What Were Lego's Main Expectations and Learnings from the Relationship with Flextronics?

1. What were LEGO's main expectations and learnings from the relationship with Flextronics?

Suffered from the internal financial crisis in the period from 1998 to 2004 and wanted to survive from the bankruptcy, LEGO group need to reduce the cost and find a new strategy to steer the company back on track. In their pursuit of recovery and the way of exploring the strategy, LEGO group found that the ineffective and inflexible supply chain was the key problem for the creation of a sound business platform. Their decision to outsource comes on the back of an in-depth analysis of the company's total supply chain, and with a special view to cost structure considerations and geographic proximity to the major markets

In detail, in their collaboration with Flextronics, LEGO Group wants to minimized production cost fluctuation risk through "locked prices" in contract, reduce the in-house production to "core competencies" of molding and packing processes, reduce production process complexity and improvement in organization and be able to utilize economies of scale advantage

However, this kind of relationship ended as a trouble marriage. Even though Flextronics is a very professional player in the market with industry-leading plastics capabilities and has vast experience in standardizing and documenting work routines to move business from site to site. LEGO Group should realize their collaboration is a special one. For example, the agility in their relationship is not as strong as expected. LEGO products' seasonal fluctuations do not harmonize with Flextronics' business model, in which turned out to be the forecast error. All in all, LEGO Group need to figure it out what is suitable for their operating and supply chain strategy and how to satisfy their customers.

2. What are the key challenges in maintaining a relationship like the one between LEGO and Flextronics?

The relationship between LEGO Group and Flextronics is a kind of strategic relationship in supply chain. The two companies have deep and long term commitments and they willingly to achieve shared long-term goals and objectives.

The challenges LEGO Group with Flextronics are the mainly followings.

1 Effective coordination and control of various production facilities was too complex for LEGO Group.

2 Sharing necessary product knowledge in a consistent and timely manner took too long and not executed reliably between the two firms

3 The Flextronics' business model did not match with LEGO' operation schedule and demand needs. Unfortunately, LEGO Group did not recognize the "uniqueness" of their products and needs in relation to Flextronics' expertise in standardization.

LEGO Group needed flexible and responsive production to handle seasonal fluctuations and demand uncertainties but Flextronics method designed to optimize economies of scale through predictable, uniform production schedule.

3. How can LEGO handle the supply chain complexity to improve knowledge sharing, flexibility and coordination?

First, according to the case, a LEGO supply chain management says, "production in another country--even within the same company--requires ten times more documentation than in the company it moved from." So LEGO Group need to write the documentation of all supply chain processes and provides clear communication lines through the entire company.

Second, LEGO Group need to improve the integration of work processes by carrying out the S&OP process, which monitor and coordinate the different production facilities' roles, capacities, and responsibilities in relation to the supply.

In addition, standardization should be used more strategically in the whole value chain in LEGO Group. The three Levels

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