time minimize its production costs by entering into contracts with Flextronics with locked in prices. Apart from this, Flextronics seems to have a track record of professionalism work ethics as it has worked with a number of global brands. Also, it has adequate resources including industry leading plastic capabilities as well as the right number of resources needed for molding, packaging, assembly and distribution.

There are a number of thigs that Lego learnt from its relations with Flextronics. Firstly, the Lego business model is quite complex as it produces a wide range of products targeted at different customer segments. Hence, it would not be possible to standardize the production process as that would further enhance the level of complexity in Lego operations. Further, additional research was needed before Lego would have considered collaboration with Flextronics as then Lego would have gotten insights that Flextronics business model would be aligned in case of predictable demand. This was not the case for Lego. Lastly, it wasn’t just about moving technology what Lego did, but it needed to focus on staff training and education for effective results and this requires a long time and cannot be done in haste. Hence, Lego would have to coordinate all the relevant production processes and align them to the supply chain activities of the business.

2. What are the key challenges in maintaining a relationship like the one between LEGO and Flextronics? 

There are a number of challenges that need to be accounted for when maintaining a relationship between Lego and Flextronics. The pace at which the transition took place was to be quick given the dynamic market in which the company was operating. Hence, the relocation of production processes was to be done quickly in order to materialize the expected financial goals for the company. 

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