Key Challenges in Maintaining a Relationship between LEGO and Flextronics

LEGO Group is the fifth-largest toy-maker in the world with a complicated global supply chain, while Flextronics is a large Singaporean electronics manufacturing services provider. So the first challenge between these two large companies when they corporate is to achieve an agreement and maximize the common benefits of both parties. However, Lego Group needs a flexible and market-responsive business because of the unpredictable demand of its product, while the business model of Flextronics is more stable and predictable. It means that Lego may keep releasing new products because of changing market conditions, and these new products have to arrive with a very short time line, but Flextronics cannot keep up with these changes. In addition, Lego bids for a lower price at the beginning and lock it over a long period, which is hard for Lego to convince Flextronics that its profits has been considered as well. Without a profitable business model for both parties, a win-win solution is hard to achieve.

The second challenge is especially for Lego, since it has little prior experience in outsourcing a large amount of production, but decide to outsource 80 percent of its production to Flextronics. There will be many unexpected situations. Lego doesn’t have an accurate picture of what should happen when. In particular, Lego is a European company while Flextronics is from Singapore. They may have different culture, thinking and working styles. Setting up processes for sharing information at all levels is especially important for cooperation than in-house production for both companies. Moreover, Lego has several categories of products, and it keeps broadening its portfolio into new areas. Therefore, transition internal operations to an outsourcing partner, typically involves so many staff, can be a tricky time. With several other small suppliers of Lego, the matter becomes more complicated in a competitive and dynamic market.

The third challenge, particularly with Flextronics, is that Flextronics also have many large multinational clients, and Lego is only one of them. So Flextronics needs to manage multiple relationships. Every partner may try to squeeze on it if a situation arises. Moreover, although Flextronics has rich experience in standardizing and documenting work routines and processes, it may not align with Lego’s condition. Therefore, if Lego wants to reduce its complexity and adapt to market changes at the same time, but those documented routines may not well solve Lego’s problem, then it’s hard for Flextronics to convert to new ways of working for Lego.