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HOW TO DO BULK SALES IN THE 21st CENTURY
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Be prepared, this is long... I hope you find it is worth reading.
I think it is time we stopped guessing what The LEGO Group's real
costs are.
None of us know; period.
Some people with actual TLC experience have given us some incite into
the company and its manufacturing and operational practices. I'm
actually very surprised that a book has not been researched and
written about these practices. When a company, as well known as TLC
reaches the pinnacle of success, everyone else wants a little incite
into their strengths and weaknesses, and an explanation of how they
got there.
Has anyone conducted a thorough research job to see if some MBA hasn't
actually written a thesis on TLC's business practices? There may
actually be a few. Especially in Denmark.
My company does not produce injection molded plastic parts, but I have
worked as a draftsman for a window company that did vinyl and other
plastic extrusions. Our department was tasked with the job of
designing the molds. I had some experience on the production floor.
Now that I'm on the management side of a manufacturing company, I now
have experience in parts acquisition, machinery purchasing, assembly
lines, warehousing, cost analysis, manufacturing, quality control, and
a few dozen other related jobs that I now do.
We have asked The Lego Company for bulk ordering. TLC has responded
with its first attempts at bulk purchasing.
I say attempt for one good reason. These test items on three pages of
TLC's web site are a far cry from what I had envisioned. They are even
a far cry from what I had expected, which wasn't very much.
TLC's biggest problem is there size. They are a dinosaur, both in size
and speed. They are so huge that product roll outs take a year, two,
or longer from planning and inception to the time they reach store
shelves.
The LEGO Company is slowly adapting itself to the ever increasing pace
of change in the retail market.
I think they have made incredible improvements in the last couple
years. It is obvious to me that change is coming, and things are on
the way that will lead to a far better company with more direct
connections to its customer base.
My thoughts on production:
How can anyone claim that 1200 piece tubs are a lost leader for TLC?
Not a chance. Most of you have no idea what it costs to produce parts
and products in vast quantities. I'm talking REALLY vast quantities.
Nothing TLC does is on a small scale.
One of the reasons it takes so long for product roll outs is the shear
number of parts and sets being produced. It takes weeks and months
for TLC to churn out the billions of pieces going into every set
shipping this year. That takes planning, and I mean lots of it.
The LEGO Company is a modern manufacturing firm that has been doing
business for decades, has vast experience and expertise in the
plastics business, and has invested huge sums in modern
state-of-the-art production facilities.
The LEGO Company would not be out sourcing anything. A multi-national
firm of its size and calibre buys everything it needs to do the job
itself, or contracts out tiny aspects of production when other firms
can beat its own in-house operations in capability or price. This
would be rare.
Having complete control over the entire production of every part going
into every set that they design, produce and ship to retail department
stores offers them huge savings on fees to third party vendors.
The LEGO Company even side steps the need for a third party
distributor. All its sets are shipped directly from its own plants to
the retailers directly, or the retailers distribution centers.
TLC is more like Coca-Cola, than your typical manufacturer.
Allow me to explain why...
TLC is practically a commodity producer. They buy huge quantities of
plastic pellets from the petroleum industry and then churn out
billions of parts which they drop into sets, that get placed on the
shelves of your local Toys-R-Us by LEGO's own staff in every major
city around the world.
That makes TLC comparable to Coke & Pepsi. Of course there are
differences and so I'll address those.
I would not be surprised if the manufacturer of TLC's injection
molding machines was not a wholly owned, or partly owned subsidiary of
TLC. If they don't, as president I'd be asking why. Why buy equipment
from someone else when you can buy it from a subsidiary, who also
sells the equipment to thousands of other companies making their own
products that don't compete against TLC's.
Parts storage and warehousing seems to be TLC's weakest point in its
production operation.
I would like to have a complete tour of Enfield to better understand
exactly what they are doing.
From discussions and comments posted by past employees it would seem
that the following is correct.
TLC has large numbers of injection molding machines in lines on the
production floor. Above these machines will be some method of
delivering the large volume of pellets used on a continuous 24 hour
basis. This equipment isn't cheap, so I guarantee its operating at
maximum capability as long as possible. Regular maintained shut downs
will be scheduled, otherwise its clean and go. Finish a production run
of x00,000 copies of a particular piece, and then on to another after
the molds are changes and the machine is cleaned, flushed and
restarted on the next piece.
What happens next is less clear. Some maintain that all parts
produced go into standard size boxes for warehousing and sorting into
bags and sets at a later date. Others maintain that parts from
different machines all end up together in one bag for inclusion is a
set.
Most likely it is a combination of both assembly line techniques. We
have few details about the actual assembly line equipment being used
by TLC. This is an important question. Can anyone provide details?
I do know that TLC uses extremely accurate digital scales on assembly
lines where it can, for counting parts. They will be automated to
dump, redirect or change bags when the accurate count is reached.
I do not know what types of counting machines are used by The LEGO
Company. TLC must have machines that allow them do dump boxes of a
single part into large hoppers by hand, or automatically, and then
count out an exact number of elements through mechanical means or by
weighing them.
Dozens of such machines will be employed in a gang arrangement on a
very long assembly line. Each machine will be fed from a hopper, or
directly by an injection molding machine.
Some sort of conveyor system will connect all these parts counters
together. As each bag, or transport vehicle passes under each, the
correct number of elements will be added. At the end of the line,
each transport vehicle (think box) will dump its contents into a bag
that's then sealed or the bag itself will get sealed if it was the
assembly line transport vehicle.
