Lego: Consolidating Distribution Harvard Case Solution & Analysis

Answer 1:

Lego has distribution centers in around 4 countries that include Denmark, France, Germany and Switzerland. Besides that, it also has around 11 warehouses in these countries. The logic or the reasoning that is being given regarding this distribution strategy is explained below.

  • The company wanted to get closer to the customers by managing regional distribution centers. Four distribution centers in Europe will allow catering three different regions and also will make it easier for the company to manage inventory in bulk and reach the customers with more ease.
  • ┬áServing customers directly and providing direct deliveries to the customers is also a major reason. As stated above, this reason is also a major rationale as the company aimed at catering customers directly and around 14,000 customers were catered directly from these distribution centers.
  • Third party distribution helped in delivering products to all the distribution centers across the globe. The company has around 11 warehouses and is not only operating in Europe, but in Asia, America and other regions as well. Therefore, the aspect of catering all these regions is also an essential part of the distribution strategy.
  • The company also wanted to minimize the transportation cost. Making distribution centers closely located and also the production facilities are located in the same region or country, the transportation cost of inbound logistics will be minimized significantly.
  • The flow of products will be easily managed. The vast spread logistics operations of the company in the European region made it easier to manage the flow of products. On the other hand, the suppliers and the transportation also come under this aspect which is also a major rationale for this strategy.

Answer 2:

The six most important reasons that pressurized the supply chain of the company include the following stated reasons.

  • The distribution strategy and the three-level distribution system of the company made the supply chain rigid and very complex to manage which made it highly difficult for the logistics system to cater the fluctuations in demand and cope with this issue efficiently.
  • The dependency over the seasonal sales is another reason which indicates that around 45% of the sales occur during the festive season and most of the products in the product portfolio of the company are seasonal products.
  • The sales forecasting is highly inaccurate and an error of around 40% exists between the actual and the forecasted sales.
  • SKUs are made in large quantities and in different colors and around 12000 items in 1000 colors are available or manufactured.
  • New products that generate around 75% of the sales possess very short life cycle which is a drawback.
  • Extra pressure generated due to the transition of factories from Switzerland to Czech Republic and in order to cope with this situation production was intensified and increased rapidly.

Answer 3:

Moller Nielsen presented three important changes that are described below.

  • Consolidating logistics and distribution to a central distribution center will be managed by a third party.

The rationale behind this change is to manage fewer inventories and save considerable amount that is spent on inventory management and also to reduce the risk of loss in inventory. Secondly, the target of 20% cost reduction needs to be achieved through this aspect.

This is an important aspect and in the modern business world, managing dozens of inventory will incur a loss and will increase handling cost. Thus, the profits margins will decline, which is why creating consolidation and outsourcing the responsibility is the right decision taken by the company.

  • ┬áContracting with DHL to build Central European Distribution Center.

The company has around more than 55 transportation companies and with the contract with DHL, this number will decrease significantly and will become 7.

Lego Consolidating Distribution Case Solution

On the other hand, 10 operations will be reduced and will come under one roof, which will also result in cost savings. Thus, cost saving is the major rationale behind this decision.

The decision to make a single European distribution center partnering with DHL will provide fruitful results and as suggested, immense cost savings will incur. Secondly, Czech Republic is ideal for this as it is a low cost advantage and also near to major production hubs.

  • Creation of Customer Logistics Team.

The major rationale for this change is to enhance the levels of customer satisfaction by communicating directly with the customers. Secondly, the idea is to get involved with customers and reduce the complexity that exists in understanding and delivering customized orders.

This strategy or change will be beneficial for the company and will allow it to understand customers more accurately..............

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