This week I’ve chosen to talk about Lego and their decisions to
outsource. Lego decided to outsource their LEGO DUPLO bricks to
a company called Flextronics in 2005. While this inevitably affected
Lego employees in both Europe and the United States. Flextronics
moved operations from Switzerland to Hungary, a total of “A total of
76 molding machines, 25 packing machines, 25 assembly and
decorating machines plus 467 molds are transferred” (Lego, N.D.) for
this new global opportunity. In 2007, packaging for Lego in Enfield,
CT is moved to Mexico.
While outsourcing brought Lego’s employee count from 8,300 to
about 3,000, this still was the right move for the company. After an
in depth look at their supply chain, Lego decided that the benefits of
outsourcing were worth it. Outsourcing to Flextronics would be
profitable because of the labor-intensive production that Flextronics
could better handle than Lego. Flextronics was more skilled to
handle the volume that Lego demands, and more automation for
packaging. Lego’s have a very extensive packaging process as each
step in a Lego kit is typically individually packaged. Another benefit
to outsourcing for Lego was that the Flextronics facilities put
production and packaging in the middle of key high-volume areas.
Adding more savings for Lego.
When startup problems arise, Flextronics is unable to keep up with
demand. Adding to this issue, is an increased demand for the
product that happened much faster than expected. Just 2 years after
the outsourcing partnership with Flextronics was made, Lego
negotiated to terminate the contract. However, while this
outsourcing venture did not go as planned, it did have a strong lesson
to be learned. In 2012, Chief Operating Officer for Lego, Bali Pada
states “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” (Lego, N.D.). While
outsourcing did not work for this company, there were still able to move
some of their own operations to more key areas, while continuing to keep
the business of producing their own product in-house.
