LEGO Group an Outsourcing case study today we're diving into the captivating tale of Lego group's Outsourcing Journey imagine this as a thrilling adventure where the fifth largest toy maker in the world faced highs and lows from 2004 to 2009 our protagonists are the LEGO Group and their quest to manage the global supply chain effectively picture this the LEGO Group found itself in a financial storm with a deficit of 1.8 billion Danish Kona in 20 4 and in need of a game-changing strategy one of the Bold moves made during this period was to partner with Flextronics a Singaporean Electronics manufacturing services provider to Outsource a significant portion of LEGO's production now why did they take this route well the Lego management determined to navigate through the storm believed that Outsourcing to Flextronics was the key to Rapid cost cutting and sourcing advantages in their Pursuit the plan was to license out a whopping 80 % of production along with closing down some production in high cost countries in the excitement of this new partnership the LEGO Group signed a long-term contract with Flextronics Neil Dall a Lego vice president expressed confidence in the collaboration highlighting Flextronics professionalism and Industry leading capabilities however as with any Adventure not everything went as planned fast forward 3 years and the Lego management dropped a bombshell they were phasing out the entire collaboration with Flextronics in July 2008 ikbal P the Executive Vice President for the global supply chain announced the decision citing the need for the LEGO Group to manage its Global manufacturing setup independently this unexpected twist left the Lego management pondering a few crucial questions why didn't the collaboration meet their expectations and what could they have done differently with limited experience in Outsourcing such a large production volume the LEGO Group found itself grappling with challenges the partnership with Flextronics while promising in theory turned out to be a necessary evil that reshaped how Lego managed its Global Production Network join us as we unravel the mystery behind Lego groups Outsourcing Odyssey exploring the highs the lows and the valuable Lessons Learned along the way and hey before we move forward make sure to hit that subscribe button and ring the bell you wouldn't want to miss out on the exciting content I've got lined up for you in the future navigating a crisis and building a better future let's rewind to 2004 when the company faced a crisis that nearly pushed it to the brink of bankruptcy the Lego brick once the heart and soul of the company was losing its charm and the organization found itself grappling with a staggering deficit of 1.8 billion Danish Crona sales had plummeted by 30% in 2003 and a whopping 40% in 2004 making it the most challenging period in Lego's history the rout of the crisis could be traced back to the end of the 1990s when the company in an attempt to grow Beyond its core product ventured into diverse areas like computer games television and clothing this diversification while well-intentioned led to complexity and inefficiencies leaving both customers and employees befuddled the introduction of licensed products like Harry Potter and Star Wars further complicated matters with a unique set of bricks created for each new product former CEO Keel Kirk Christensen admitted we shifted the focus from our actual core product which at the same time faced difficulties in a more competitive and dynamic Market in October 2004 a new leader joran big nud storp took the helm with a clear mission to steer Lego back on course nud storp emphasized the need to drop arrogance listen to customers and be more agile in the market the strategy titled shared vision became Lego's Compass centered around three core principles being the best at creating value for customers and sales channels refocusing on the value offered to customers and increasing operational excellence to finance this recovery the LEGO Group divested its theme parks and secured an extraordinary loan of 800 million Danish Crona from the founding family a significant realization during this period was that Lego's supply chain was a major stumbling block the organization's complexity and inflexibility had hindered its business platform according to nude storp from my perspective the supply chain as a company circulation system you have to fix it to keep the blood flowing the LEGO Group embarked on a comprehensive strategy rightsizing its activities cost base and assets Legos Lessons From The Trenches now that we've explored Lego group's journey through financial turbulence and their attempt to Outsource production let's dive into the nitty-gritty detail details of their Outsourcing Adventure brace yourself for a story in three parts one preparing for outsourcing streamlining the Lego world in 2004 as Lego faced Financial turmoil a comprehensive analysis highlighted the need for a supply chain makeover the focus was on simplifying Lego sets that had become overly complex over the years a Lego senior director emphasized the impact stating excessive complexity of shapes and colors dot was badly hitting the supply chain the challenge was to ensure the right components were always in stock considering forecast errors and seasonal demand fluctuations distribution faced a revamp to with a shift towards clearer service policies the company began focusing on larger retail chains reducing distribution costs and providing a more reliable overview of demand the European distribution centers were centralized in the Czech Republic and distribution in the US and Canada was was outsourced but the real game Cher was in production the LEGO Group aiming for a lighter production portfolio decided to Outsource a significant portion two main reasons drove this cost savings and reducing production complexity Eastern European countries Czech Republic and Hungary were chosen for proximity and cost savings the decision was made to move the US plant to Mexico for the North American Market two a troubled marriage Lego's with Flextronics with a strategic Direction in mind the LEGO Group entered into a contract with Flextronics in 2006 the collaboration aimed to leverage Flextronics expertise in standardizing and documenting work routines Flextronics a global Electronics manufacturing giant was tasked with handling a substantial part of LEGO's production however the honeymoon didn't last long despite flextronic experience the collaboration faced unexpected challenges coordinating a rapidly expanding Global Network of production facilities proved daunting aligning Lego seasonal fluctuations and unpredictable Demand with flextronic stable operations presented a strategic Misfit three abounded new start Lessons Learned and a fresh beginning in 2008 the LEGO Group announced the phase out of collaboration with Flextronics the process of sourcing back production began with the company taking control of facilities in the Czech Republic Hungary and Mexico the attempt to quickly cut costs and reduce complexity had complicated matters creating a less than ideal Global manufacturing footprint yet amidst the challenges the collaboration brought positive lessons it expanded Lego's Global operations providing impetus for necessary changes it also taught the LEGO Group the importance of understanding its own processes and structures through Flextronics the value of document dou menting and standardizing processes became evident the Flextronics Adventure though seeming like a failure laid the groundwork for a stronger more transparent Lego documentation and standardization became critical tools and the company learned that even when Outsourcing seems like the solution it might not always be the best one conclusion a turnaround tale of bricks and learning as we wrap up the Lego group's Outsourcing Saga it's time to unveil the resolution a tale of resilience learning and triumphant turnaround in the aftermath of the Flextronics collaboration the LEGO Group under the leadership of nud storp witnessed a remarkable Financial Resurgence the profits for 2008 and 2009 reached unprecedented Heights marking the most lucrative years in the company's history nud storp attributed this success not only to financial results but also to strategic moves including taking over factories in the Czech Republic and Hungary and commencing construction on a a new facility in Mexico the shift towards more inh house production coupled with robust sales growth was a testament to the dedication of every Lego employee the decision to bring production back from Flextronics played a pivotal role in this success the new prominantly in house production Network spanning Denmark Hungary the Czech Republic and Mexico provided the LEGO Group with a flexible and controllable setup to meet Market demands however the Lego executive team remained Vigilant understanding that the promising new network was a response to sidest Stepping unforeseen costs incurred during the Outsourcing phase so what did the LEGO Group glean from the Flextronics collaboration and how could this knowledge shape its future this became a central question for the company the Flextronics Adventure while posing challenges served as a catalyst for Vital lessons it propelled the LEGO Group into a phase of increased transparency documentation and standardization laying the groundwork for a more resilient and adaptive organization as the colorful bricks of Lego continue to build stories of innovation and adaptation the journey with Flextronics becomes a Cornerstone in their evolving narrative