An Analysis of the Operations Strategy and Management Decisions in Lego Group Between 2004 and 2009

4119 Words Apr 22nd, 2013 17 Pages
An Analysis of the Operations Strategy and Management Decisions in Lego Group between 2004 and 2009

Summary
By 2004 Lego was in considerable trouble; it had made a loss of approximately £200m; sales fell by 40%. One reason for this was lack of success in moving into new markets, such as computer games and clothing. However, a major cause for the financial woe was due to issues in the supply chain; costs were not being squeezed out, and the increase in specialised LEGO models had led to an explosion in the total number of unique bricks; each requiring expensive moulding, production and inventory. LEGO rightly decided to address this supply chain cost issue, and turned to Flextronics, a company with considerable experience in
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18

3

M.Sc. Management

BSMP27

1 Analysis for the Period to 2004
Operationally, LEGO manufactured a wide range of products (many of which were ephemeral, with a life of 12-18 months), sought to supply retailers large and small in the countries it served, and strived to provide short delivery times. Since demand fluctuations could reach 30%, LEGO had to maintain stocks of products, both completed and work in progress (WIP), in order to meet the customer needs for flexibility and quick delivery. The characteristics of the LEGO operations process in place can be shown in a 4Vs typology diagram:

Low

VOLUME

High

High

VARIETY

Low

High

VARIATION IN DEMAND

Low

High

VISIBILITY

Low

At that time, the performance winners for LEGO were speed (of delivery), and flexibility (wide range of products, volume and delivery adjustments at short notice). Cost, dependability and quality were not as vital. To achieve these objectives, LEGO had made several operational decisions: Speed: • Maintain multiple distribution centres, close to key markets: 5 in Europe, 1 in USA • Maintain high stock levels, of finished product, and components so products could be assembled quickly. Flexibility: • Supply retailers both large and small, from relatively close distribution centres • Frequent, small, orders accepted • Introduce new products to the range, and discontinue old

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