strategicinsight
BY JAMES A. COOKE, EDITOR AT LARGE
Lego’s
game-changing move
The toymaker’s bold decision to serve Europe and Asia from a single DC in the
Czech Republic cut logistics costs by 20 percent. But bringing the new operation
up to Western European standards wasn’t exactly child’s play.
IF YOU HAVE CHILDREN AT HOME, THEN YOU PROBABLY ALSO HAVE LEGO PLASTIC
bricks. The colorful interlocking toys are loved the world over by youngsters who use them to
design and construct buildings, vehicles, robots, and more.
Despite the product’s popularity, The Lego Group found itself struggling financially a few years
ago, and in 2004, the toymaker’s board of directors decided that the company needed to cut its
logistics costs by 20 percent. A key step in achieving that objective was consolidating most of
It was also a potentially risky decision, Møller Nielsen acknowledges. “To be the first
mover had some benefits, but it also had some risks. We decided we wanted to be the
first mover,” he says.
It turned out to be a risk worth taking. Paring the
network down to a single DC yielded savings that
have helped the toymaker’s bottom line. In 2008,
the company recorded a nearly 19-percent
jump in annual revenue to DKK 9,526 million (about US $1.8 billion) with a profit
margin of 21 percent. Although it was
expecting more modest results for 2009,
given the worldwide economic downturn, Lego still believes it’s benefiting
from a distribution strategy that allows
it to provide a high level of service at a
significantly lower cost than in the past.
Advantage: Prague
In 1932, Ole Kirk Christiansen founded
what is now the sixth-largest toy manufacturer in the world. The name Lego is
derived from the first two letters of the
Danish words “leg godt,” which mean “play
well.” Today, Lego products are sold in more
