Everyone loves a good redemption story around the holidays, and this one comes as near to Ebenezer Scrooge waking up on Christmas morning, realizing he has been on the wrong path and resolving to change his evil ways as the lean world gets.
Jorgen Vig Knudstrop brought his McKinsey mentality to Lego almost ten years ago as the first non-family had of the storied company and a swath of destruction followed in his path. Danes were dumped overboard by the hundreds, factories were shuttered everywhere from Lego’s home town to their only US location in Connecticut.
Ghosts of factories past must have come to poor Jorgen in the night, over, and as his strategy brought about results that were mediocre, at best, he saw the light. The story of Scrooge and his miraculous transformation is fantastic and improbable, but what happened next at Lego is even more unbelievable. Jorgen – a McKinsey guy, mind you – saw the light … yep, as far-fetched as it sounds, a McKinsey guy learned something new; and as incredible as that seems, he went even further and publicly acknowledged the error of his ways.
"If we go out and search for someone to make bricks for us then they will say: 'Yes please, how much of your equipment can we have?' and then you are in a situation where you are paying someone to produce on your own machines. You have to scratch your head a bit for that math to work out." Says Jørgen Knudstorp, who acknowedledges that he made a mistake with Flextronics that Lego has now stopped working with, after a lack of fulfillment of quality and efficiency targets.”
Jorgen seems to be made of the right stuff. Of executives he asks, do you take responsibility or do you blame it on some external factor like a financial crisis or the weather? He asks that if external factors are the big drivers of your results, then “What the hell are you doing on the job?” Good questions.
And now the story comes to its heartwarming conclusion.
From chasers of cheap labor they are now being written up in deservedly glowing terms for their supply chain and its underlying lean principles. (When the folks at BusinessWeek write “fast fashion” they mean lean, but they don’t know the difference and allowances must be made for them. After all they are only journalists so expecting them to know the specific meaning of words is setting the bar unfairly high.)
Not only did they get their manufacturing back in house, but they established a global footprint based on proximity to customers, rather than the locations of folks who work cheap. “As part of its turnaround, Lego got closer to its big markets, with major investments in production facilities in Mexico (to serve its largest market, the U.S.) and Hungary (to serve Germany, its second-largest market).”
More important, they understand the relationship between product design and the supply chain – a feat many very lean companies still don’t fully grasp – “Lego then decoupled parts production from set assembly, which gave them a lot more agility. If one set sells much less than expected and another sells much more, Lego can now move pieces allocated to less popular sets to the more popular sets, and only has to make a few unique pieces to fill demand. That lets them respond much faster to the fickle tastes of their core customers.”
Lego is far from perfect. From launching pads in Mexico and Hungary they can ship quickly and directly by truckloads, which means to customer distribution centers. Were they to locate in the USA and Germany they could ship directly by the pallet to customer stores, cutting out all of that DC waste; but their approach is pretty good … especially when you consider just how far from speed and customer focus their priorities were just a few years back.
From a ‘Bah, humbug!’ guy Jorgen now practically exudes ‘God bless us every one’ as he waxes about customers, employees and collaboration.
If that doesn’t qualify as a great Christmas story I don’t know what does.