Executive Briefings

LEGO's Logistics Blocks Include 'Combi' Transport, Recyclable Packaging

Denmark-based LEGO Group keeps its brightly-colored blocks flowing to consumers in 150 countries by incorporating logistics as an important adjunct to both manufacturing and sales.

Children love to play with LEGO building blocks, a fact that has made the family-owned Danish toy company a household word in homes around the world, particularly near holiday time.

"About 60 percent of our retail sales are concentrated in November/December," said Jorgen Eeg Sorensen, general manager of transportation and warehousing for LEGO in Billund, Denmark.

To make sure its product gets to markets in 150 countries, both during the holidays and throughout the year, LEGO places a lot of emphasis on logistics. The logistics department is, in fact, the company's largest, employing between 3,000 and 4,000 people out of a total work force of 9,000, said Sorensen. Many of these employees are involved in forecasting and planning but half are on hourly wages and about 10 percent to 15 percent are temporary, peak-season employees.

Currently, LEGO divides the logistics function into two parts: manufacturing and sales. That division has served the company's organizational structure well, but Sorensen said things are changing. "The key issue for LEGO's future will be to integrate manufacturing logistics and sales logistics into a single comprehensive system," he said.

Under the current setup, the group involved with manufacturing schedules delivery of raw materials and components to plants, and the delivery of finished goods to LEGO's 24 wholly-owned sales companies, each of which covers one national market. These companies, which effectively are the plants' customers, are coordinated through a central sales and marketing department that sets merchandising, promotion, pricing and inventory policy. New sales subsidiaries are established as soon as a market has sufficiently large revenue. In the interim, sales agents are used. LEGO currently has agents in about 100 countries administered through LEGO Overseas.

"Within Europe, LEGO uses a single transport company to take care of all inter-factory movements and movements to the sales companies."
- LEGO's Jorgen Eeg Sorensen

The sales subsidiaries serve the same function as national wholesalers, maintaining direct contact with both large and small retailers and delivering products within their territories. "From a logistics perspective, these subsidiaries take ownership and responsibility for product inventory until it is sold to retail customers," Sorensen said. Customer orders come into the sales companies, which direct the distributuion centers to fill and ship the orders.

LEGO has used bar-code systems for materials inventory since 1981 and has developed its own inventory control system. This system runs 24 hours a day, seven days a week and is linked to decentralized computers in LEGO factories in Denmark, Switzerland and the United States.

The beauty of this system is that it allows the company to have a map of all warehouse locations and inventory levels, while allowing each individual warehouse to operate independently. In each warehouse, every physical stock location is marked with a corresponding bar code. Each product received from LEGO factories and suppliers also is marked with a unique bar. From these two pieces of information the inventory system can create picking orders that conform to the different picking systems used by individual warehouses.

While this system has worked well, the LEGO Group currently is developing a plan to replace sales company warehouses with regional distribution centers to allow "greater flexibility in keeping track of our product," said Sorensen. The first such distribution center is slated for Billund and will serve the Nordic countries.

The logistics department negotiates for service and rates directly with carriers, but the actual booking of transportation is decentralized to each shipping location. The company makes extensive use of intermodal or "combi" transportation for its shipments to European destinations, following a decision made a decade ago to move freight off the road where possible. This involves the use of swap-bodies, which are containers seven meters long with a carrying capacity of approximately 40 cubic meters.

"Within Europe, LEGO uses a single transport company, CARGEX A/S, to take care of all inter-factory movements and movements to the sales companies," said Sorensen. A Danish company based in Padborg, CARGEX has a business agreement with Hangartner AG, a Swiss company and an experienced swap-body operator.

Since CARGEX/Hangartner has local branches near most of the LEGO Group's sales companies and suppliers, it also handles local transport from railway terminal to consignee, said Sorensen. The entire process is conducted on a door-to-door basis with the goods being picked up at the factory gate and delivered to the sales company or factory concerned. CARGEX/Hangartner performs the transport in accordance with a weekly plan drawn up by LEGO Group transport departments in Denmark and Switzerland.