These bags then can follow one or two paths. They can be dumped into
large holding bins for later inclusion in a set. Or they can be put
directly into the retail boxes. These retail boxes follow one of two
paths. Either they go into warehousing awaiting the production of the
other bags within the set, or they have all bags added in there own
little assembly line from more assembly lines described above and are
then sealed immediately, then warehoused.
How exactly each set is made, and how long it takes depends on the
numbers of these assembly lines existing in one building.
If you can cut out all warehousing steps you do so. If not, you reduce
it to the shortest time and number of parts being stored. Every time
you have to handle these parts, it costs money.
The goal is to produce the sets as quickly as possible, so these can
be warehoused, not the parts that go into them.
TLC's operations will be highly computerized. Production staff will do
massive leg work before production begins, to reduce warehousing, die
changes, colour changes, etc. This is the key to reducing costs,
expensive delays, and problems.
The only reason TLC cannot produce and package elements in any colour
and quantity is the shear number of injection and counting sorters
needed so that every element can be made in every desired color
continuously. That is the drawback of having a huge number of
different elements and a large color palette. Then you need the space
to house everything under one roof.
In and ideal production environment, TLC would have the next best
solution:
If The LEGO Company chose to make internet purchasing and direct sales
to the consumer a global strategy, thereby eliminating all middle men
here is how you'd do it:
You would design a web site that allowed the customer to browse the
entire parts catalog. The web site would list the parts and colours
currently being made, or going to be made in a certain period of time,
say two weeks.
.
You'd take the customers order, and send it to the production line
computers. Every bin on the transport conveyors running under the
counting machines (being fed by the injectors directly or by hoppers)
would be a customer order. In the case of really large orders, many
bins might be one customer's order.
These bins would move the entire length of the assembly line passing
under every parts counter in the building. The computers would
automatically tell each parts counter to count out the exact number of
pieces of this elements if its in the order. As the transport bin
passed under it, the parts would be added.
After each bin travels the entire length of the floor, each order is
complete. These orders get shuttled to the boxing line where the
contents are bagged, boxed, ladled and shipped immediately.
If you do not have enough parts counters for every single element in
every color in production, you will have to warehouse some orders that
are only partially complete. These transport bins will make a second
trip, a third trip, an Nth trip down the assembly line after the parts
counters are loaded with different elements or different colors.
When the complete order is filled, they are bagged, boxed, ladled, and
shipped.
This is how The LEGO Company should fill Bulk Purchase orders. They
could do it quickly, cheaply, and be able to lower production costs by
vast percentages.
When will TLC have this production capability? When they decide the
bulk market is large enough to warrant the cost of setting up the
assembly line and counters to handle the highest number of elements
and colors at once.
If they want to do it more cheaply, use a smaller number of machines,
and just run the transport bins through the assembly line multiple
times after hopper changes to new parts and colors.
If The LEGO Company cannot see the advantages to the production line I
have just outlined, then someone within The LEGO Company should be
fired and replaced by someone who does.
Brad, I hope you can see the obvious benefits to what I have outlined.
Your facilities should be able to fill any customer order with any
element in any quantity they desire. Some very diverse orders with
many colors, would just take longer to fill. The customers can
understand that inconvenience.
The above production line can also be used to churn out transport bins
that are then bagged and boxed for LEGO's own sets as well.
You could utilize this assembly line for both purposes.
Lastly, you should be able to make a huge profit selling those custom
orders directly to customers across the globe, thereby eliminating all
middle men.
A percentage of those savings should then be pasted onto the customer.
LEGO Consumers should see this. LEGO Consumers should demand it
happen.
I see nothing but a win/win situation if Brad can make it happen. I
already know the market exists. TLC is just taking some time to see
it, and some time to change their production capabilities.
If this cannot be done, I would like a lengthy response outlining
exactly why it can not be obtained.
Is The LEGO Company really ready to enter the 21st century marketplace
where customer satisfaction and direct sales are the norm?
We will see.
Ian Sinclair
Transworld Distribution & Manufacturing
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Message has 4 Replies:
 | | Re: Bulk Sales in the 21st Century
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| (...) Ian, I think you started off on the right premise--we're all guessing. But then you go on to assert that your scheme would be cost-effective. What makes you so sure? You've set forth a tidy scheme, but the numbers are still an unknown. Can be (...) (24 years ago, 6-Jul-00, to lugnet.lego.direct, lugnet.general)
| | | Re: Bulk Sales in the 21st Century
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| Ian Sinclair <sinclair@cadvision.com> wrote in message news:3963efd5.607927...ion.com... HOW TO DO BULK SALES IN THE 21st CENTURY ~~~...~~~ Be prepared, this is long... I hope you find it is worth reading. I think it is time we stopped guessing (...) (24 years ago, 6-Jul-00, to lugnet.lego.direct, lugnet.general)
| | | Re: Bulk Sales in the 21st Century
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| Legoland California has a factory tour which provide a lot of insights into the production. The video in the waiting lines is long about 15-20 minutes and has company history, commericals, and factory clips. Inside contains a working molding machine (...) (24 years ago, 6-Jul-00, to lugnet.lego.direct, lugnet.general)
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Message is in Reply To:
| | Re: Bulk Prices!
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| That's all well and good, but isn't there a fixed minimum cost below which one cannot go - IE in order to turn the molding machine on and have it churn out bricks from the designated mold wouldn't there still have to be a minimum cost incurred for (...) (24 years ago, 5-Jul-00, to lugnet.lego.direct)
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