LEGO’s CEO Knudstorp stated that this contract was the last major step of the restructuring of the groups supply chain, which has been implemented in 2004 (www.lego.com). It is evident, that cost savings have been the driving force for the outsourcing agreement with Flextronics. At the beginning of the arrangement it was a win-win-situation. LEGO had a professional partner and Flextronics was able to diversify its products and get knowledge about plastics for further market diversification. Given the size and complexity of the assignment, preliminary experiences with this arrangement were fairly positive. However, they also clearly demonstrated the challenges that face a company moving from vertical integration to a network constellation (Pedersen, 2012). Nonetheless LEGO had to experience, that the outsourcing to Flextronics included some challenges. It was difficult to transfer production knowledge from LEGO to Flextronics. Whereas LEGO’s workers knew that 60% of the production took place in the second half of the year, Flextronics was used to a more stable and predictable environment. Therefore, it was difficult to conduct the process effectively, document the production and utilize capacities. Furthermore, trust and misconceptions lead to problems. It was problematic for LEGO to coordinate and control the outsourcing partner. Though there had been various forecasts the collaboration did not fulfil the initial expectations (Pedersen, 2010).
What Lego Expected 1. Minimized production cost fluctuation risk through "locked prices" in contract 2. Reduction of in-house production to "core competencies" of molding and packing processes 3. Flextronics' successful reduction of LEGO's production process complexity and improvement in organization 4. Ability to utilize economies of scale advantage
What lego Learned 1. Outsourcing to external