Lego's Supply Chain Challenges, Shared Vision, and Outsourcing to DHL

This report examines the supply chain problems Lego faced before outsourcing its logistics to DHL, including complex and costly operations, inaccurate demand forecasting, and the complexity of its distribution network. The Shared Vision Program aimed to address these issues through consolidation and cost reduction. The report analyzes the relationship between Lego and DHL, concluding it was broken due to cultural differences and lack of trust. Key issues for contracting logistics to a 3PL provider include organizational culture, the provider's success rate, and realistic quotations. The analysis highlights the importance of careful management in outsourcing logistics to ensure efficient and cost-effective supply chain operations. The report also references academic sources to support its claims.

Running head: LOGISTICS 1
Logistics
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LOGISTICS 2
Describe the supply chain problems at Lego before the decision to outsource their logistics
to DHL. How do you think Lego attempted to address these problems through the Shared
Vision Programme, give your reasons?
The main problems that were present at LEGO as far as the aspect of the supply chain is
concerned were complex and costly supply chain. At this time, it is essential to remember that
the company was using all its distribution channels. In the supply chain, the aspect of logistic
ought to be keenly looked into, and this is due to the fact that it attracts a lot of costs if not well
managed (Yu, Wang, Zhong, & Huang, 2016). The costly aspect of the supply chain was
promoted by different factors. The first factor was the inaccurate statistics and information about
future demand. Even though the company had been operational for many years, the accuracy of
demand was only 70%. Therefore, it means that at times the company would request for raw
materials which exceeded the raw materials that were needed. The supply chain attracts the
process of moving goods from one area to another, and that means increasing activities that do
not have financial results is likely to affect the supply chain financially.
The second factor that promoted the increased costs was the distribution of the company's
operations centers. From a financial point of view, consolidation is cheaper than dispersion.
When different processes and operations are consolidated at one point of operation, the costs are
reduced (McGinnis, Kara, & Wolfe, 2016). The reason behind it is because the costs that would
have been incurred while moving materials from one point to another are reduced significantly.
At the same time, it is essential to note that the supply chain cannot be effective without the
support of human beings and this is where the aspect of human resource comes in place. The
employees who are involved in the process of moving goods from one point to another are
assigned to other duties, and that means that the company also saves on labor.

LOGISTICS 3
LEGO also suffered when it came to the costs that are associated with the storage of the
goods. Looking at the forecasted demand, it is evident that LEGO did not have the right statistics
after forecasting demand and that means that a lot of space was wasted. To build or rent
warehouse demands for an organization to spend money (Christopher, 2017). When an
organization has hired warehouses, and it is not utilizing all the space, the organization loses
money, and this is because it has already included the wasted space in its budget.
The complexity of the supply chain was also another issue that LEGO was going through.
The aspect of complexity can be seen in the complicated systems that are used or in how difficult
it is for the employees to manage the supply chain. The major characteristic that promoted the
complexity of the supply chain was the distribution of seven operations centers within Europe. In
the supply chain, complexity is seen when there are many channels that goods go through before
reaching the end user (Selviaridis & Norrman, 2015). The seven distribution centers that were
present did not handle the same type of operations. Therefore, it meant that a lot of processes had
to be involved before the product could reach the final customer. At the same time, the practice
of manufacturing one type of product at one point and the other at another point despite the fact
that they will be used together is cumbersome.
Through a shared vision, LEGO tried to dispose of everything that it was not using and
consolidate its operations. The issue of the costs had affected the company by a big percentage,
and this landed the company into problems with the lenders (Mangan, Lalwani, & Lalwani,
2016). The company sold every asset that it was not using and that helped the company to pay its
debts. The consolidation of all operations to one area also came with a lot of positive effects. The
reason behind it is because the dispersion of the distribution centers was affecting the finances of
the company negatively.

