If all of you have had a creative childhood then you must have come across the brand name 'Lego', the company behind the brick building games which do a lot more to build creativity and imagination amongst children.
Noone could have ever imagined or have even heard that this seemingly successful fourth largest toymaker in the world went through it's set of doldrums. Some speculated that it is because of the company's decision to enter a diverse product line or it could well be because of the over popularity of video games and the low cost producers from China.
The company leadership when attended to these issues realized that their supply chain model was way out of date. For six decades, while company made profits their products were customized for smaller retails post which this model started to fail. Despite the brand equity this company held it started to lose out ground to other companies that operated on analysis and optimized costs to make provisions to the behemoths of the business.
It took the leadership a lot of time to diagnose the problem from the symptoms of such a misaligned supply chain model. They approached it holistically while keeping in view every aspect of company's product development, sourcing, manufacturing, and distribution.
Problems faced:
Product Development: The company used to innovate and welcome new designs in shorter periods but never factored in the costs which came in due to this carefree creativity.
Sourcing: where the organization was dealing with an array of suppliers/vendors. The engineers were in ad hoc relationships with these vendors for supplying of parts/resins which have been designed by them. Due to bad inventory management and poor calculations of material requirement only a few kilos out of the total import got used and rest went waste.
Manufacturing: Haphazardly placed orders and demands changing very dynamically without keeping in regards the inventory levels led to a very chaotic day to day operation. This murkiness led to overall capacity utilization of just 70%.
Distribution strategy: didn't work in the times when big retails were in as they had clientele of small shops which did not even have a demand of a standard carton so packing was also customly done for them to cater to their demands of limited products.
Solution:
The leadership team tackled this very tactfully without missing out on any of the issues. To begin with they started cutting down on the different number of colours and elements. They decided to take specific models for around 4-12 week production cycles. They streamlined it further by reducing the number of suppliers with only stipulated designs to be outsourced which weren't a burden to them when it came to cost. The distribution of it's products to various shops which was a huge overhead was brought down by consolidating logistics providers in order to bring the lego group in line with the big retailers so as to reduce transportation costs.
The analysis and the strategy planned by the leadership was far more gruelling and puzzling but it did help them bring the organization back to track. This supply chain restructuring had a transformational impact on the company as a whole. Rationalizing and streamlining it's product development, sourcing, manufacturing and distribution helped it pour it's resource into what it does best: building creativity and imagination in children with the help of it's toys.
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