Outsourcing and insourcing - partnership with Flextronics

Under CEO Jørgen Vig Knudstorp’s rescue plan, known as Shared Vision, a substantial part of the LEGO Group’s production, particularly LEGO® DUPLO® bricks, is outsourced to a contract partner, Flextronics. The aim of the plan, set in motion in 2006, is to cut costs as the LEGO Group at the time faces serious economic difficulties.


Outsourcing

In 2006 Flextronics is one of the world’s largest providers of manufacturing services, particularly to the telecommunications and mobile‑phone industries.

The LEGO Group’s decision to outsource affects the workforce in Europe and the US, where many LEGO employees are made redundant. In 2005 it is announced that Flextronics will be taking over production of LEGO DUPLO bricks and future production will be centered on one of Flextronics´ factories in Hungary. The factory, located in the town of Sárvár in the west of Hungary, extends to 18,000 m² of which LEGO DUPLO production will occupy 11,000 m².


The Flextronics facilities in Sárvár, 2006


A total of 76 molding machines, 25 packing machines, 25 assembly and decorating machines plus 467 molds are transferred to Sárvár from Billund, Denmark; Kladno, Czech Republic; and the LEGO Group’s now discontinued factory in Willisau, Switzerland. Apart from the production in Sárvár the plan is that another Flextronics plant in Nyíregyháza, Hungary will start molding LEGO System bricks.

Flextronics also takes over the LEGO factory in Kladno, Czech Republic, which primarily produces LEGO System bricks. It is decided that the packing facility in Kladno will take over the packing of LEGO System sets hitherto done in Billund. With this in mind, the Kladno factory expands to handle the increased workload.

In 2007, packing activities transfers from Enfield in the US to a Flextronics plant in Juaréz, Mexico. Production facilities are first‑class, and Juaréz is situated midway between the American east and west coasts, which account for the lion’s share of LEGO Group sales in the US market. Closure of the packing facility in Enfield also means shutting down and outsourcing the central distribution terminal in the city – which moves to two new locations in the US: Ranaoke, Texas, and Memphis, Tennessee.


A look inside the facilities in Juaréz, 2007


Billund retains production of the technically more demanding LEGO Technic and LEGO Bionicle™ elements.


Problems arise

Arrangements with Flextronics do not run entirely according to plan. Start‑up problems mean a shortage of molded components and the LEGO Group cannot meet customer demand. One of the problems is the LEGO DUPLO flower: Flextronics cannot make enough of them. Another issue is that sales of LEGO bricks are increasing faster than expected and the LEGO Group needs flexibility in the production chain, which is cheaper to achieve within the LEGO Group’s own walls. In consequence, part of the planned production transfer from Billund to Kladno and Juaréz is postponed.


The LEGO Group brings production home

The production difficulties with Flextronics are solved in 2008 when the LEGO Group negotiates a new agreement to terminate the partnership. The outsourcing that began in 2006 becomes insourcing two years later.

The LEGO Group’s Chief Operating Officer, Bali Padda, says in 2012 in the Danish newspaper Jyllands-Posten about shutting down the Flextronics partnership:

“The all-important thing we learned is that one should know what is the core competence of a company. The molding of bricks is a core competency, and that we should not hand over"


Bali Padda, 2010


The end of the Flextronics partnership means that the factory in Kladno, Czech Republic, returns to the ownership of the LEGO Group and the company also takes over the Flextronics factory in Nyíregyháza, Hungary. At the same time, a new LEGO factory is built at Monterrey, Mexico, which will be ready in 2009 for the transfer of production from the Flextronics plant in Juaréz.

In January 2009, the LEGO Group inaugurates its new factory in Nyíregyháza – with a happy Kjeld Kirk Kristiansen at the opening ceremony stating: "I´m delighted to be here - it´s not every day I get the opportunity to open a new factory!".

Within two months, in March 2009, Kjeld Kirk Kristiansen attends the opening of yet another new LEGO factory in Monterrey, Mexico. This concludes the collaboration with Flextronics and the LEGO Group now runs production of LEGO products in four factories in Europe and the Americas.