Trucks bring the swap-bodies from the factories in Billund and Baar, Switzerland, to railway terminals in Denmark, Germany and Switzerland. At the terminal, the bodies are transferred by mobile or stationary crane from their truck chassis to railway wagons. The train carries the swap-body to the terminal nearest its final destination where it is picked up by truck and delivered to the consignee.

In some European countries, rail transport also is used to distribute products form the sales companies to retailers. "In Germany, around 70 percent of our consignments are dispatched by train," said Sorenesen. "During our busy time for the Christmas holidays, we will use 160 swap-bodies per week from Billund."

LEGO has found this type of transport to be reliable and cost-efficient, Sorensen said. In the first eight years of its use, the company saved several millions of dollars in transportation costs because swap-bodies optimize capacity and reduce empty return trips.
"Transit times also have been reduced," Sorensen said. "The avoidance of road congestion and the ability to move goods over the weekend has made it possible to ship every day in the week regardless of destination."

The ability to schedule deliveries also has improved under the swap-body system. In conjunction with its transport partners, the LEGO Group has drawn up fixed pickup and delivery times for various destinations. The latter is of particular importance to LEGO warehouse personnel, who load and unload the containers.

For overseas movements, LEGO normally negotiates annual contracts for each trade lane with a conference carrier and an independent line.

"For the North American, Latin American and Australia/New Zealand trades, we use Hapag Lloyd, Maersk/Sealand and Mediterranean Shipping Lines," Sorensen said. "We have found that Maersk offers the best lead times for ocean shipments from Denmark to the U.S. These shipments usually take 10 days." In the Far East and Asia, the company uses Hanjin. As a rule, LEGO works with one-year contracts and door-to-door deliveries.

The LEGO Group has found that unitization, including the use of standard Euro pallets, is important in reducing warehouse handling costs and in loading vehicles. However, Euro pallets can be a problem in overseas movements, Sorensen said, because they take up extra space and prevent the most efficient loading of containers.

That problem is avoided on shipments to the U.S. through use of slip sheets instead of pallets. "Slip sheets are thin cardboard sheets that do not take up much space and are recycled rather than returned," said Sorensen. They allow workers to pack more cubic meters of product in each container, so less total transport capacity is needed.

LEGO's storage and transport methods have allowed the company to reduce strength requirements for its outer packaging and increase the content of recycled cardboard in cartons. Currently, the packaged LEGO sets that consumers buy in toy shops are wrapped in corrugated board cartons known as "outers" for transport. This packing is either fully or partially automated, depending on location. In either case, said Sorensen, the outers are closed with tape and marked with the date and number using water-based printing inks. Excess and discarded cardboard is separated in production and compressed into bales on the spot, after a check to ensure that any sealing tape has been removed. This enables as much cardboard waste as possible to be recycled.

Cardboard also is recycled in the warehouse. When a set has to be broken to fill an order, for example, the outer carton is saved for reuse. Excess outers are cut into small pieces and used as filler when orders are being packed.

"Our logistics organization currently is working on developing a more future-oriented packaging concept that will both reduce material consumption and make handling easier, from factory to shop," Sorensen said.

This project also includes an experiment involving the use of returnable packaging between LEGO sales companies and major retail chains. The company expects the new concept to be ready for implementation this year.

Additional recycling techniques are being developed by the company for board, plastic boxes and containers. For example, LEGO now returns the big, 500-kilogram raw-materials cartons to its suppliers. The cartons can be used three times before they have to be recycled, eliminating use of a lot of new cardboard.

"We used to use 400,000 to 500,000 cardboard boxes annually for the handling and storage of molded and processed elements that were transported between the various departments and factories, including transport across national European borders," Sorensen said. "Even though these boxes could be used five or six times before they were discarded and recycled, we started a new environmental project a couple of years ago, and a new system is now being introduced in European LEGO factories."

The cardboard boxes now have been largely replaced by a system of modular plastic returnable cartons. An analysis based on German and Swiss experience suggests this system will impact the environment significantly less than the use of cardboard, Sorensen said.

Billions of Blocks
Since its founding in 1932, the LEGO Group has manufactured more than 170 billion LEGO elements and 11 billion DUPLO bricks for more than 300 million consumers worldwide.

