LEGO main aim was to reduce the cost of distribution, provided a more reliable overview of demand and, also reducing complexity.Flextronics had indeed been the LEGO Group’s preferred partner Because of its long history and vast experience in standardizing and documenting work routines and processes to move business activities from site to site, LEGO management was convinced that Flextronics would excel in reducing the complexity of the LEGO production and organization in general.
The engagement had first of all helped LEGO to expand its global operations footprint despite its difficult financial situation. Before the agreement with Flextronics, it was hardly possible to establish the new and needed operating bases in Mexico and Hungary. Importantly, the collaboration had given the LEGO Group an indispensable lesson in understanding its own processes and structures.
Previously, the LEGO Group, to a large extent, had carried out its production processes without paying too much attention to the documentation.
With the Flextronics collaboration, LEGO management came to realize not only the need, but also the value, of documenting work processes, communication lines and interfaces between activities and tasks in the production.
“The all-important thing we learned is that one should know what is the core competence of a company. The molding of bricks is a core competency, and that we should not hand over” says LEGO Group’s Chief Operating Officer, Bali Padda.
The result of attempting to manage and overcome the complexity of the production network by outsourcing it to external providers was actually only a more complex global manufacturing footprint.
The collaboration with Flextronics presented the LEGO Group with some runexpected challenges, the extreme pace of the transition, eventually turned out problematic for LEGO to coordinate and control the increasingly global and complex network of production facilities as well as to ensure a reliable and seamless transfer of production knowledge between the two.
The LEGO Group’s need for flexible and market-responsive business solutions presented a strategic misalignment with Flextronics’ more stable and predictable operations in which economies of scale was a key phrase.
With the Flextronics collaboration, LEGO management came to realize not only the need, but also the value, of documenting and standardizing of work processes, communication lines and interfaces between activities and tasks in the production. “Production in another country — even within the same company — requires ten times more documentation than in the company that it is moved from,” rationalized Michael Vaag, a LEGO supply chain manager.
The increased employment of process documentation had given the LEGO Group transparency and control, and thus ample room to manage challenges of complexity and to identify the stronger and weaker parts and links of the production network. In this respect, LEGO management had introduced,a deliberate sales and operations planning (S&OP) process to monitor and coordinate the different production facilities’ roles, capacities and responsibilities in relation to the supply.
GO was organized around three key areas: sales, production and product development. Monitoring and coordinating the areas through a multi- stage cycle, which started with data consolidation at the site level and concluded at a global executive S;OP meeting.
The S;OP cycle took place every month, providing LEGO with a reliable and constantly updated overview of global operations for months. Gradually, the S;OP process evolved into a rather critical tool for creating transparency and supporting management efforts in a relatively fragmented and globally distributed operations set-up, which involved numerous capacity groups and outsourcing partners.
In sum, the entire process, was how LEGO management continuously increased its stock of knowledge concerning how to optimize its processes and organization to overcome and manage the multitude of complex issues deriving from having a global network of production.
the new strategic direction of achieving a lighter production portfolio the company started to look for external partners to carry out a larger bulk of its production. There were two main strategic rationales for this. First of all, there was the cost-saving rationale. With the majority of the production in high-cost countries, the management saw major potential for cutting costs by relocating production to low- cost countries