In the recent times worldwide economy has become highly volatile and was vulnerable to a multitude issues. One such example is the latest financial crisis. Such volatility creates a variety of challenges to small and large enterprises around the globe. One of the biggest challenges for manufacturing companies is to deal with rapidly increasing globalization and competition. The solutions require the development of agile and rapid supply networks in order to cut costs and meet demand. Producers are becoming more aware of supply chain management. This awareness shifts the focus from internal logistics efficiency to the external network of relationships between various parties in the supply chain.

The well-known Danish toy manufacturer LEGO has not been insusceptible to these changes. LEGO has faced major challenges, which required drastic changes within the organization. This included a transformation of the company’s supply chain management system. LEGO Group had to deal with probably the most significant financial crisis since the company was founded in 1932. LEGO’s crisis was not clearly visible from the outside. In fact LEGO had maintained brand recognition. This earned them the title “Toy of the Century” from the British Association of Toy Retailers and “Fortune” magazine. LEGO was the fourth largest toy manufacturer in the word and had sold US$1.35 billion worth of toys in 2004. In spite of this success, the company was losing money since 1998. LEGO had various internal operational issues. This included a complex and ineffective supply chain, which at one stage consisted of 11,000 contractors. In an attempt to address this problem, in 2004 LEGO board of directors set a goal to cut 20 percent of logistic costs. This resulted in the risky decision to outsource a major part of the production to Flextronics, a Singaporean electronics manufacturing services provider. LEGO also established a single distribution center in the Czech Republic operated by DHL. (M. M. Larsen, T. Pedersen, D. Slepniov 2010; K. Oliver, E. Samakh, P. Heckmann 2007; J. A. Cooke 2009)

Such a risky decision involved a long-term relationship with Flextronics that was not without challenges. In this research paper an overview of challenges and solutions of the case company LEGO Group will be presented. The main focus will be on LEGO’s supply chain management system transformation, which was a major step towards success. The following research questions will serve as guidelines for this paper: