DC Velocity - March 2010

The rationalization of Lego’s distribution network and the establishment of the Prague DC turned out to be more successful than the company had originally predicted. For example, Lego now receives inbound loads from manufacturing plants and prepares them for shipment to customers more quickly than it could in the past. Furthermore, the savings in distribution costs have turned out to be even greater than expected. Not only did Lego achieve its target of a 20-percent cost reduction in 2008, but the company was on track to achieve annual savings of 40 percent at the end of last year, according to Møller Nielsen.

While lower labor costs account for part of the savings,
enhanced efficiency has also played a role. For example, the
shift to a single DC eliminated unnecessary “touches.” “In
the old days, most of the product was handled in two or
three DCs before it went to a customer,” says Møller
Nielsen. “Now, it’s only handled once.”
In the past, moreover, several different DCs might have
been required to provide a value-added service, like applying
price labels for a particular retailer. Now, Lego only needs to
train a single group of workers, who can efficiently perform
value-added tasks again and again. “We can build the expert-
ise to drive down costs,” Møller Nielsen says. “When you
bundle things together, you can be more efficient.”
The move to a single DC has also helped Lego reduce
unnecessary inventory. “If the product was out of stock in
one DC, you would fill it with product from another,” says
Møller Nielsen. “That increased safety stock.”
Finally, carrier consolidation greatly reduced Lego’s ship-
ping expenses. The company used its leverage as a large
shipper to obtain lower rates, but it wasn’t the only one that
benefited from those deals. By committing to a steady vol-
ume of shipments to certain markets, Lego gave the carriers
a base on which they could expand their services between
the Czech Republic and other countries. “We asked for serv-
ices to places like Italy or Norway that [they] had never
served … on a regular basis,” says Møller Nielsen.

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