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The Lego Group
The Lego Group is a successful company that produces toys and other items for children. The Lego building blocks are one of the most popular toys around the world, and they remain the company’s most successful product. In the year 2004, the company experienced considerable deficits in its operations, amounting to DKK 1.8 billion. This situation prompted the company management to rethink operations, and they decided to outsource to a company named Flextronics. Flextronics is a company based in Singapore with a good reputation in the production of electronics manufacturing services. Outsourcing was a cost-cutting measure that Lego management hoped would put the failing company back on its feet. The Lego Group finalized outsourcing contracts with Flextronics in 2006, but they soon decided to phase out the arrangement. The long-term contract proved to have been signed too hastily.
One of the reasons why the collaboration between the Lego Group and Flextronics did not work out was because of the limited information and experience on such a huge collaboration. The Lego Group reduced in-house operations by up to 90%, meaning that significant changes happened to operations. Additionally, the Lego Group management required a lot of documentation with outsourcing, even more that they did before. The Lego Group management expected outsourcing would ease the intensity of work off their shoulders, but this proved not to be the case. Another reason why outsourcing did not work out for the Lego Group is the lack of clear direction and streamlining of operations. For example, the company decided to focus on new products such as video games and clothing, which proved to be very confusing for customers and employees as well. Eventually, the Lego Group decided to take over production and abandon the idea of outsourcing altogether. The new in-house production with factories in Mexico, Hungary, Denmark, and the Czech Republic proved far more efficient and profitable for the Lego Group.
