How Lego supply chain should prevent hitting a brick wall

I just read in the Guardian newspaper that Lego doesn’t expect to be able to meet demand for its popular brick toys this Christmas. Do spare a thought for the dejected children – and let’s face it – more than a few grown-up ‘helpers’!

Coincidentally, in November 2013 I chaired a conference panel discussion in Amsterdam and Lego’s supply chain director was on the panel. We specifically debated the potential impact that the Lego Movie was having on demand. The company was definitely expecting the movie to affect Christmas’ orders in 2014 so either the forecast for 2015 was wrong, or they did not believe it, or they were not able to gear up in time. The Guardian article mentioned that Lego’s factories were running flat out now, but clearly like they needed to have started earlier.

Frozen epidemic

Perhaps – and I’m speculating here – planners thought the Lego movie, which came out back in February 2014 was too far away from this Christmas (2015) to impact demand quite as strongly as it clearly is. If this were the case, the decision failed to take into account children’s all-consuming movie obsessions that can last months and often years. The ‘Frozen’ epidemic is a case in point! This is why I always advise clients to look outside their own industry networks for supply chain planning wisdom.

To borrow from an oft sardonically quoted post-match interview by England football manager Roy Hodgson, I see a lot of misguided decisions being made for ‘forecasting reasons.’ Individuals can underestimate the extent to which supply chains – like football teams – are complex systems. When a manager feels very strongly about one specific thing – say, reducing inventory (or leaving out a certain star player) – they often fail to see the many adverse ways in which the decision can impact the whole system. I don’t know if something like that happened at Lego or not.

S&OP renaissance

I have certainly noticed that more companies – including Lego – are part of a growing Sales & Operations Planning (S&OP)  ‘renaissance’ – either starting from scratch, starting over or building on existing initiatives. Our own clients including Westmill Foods, Cargill and MW Brands demonstrate that the more people across different business areas who contribute to the planning process, the healthier and more accurate forecasts become over time. Most companies we speak to, however, are stuck at ‘stage 2’ of Gartner’s S&OP maturity model. The kind of determined leadership and sustained culture change needed to move beyond this plateau is still the exception, not the rule.

The last conclusion I’d wish for you to draw is that I’m suggesting we should leave it all to the machines and their algorithms. Certainly not! Machines should be deployed to support S&OP by carrying out the voluminous and repetitive data crunching. This includes integrating social data, which contains valuable anecdotal and qualitative clues about how consumers are likely to behave. Deploying technology this way frees up people to collaborate on fine-tuning forecasts by applying their market intelligence, business knowledge – and maybe even a little child psychology.

In the meantime, I strongly suggest you get your Christmas Lego orders in early to avoid disappointment!

Hugh Williams, Managing Director, Hughenden Consulting