The company today is the largest toy manufacturer in Europe and among the top five in the world.

All tooling and molds for LEGO toys are made and tested in Billund. LEGO's operations there also manufacture 50 percent of the company's total output. Switzerland, the company's second-largest manufacturing site, creates a quarter of all LEGOs. Enfield, Conn., produces 20 percent and serves the entire North American market; sites in Brazil and Korea manufacture the remaining 5 percent. Ninety-eight percent of LEGO's total production is sold outside Denmark, according to corporate statistics.

LEGO may be worldwide, but Europe continues to be its biggest market with 17 sales companies handling many versions of the product as opposed to three sales companies in North America and one in Japan.

Children love to play with LEGO building blocks, a fact that has made the family-owned Danish toy company a household word in homes around the world, particularly near holiday time.

"About 60 percent of our retail sales are concentrated in November/December," said Jorgen Eeg Sorensen, general manager of transportation and warehousing for LEGO in Billund, Denmark.

To make sure its product gets to markets in 150 countries, both during the holidays and throughout the year, LEGO places a lot of emphasis on logistics. The logistics department is, in fact, the company's largest, employing between 3,000 and 4,000 people out of a total work force of 9,000, said Sorensen. Many of these employees are involved in forecasting and planning but half are on hourly wages and about 10 percent to 15 percent are temporary, peak-season employees.

Currently, LEGO divides the logistics function into two parts: manufacturing and sales. That division has served the company's organizational structure well, but Sorensen said things are changing. "The key issue for LEGO's future will be to integrate manufacturing logistics and sales logistics into a single comprehensive system," he said.

Under the current setup, the group involved with manufacturing schedules delivery of raw materials and components to plants, and the delivery of finished goods to LEGO's 24 wholly-owned sales companies, each of which covers one national market. These companies, which effectively are the plants' customers, are coordinated through a central sales and marketing department that sets merchandising, promotion, pricing and inventory policy. New sales subsidiaries are established as soon as a market has sufficiently large revenue. In the interim, sales agents are used. LEGO currently has agents in about 100 countries administered through LEGO Overseas.

"Within Europe, LEGO uses a single transport company to take care of all inter-factory movements and movements to the sales companies."
- LEGO's Jorgen Eeg Sorensen

The sales subsidiaries serve the same function as national wholesalers, maintaining direct contact with both large and small retailers and delivering products within their territories. "From a logistics perspective, these subsidiaries take ownership and responsibility for product inventory until it is sold to retail customers," Sorensen said. Customer orders come into the sales companies, which direct the distributuion centers to fill and ship the orders.

LEGO has used bar-code systems for materials inventory since 1981 and has developed its own inventory control system. This system runs 24 hours a day, seven days a week and is linked to decentralized computers in LEGO factories in Denmark, Switzerland and the United States.

The beauty of this system is that it allows the company to have a map of all warehouse locations and inventory levels, while allowing each individual warehouse to operate independently. In each warehouse, every physical stock location is marked with a corresponding bar code. Each product received from LEGO factories and suppliers also is marked with a unique bar. From these two pieces of information the inventory system can create picking orders that conform to the different picking systems used by individual warehouses.

While this system has worked well, the LEGO Group currently is developing a plan to replace sales company warehouses with regional distribution centers to allow "greater flexibility in keeping track of our product," said Sorensen. The first such distribution center is slated for Billund and will serve the Nordic countries.

The logistics department negotiates for service and rates directly with carriers, but the actual booking of transportation is decentralized to each shipping location. The company makes extensive use of intermodal or "combi" transportation for its shipments to European destinations, following a decision made a decade ago to move freight off the road where possible. This involves the use of swap-bodies, which are containers seven meters long with a carrying capacity of approximately 40 cubic meters.

"Within Europe, LEGO uses a single transport company, CARGEX A/S, to take care of all inter-factory movements and movements to the sales companies," said Sorensen. A Danish company based in Padborg, CARGEX has a business agreement with Hangartner AG, a Swiss company and an experienced swap-body operator.

