When thinking of a company that has created value for itself by
outsourcing, Apple immediately comes to mind. Apple has been able to
not only lower production costs but increase their profit margin by
outsourcing. They outsource many areas now not just assembly. There is
also outsourcing of many IT and call center positions as well. Due to
being able to increase their production at a lower cost Apple has been
able to dominate the market for years. The value was mostly created for
the company and its shareholders as every other related entity has seen
a decline in value. American workers lost jobs, outsourced workers are
typically paid less than they deserve and live in unusual conditions, and
consumers still have to deal with high and rising costs even while the
company is saving money.
This week I’ve chosen to talk about Lego and their decisions to
outsource. b Lego decided to outsource their LEGO DUPLO bricks to a
company called Flextronics in 2005. b While this inevitably affected Lego
employees in both Europe and the United States. b 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. b 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. b After an in depth
look at their supply chain, Lego decided that the benefits of outsourcing
were worth it. b Outsourcing to Flextronics would be profitable because of
the labor-intensive production that Flextronics could better handle than
Lego. b Flextronics was more skilled to handle the volume that Lego
demands, and more automation for packaging. b Lego’s have a very
extensive packaging process as each step in a Lego kit is typically
individually packaged. b Another benefit to outsourcing for Lego was that
the Flextronics facilities put production and packaging in the middle of
key high-volume areas. b Adding more savings for Lego.
When startup problems arise, Flextronics is unable to keep up with
demand. b Adding to this issue, is an increased demand for the product
that happened much faster than expected. b Just 2 years after the
outsourcing partnership with Flextronics was made, Lego negotiated to
terminate the contract. b However, while this outsourcing venture did not
go as planned, it did have a strong lesson to be learned. b 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.). b 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.
References
Blodget, H. (2012, January 22). This article explains why Apple makes
iphones in China and why the US is screwed. Business Insider.
Retrieved February 3, 2022, from https://www.businessinsider.com/you-
simply-must-read-this-article-that-explains-why-apple-makes-iphones-in-
china-and-why-the-us-is-screwed-2012-1
Links to Articles:
https://www.lego.com/en-us/history/articles/i-outsourcing-and-insourcing/
https://www.reliableplant.com/Read/1805/lego-to-outsource-most-
production-to-flextronics
