Lego has always offered quality products and they were offering licensed items like Star Wars for years and the company still was showing a downward trend. I should mention that I was in one of these university Supply Chain Management courses through the business school where we studied, analyzed, wrote, and tested on Lego’s business model so I am not just guessing at what happened. It does not matter how great your product. In fact, due to these supply chain issues, the company was losing money as they sold more.

To simplify, the logistics aspect (and this is an extreme example for the sake of illustration). Imagine you make pizzas. However, when you deliver the pizza, you use a helicopter. The cost of the helicopter in fuel alone is more that what you earn for that pizza. So the more you sell, the more money you lose. And this still does not address the other issues Lego had with not standardizing their 3PL (3rd Party Logistics) across Europe. The cost of warehousing their over production of inventory on hand. The cost of setting up more distribution hubs than what they actually needed. The cost of producing (and again storing those various bricks in inventory) so many different types and colors of bricks.

And while I would love to think that Star Wars and other properties are so magical that it can turn any business into a success, it is not going to do anything if your Supply Chain is killing it.

The story in wired simply looks at a chart of the Lego’s trend and with only considering the licensing aspect, speculated that it is due to that factor. I could use that same chart and and write the same type of story saying that if you assign a CEO with a “K” staring with his last name, the business turned around.

I think you have over-simplified the issue, when you call this article BS. There is some truth to the story. Enhancing efficiency cannot alone result in the exponential growth shown in this plot in the past five years. Probably the first factor to consider is the quality of their product, which is excellent and frankly has gotten more sophisiticated with time. I do whole-heartedly agree that the distribution model of Lego, in which all items are readily available individually at MSRP either online at the company store or in local retail stores, is vastly superior to the distribution model of Hasbro, which has been widely disparaged by SW collectors for more than a decade. However, the greater influence of the monoculture is also at play here. The rise of the internet, while providing channels for individual cottage industry creators to showcase and their distribute products, is counter-intuitively also resulting in the funneling of mass markets to a few, giant options. Licensing Marvel, DC Superheroes, Harry Potter, Lord of the Rings and Star Wars allows LEGO to tie into several of these gigantic options with a built-in fan base.

Duplo is a line for toddlers. Nothing wrong with that, but I don’t think Hasbro would claim 5POA is for toddlers

Bottom line… Hasbro isn’t run as well as Lego these days. It’s not even close.

I would say that LEGO does their fair share of rehashing iconic vehicles and reissues some characters pretty regularly. Obviously, they do a better job of keeping things fresh with new builds and spurring creativity and imagination – not something Hasbro via SW has a grasp of right now.

When my son is in an aisle filled with various Lego sets, he is mesmerized. He used to feel that way about Hasbro, but always seeing the same characters/figures over and over that’s “boring” – his words, not mine.

Interesting. Thanks for pointing it out. It’d be nice if Hasbro could reduce costs through a similar process, although with a more diverse inventory it might be more difficult

While I agree licensing was a wise move and it has increased sales and profits, it was not the key factor in the company’s turn around. If you remember, the Star Wars legos (the beginning of licensing for the company) had products on the shelf around April 1999.

The real factor was a change in Supply Chain Management. When the new CEO stepped in, he started LEAN/Six Sigma techniques to zero in on the major problems. The problems they faced, the way they approached solving the problem, and what steps they took has led to Lego being studied in Supply Chain and Logistics courses in many colleges and universities.

Factors included, too many hub distribution points, too many various items made and held in inventory, too many variations of logistic methods being utilized around the world, etc…

For those who do not know, logistics is often a companies second biggest expense next to labor. The increase in fuel costs over the last 10+ years has made leaner logistics as well as other parts of supply chain management, a major factor to address with companies.

It was only till ofter these factors were addressed, was Lego able to stop bleeding internally and star capitalizing on their licensing move.

If you want the short version of this story, check out http://www.ft.com/cms/s/0/05806aa4-f819-11df-8875-00144feab49a.html#axzz2se0ZHpOY but there are more involved reports, news stories, articles, etc.., that go into more details.

Not so much as regress to 5POA as to offer it alongside SA TBS figures. Similar to how LEGO offers Duplo alongside its more complicated/technical division.

I was just thinking the same point. LEGO has been willing to innovate. It’s expanded into video games and movies now. When LEGO decides to do something, it does it extremely well. The contrast with Hasbro’s half-hearted efforts in my mind couldn’t be greater.