Lego Case Analysis
Prior to finalizing a strategic recommendation for Knudstorp and the Lego Group, I needed to gain perspective on the industry and internal factors that have historically interfered with Lego’s business model, and thus lead them to the point of bankruptcy. In Exhibit A, I used the Porter’s five forces model to help identify and label the threats, demands, trends and opportunities of the toy industry.
While Lego faced many different types of challenges, market trends and market pressures over its long history, the company implemented two strategic plans over the 1990’s that they believed would help address some of the changing trends and reposition the brand within the industry.
First, within the Growth …show more content…
While it could be a viable way to save money within the production cost structure, it may lead to a reduction in quality – which would ultimately hurt the brand over the long term.
- By using fewer components in their products Lego could eliminate some stocking issues while also reducing inventory on hand, which would consequently help with the management of cash and inventory. The previous inventory issues faced by Lego are a direct result of no formal ordering process or inventory management system. This created complications of “how much of what to produce?” as well as “what products are more popular?” By implementing an ordering system and inventory management control, Lego will be able to help forecast its demand based on prior supply, as well as eliminate the extra inventory it is carrying in its warehouses. As product piles up, inventory systems will help identify whether a product is being over produced or perhaps is unpopular/unprofitable.
- Finally, Jorgen needs to help establish a positive relationship with Lego’s large retailers. By eliminating the “necessary evil” historical view that Lego had of large retailers, Lego can help build their brand through partnerships with large retailers. Once production has been simplified and cost structure of Lego products decreases, Lego can start by offering better margins to their retailers to restore the damaged relationships that occurred once Lego went directly to consumer. While keeping