It may be one of the most iconic global brands, but an inefficient supply chain almost left toy manufacturer Lego in crisis. Egil Møller Nielsen, vice president of global distribution logistics for the group, tells Jessica Davies how he helped rebuild Lego’s supply chain brick by brick.
Five years ago the Lego Group was in serious trouble. On the surface it was business as usual – its products as popular as ever and maintaining a firm grip on the market – but beneath the surface its supply chain was crumbling. After racking up huge losses over several quarters, mainly as a result of over-ambitious ideas for product lines, and inefficient manufacturing processes, Lego’s supply chain and logistics structure was due a major overhaul.
Today, despite once being a laughing stock in the logistics field, its supply chain and logistics innovations are seen as exemplary. Its progress was acknowledged last year when it won the European Supply Chain Excellence award for logistics and fulfilment.
The company, whose name derives from the Danish words “leg godt” which mean “play well”, appointed Egil Møller Nielsen to the position of vice president, global distribution logistics, to help transform its distribution network.
Møller Nielsen began his career in freight forwarding and shipping. “I was born out of logistics,” he says. Nevertheless, the mammoth task he faced at Lego was like no other he’d dealt with before, and was what he describes as “the most challenging point” of his career. “Five years ago there was nothing right,” he says, “in 2004 we didn’t even know what we spent.”
One of the first decisions was to consolidate all distribution. Historically, Lego had multiple logistics providers and suppliers, all running separate warehouses, each operating under a different warehouse management system. As a result, visibility across the supply chain was virtually non-existent and cross-business communication and orders were fragmented.
Now its logistics operations are centralised. Stock from seven of its former distribution centres across Europe are now consolidated into DHL Supply Chain’s one million square foot global distribution centre in Jirny, near Prague in the Czech Republic. From this giant hub – the equivalent in size to ten football pitches – the toy manufacturer serves 14,000 customers worldwide, spanning 135 countries.
This move has brought Lego’s distribution channels closer to its customers, and the biggest population centres in Europe, reducing transport costs as a result. Since consolidating all distribution, inventory is now easier to track and stock shortages have been reduced.
However, closing distribution centres led to job losses. “One of the biggest challenges was that the knowledge we needed was in the people we had to let go when we shut down the other 12 DCs,” admits Møller Nielsen. He also points to changing the management structure as one of the biggest challenges he faced. “People don’t like change. One of the difficulties was to transform my ideas and get the support from the entire organisation and the suppliers – it was tough but in the end it succeeded.”
Since Møller Nielsen took charge the company has slashed 25 per cent off its cost base. Its carbon footprint has also dropped 25 per cent. One of the major changes he made was to redesign the box packaging to fit the pallets more snugly. “A few years ago only 70 to 75 per cent of the pallet cube was being used,” he says. Just altering the box dimensions by one centimetre has made a big difference – now pallet utilisation is up 95 per cent, and we’re transporting 20 per cent less volume of pallets, which has made massive savings on transport costs, he says.
The Jirny hub is the heart of Lego’s global distribution, and channels 2,750 different products. “60 to 70 per cent of the product assortment is changed every year,” says Møller Nielsen. As such, it works closely with retailers to determine forecasts, so that it can react quickly to volume fluctuations. It is now gearing up for its busiest time of year – Christmas – which accounts for 60 per cent of its yearly income.
Lego’s supply chain is unrecognisable compared to that of five years ago. “One of the things I’m most proud of is how we are now regarded as a logistics provider,” says Møller Nielsen, “in 2004, we carried out customer surveys, and we were ranked the worst in class in logistics. We have done the same surveys each year since then, and in 2008 were voted best in class. Now the company’s supply chain is held up as an example.”
Education: Graduated with an MBA in general management from Leicester University, and received a BA at Aarhus University, Denmark.
He began his career at Dutch company DSV (Formerly known as Samson Transport before being acquired by DSV). He was there for two years and worked in air and ocean freight across the Atlantic.
Became head of global logistics and distribution at Danish company Ecco Shoes for three and a half years. Spent five years at US company formerly known as AEI – now DSL, where he was responsible for selling and implementing solutions for customers.
2004: Joined Lego as director of logistics strategy. Promoted to head of logistics in Europe & Asia. 2006: senior director of logistics, Europe & Asia, then senior director global logistics.
2008: vice president of global distribution logistics.