How The LEGO Group Dodged Bankruptcy

 

The LEGO Group (LEGO) had been doing everything right since the introduction of injection-molded building blocks in the late 1940s. The company was always on the lookout for new products, inserted themselves in different markets (video games, amusement parks, education centers, jewelry, etc.), they listened to customer feedback, and gave their development engineers free range to innovate and create new products (Oliver, et al., 2007; Wharton, 2012). 

LEGO sales plummeted in 1993, and although some of it was attributed to China’s manufacture of similar products at a fraction of the cost, the big-box store (e.g., Wal-Mart) phenomenon, and the merging of such big-box stores (Wharton, 2012), these and other challenges resulted from significant market changes. Production costs were rising in Denmark, Switzerland, and United States, pushing LEGO to outsource plastic production to México and the Czech Republic (Oliver et al., 2007; Wharton, 2012). Another challenge was LEGO’s over-diversification; attempts to serve different markets turned out to be too costly, as well as their passion for innovation as development engineers created elaborate play sets that required unique pieces that were costly to make and almost impossible to inventory, which impacted the entire supply chain (Oliver, et al., 2007; Wharton, 2012). 

LEGO bounced back after critical restructuring of their supply chain took place in response to significant market changes. This included an understanding of the cost of innovation by development engineers, which turned out to be extremely conducive for creativity as they created new products with less colors, for example (LEGO started with resins in primary colors, and black and white, and at one point had over 100 colors). Free range creativity at this level cannot be sustained in global markets where cost is a primary concern (Oliver et al., 2007); it should be “controlled innovation” (Wharton, 2012). 

LEGO faced technological and economical forces as they re-invented themselves to remain strong in the toy industry as a family business. Analytics became crucial in the areas of productivity, planning, and control. Forecast plans and production planning were part of the solution as their many pieces of equipment were assigned to specific molds and for a set number of hours to reduce technology costs such as those associated with machinery re-tooling (Oliver et al., 2007). On the economical front, LEGO re-defined their entire value chain in order to identify potential impacts to other departments and be able to make decisions quickly. This includes their resolution to increase efficiency by reducing the number of resin colors and placing factories close to important markets (Oliver et al., 2007). 

References 

Oliver, K., Samakh, E., & Heckmann, P. (2007, August 29). Rebuilding LEGO, brick by brick. Strategy + Business. https://www.strategy-business.com/article/07306 

Wharton University of Pennsylvania. (2012, July 18). Innovation almost bankrupted LEGO – Until it rebuilt with a better blueprint. https://knowledge.wharton.upenn.edu/article/innovation-almost-bankrupted-lego-until-it-rebuilt-with-a-better-blueprint/