McKinsey Hollows Out Lego

About 18 months ago Bill told you how Jorgen Vig Knudstorp, chief guy at Lego and former McKinsey wizard, had decided to outsource most of Lego's production from Danish factories to Flextronics factories in the Czech Republic.  There were some oddities about the deal.

Lego already owns the plant in Kladno in the Czech Republic where the work from Denmark is being sent.  The plant, the employees and the equipment are merely being turned over to Flextronics to run.  If McKinsey folks know any other tricks besides outsourcing, manufacturing management apparently is not one of them.  The only change is who is going to manage the plant.

Flextronics has only been in the Czech Republic once before, and that effort failed.  Flextronics even had to repay the incentive money given to them bu the Czech Republic.

Even more curious is that Jorgen has outsourced the plastics and packaging work to Flextronics, but has retained the little bit of electronic work Lego does for their Technic and Bionicle product lines.  The 'tronics' part of Flextronics denotes that they have long been primarily an electronics contract manufacturer.  Yet Jorgen's insight led him to keep that work in house, and have an electronics company with a track record of failure in the Czech Republic take over management of an injection molded plastics plant.

Bill goes on to describe how Jorgen is the first non-family member to run the company, how he is using the outsourcing "nuclear option" instead of trying lean manufacturing, and how the only winners will probably be Flextronics and its Czech employees.

Well, maybe not.  A regular reader points us to a recent article (in Danish) that brings us up to date on the Lego outsourcing situation.  With some rudimentary translation help from our Danish friend, the meat of the article reads as follows:

The Lego corporation's large scale outsourcing has created so many problems that there will not be any downsizing of jobs in Danish factories in 2007. The plan was to cut the workforce in Billund from 1200 to 300, and outsource the jobs to their partner Flextronics in Kladno Czech Republic, so writes the newspaper "Børsen" [A paper akin to the Wall Street Journal]. But the vice-chairman of the union of employees at Lego, Benny Pedersen, points to the fact that it is probably troublesome to find employees for Flextronics' plant in Kladno. Flextronics refuses to comment on the matter.

We've never been big fans of the large consulting houses, but recently I've given McKinsey some kudos for their focus on lean.  Too bad some of their folks, or at least their alumni, don't practice what they preach.  Jorgen's focus on outsourcing has led to problems throughout Lego.  Core competencies were moved to a contract manufacturer that had failed with previous projects.  The inability to remove people, perhaps luckily, led to outsourcing not achieving cost reduction goals.

If Jorgen had instead leveraged lean manufacturing methods, the operations side of the business might have thrived.  Instead the company is becoming a hollow shell. 

Comments

[Mike]

Lego and lean manufacturing are closely related, however. They have undergone a huge boost in business from all the lean consultants who use bushels of Legos in their simulations! ;-)

[anon]

The headline seems a little unfair or misleading... why blame McKinsey for this?

[Peter]

Anon:
Because Jorgen Knudstorp was brought to Lego as the great turnaround guy from the great McKinsey. If he was hired because of him having been with McKinsey, they must be prepared to take a beating when the going gets sour.

I am sure that McKinsey is a great company, but as well as many other consultancies they sure have made bad choices for clients in the past.

[Peter Lund]

And he /did/ prove to be a great turnaround guy!

It's due to him that Lego makes new products faster now so they don't miss out on the toy fads anymore.

The man may not understand lean production but he's a far cry from being a one-trick pony.

[Peter]

Be that as it may Peter Lund, being able to sell off Legoland and other assets, is not exactly rocket science. Being able to clean up the old mess, instead of just sending it off to the Czech republic would have been great.

I do acknowledge the fact that a lot of great things have happened internally in Lego in the past few years, but outsourcing to eastern Europe, to a contract manufacturer is the coward's way out.