LOGISTICS 4
Describe the relationship between Lego and DHL – is it broken? Develop your own list of
key issues that need to be carefully managed when contracting logistics to an outsourced
3PL logistics provider.
The relationship between LEGO and DHL is broken. The reason behind it is because of
the differences that were evident between the two organizations. The first reason is associated
with different views and opinions. LEGO and DHL are two organizations that work together to
achieve the same goals. However, the two organizations are from two different backgrounds, and
that means that their cultures vary. However, none of the organizations is ready to compromise
and work with the other (Triki & Crainic, 2018). A business relationship is broken when there
lack commitment and respect among the teams or organizations that are involved. At the same
time, it is essential to include trust when two organizations are dealing in the same business. The
case of LEGO and DHL shows that there is no trust, commitment, and respect between the two
organizations. Arguments have been termed to take center stage in some of the discussions
between the two organizations. When organizations get to a point when they cannot work
together, it is evident that the working relationship has already been broken.
The second factor that can be used to dictate if the relationship is broken or not is the
risk-sharing aspect factor. The willingness of organizations to work together is seen in their
commitment to making sure that none of the organizations incur unnecessary losses (Saenz &
Koufteros, 2015). In the case of the contract that was signed between LEGO and DHL, it is
evident that the cost of labor increased by almost fifty percent on the side of DHL. LEGO had
signed the contract, but it was supposed to consider the costs that had fluctuated. The
consideration would have come to save the situation of DHL. It is essential to note that
organizations that have good relationships will always establish ways to deal with their partners

LOGISTICS 5
(Christopher, 2016). In the case of DHL and LEGO, it is evident that none of the organizations
cared for the other and that shows that the relationship was not healthy.
Key issues that should be considered while contracting logistics services to another
organization are the organizational culture of the company, the effectiveness of the company,
and the realistic of the promises and quotations of the company (Oliveira, Cardoso, Barbosa, da
Costa, & Prado, 2015). The organizational culture of a company is essential, and this lesson can
be learned from the case of LEGO. The first collision between LEGO and DHL was motivated
by the cultures of the two organizations. Therefore, it means that it is essential to understand and
know the culture of the other organization.
The success of a company is also essential. One of the reasons why logistics companies
are hired is to make sure that the company that is hiring makes profits. The profits cannot be
made if the company that will be given the job has no capacity to promote a smooth supply
chain. There is, therefore, the need to consider the success rate of the company that is likely to be
handed the contract (Schönsleben, 2016). In the case of DHL, there is one lesson that is helpful,
and it is associated with the realistic of the quotations. When the quotations are too low, it is
essential for the company to do due diligence to make sure that if they are practical. The
quotation of DHL was low, and that is why the company had to incur the additional cost of labor
to meet the demand of the permanent employees.

LOGISTICS 6
References
Christopher, M. (2017). New directions in logistics. In Global logistics and distribution
planning (pp. 47-58). London: Routledge.
Christopher, M. (2016). Logistics & supply chain management. London: Pearson UK.
Mangan, J., Lalwani, C., & Lalwani, C. L. (2016). Global logistics and supply chain
management. New York: John Wiley & Sons.
McGinnis, M. A., Kara, A., & Wolfe, L. I. (2016). An empirically derived framework of logistics
management strategy. Journal of Transportation Management, 27(1), 5.
Oliveira, R. R., Cardoso, I. M., Barbosa, J. L., da Costa, C. A., & Prado, M. P. (2015). An
intelligent model for logistics management based on geofencing algorithms and RFID
technology. Expert Systems with Applications, 42(15-16), 6082-6097.
Saenz, M. J., & Koufteros, X. (2015). Special issue on literature reviews in supply chain
management and logistics. International Journal of Physical Distribution & Logistics
Management, 45(1/2).
Schönsleben, P. (2016). Integral logistics management: operations and supply chain
management within and across companies. New York: CRC Press.
Selviaridis, K., & Norrman, A. (2015). Performance-based contracting for advanced logistics
services: Challenges in its adoption, design and management. International Journal of
Physical Distribution & Logistics Management, 45(6), 592-617.

LOGISTICS 7
Triki, C., & Crainic, T. G. (2018). Special issue on:“Models and methods for the supply chain
and logistics management”. EURO Journal on Transportation and Logistics, 7(4), 311
313.
Yu, Y., Wang, X., Zhong, R. Y., & Huang, G. Q. (2016). E-commerce logistics in supply chain
management: Practice perspective. Procedia Cirp, 52, 179-185.