Since CARGEX/Hangartner has local branches near most of the LEGO Group's sales companies and suppliers, it also handles local transport from railway terminal to consignee, said Sorensen. The entire process is conducted on a door-to-door basis with the goods being picked up at the factory gate and delivered to the sales company or factory concerned. CARGEX/Hangartner performs the transport in accordance with a weekly plan drawn up by LEGO Group transport departments in Denmark and Switzerland.

Trucks bring the swap-bodies from the factories in Billund and Baar, Switzerland, to railway terminals in Denmark, Germany and Switzerland. At the terminal, the bodies are transferred by mobile or stationary crane from their truck chassis to railway wagons. The train carries the swap-body to the terminal nearest its final destination where it is picked up by truck and delivered to the consignee.

In some European countries, rail transport also is used to distribute products form the sales companies to retailers. "In Germany, around 70 percent of our consignments are dispatched by train," said Sorenesen. "During our busy time for the Christmas holidays, we will use 160 swap-bodies per week from Billund."

LEGO has found this type of transport to be reliable and cost-efficient, Sorensen said. In the first eight years of its use, the company saved several millions of dollars in transportation costs because swap-bodies optimize capacity and reduce empty return trips.
"Transit times also have been reduced," Sorensen said. "The avoidance of road congestion and the ability to move goods over the weekend has made it possible to ship every day in the week regardless of destination."

The ability to schedule deliveries also has improved under the swap-body system. In conjunction with its transport partners, the LEGO Group has drawn up fixed pickup and delivery times for various destinations. The latter is of particular importance to LEGO warehouse personnel, who load and unload the containers.

For overseas movements, LEGO normally negotiates annual contracts for each trade lane with a conference carrier and an independent line.

"For the North American, Latin American and Australia/New Zealand trades, we use Hapag Lloyd, Maersk/Sealand and Mediterranean Shipping Lines," Sorensen said. "We have found that Maersk offers the best lead times for ocean shipments from Denmark to the U.S. These shipments usually take 10 days." In the Far East and Asia, the company uses Hanjin. As a rule, LEGO works with one-year contracts and door-to-door deliveries.

The LEGO Group has found that unitization, including the use of standard Euro pallets, is important in reducing warehouse handling costs and in loading vehicles. However, Euro pallets can be a problem in overseas movements, Sorensen said, because they take up extra space and prevent the most efficient loading of containers.

That problem is avoided on shipments to the U.S. through use of slip sheets instead of pallets. "Slip sheets are thin cardboard sheets that do not take up much space and are recycled rather than returned," said Sorensen. They allow workers to pack more cubic meters of product in each container, so less total transport capacity is needed.

LEGO's storage and transport methods have allowed the company to reduce strength requirements for its outer packaging and increase the content of recycled cardboard in cartons. Currently, the packaged LEGO sets that consumers buy in toy shops are wrapped in corrugated board cartons known as "outers" for transport. This packing is either fully or partially automated, depending on location. In either case, said Sorensen, the outers are closed with tape and marked with the date and number using water-based printing inks. Excess and discarded cardboard is separated in production and compressed into bales on the spot, after a check to ensure that any sealing tape has been removed. This enables as much cardboard waste as possible to be recycled.

Cardboard also is recycled in the warehouse. When a set has to be broken to fill an order, for example, the outer carton is saved for reuse. Excess outers are cut into small pieces and used as filler when orders are being packed.

"Our logistics organization currently is working on developing a more future-oriented packaging concept that will both reduce material consumption and make handling easier, from factory to shop," Sorensen said.

This project also includes an experiment involving the use of returnable packaging between LEGO sales companies and major retail chains. The company expects the new concept to be ready for implementation this year.

Additional recycling techniques are being developed by the company for board, plastic boxes and containers. For example, LEGO now returns the big, 500-kilogram raw-materials cartons to its suppliers. The cartons can be used three times before they have to be recycled, eliminating use of a lot of new cardboard.

"We used to use 400,000 to 500,000 cardboard boxes annually for the handling and storage of molded and processed elements that were transported between the various departments and factories, including transport across national European borders," Sorensen said. "Even though these boxes could be used five or six times before they were discarded and recycled, we started a new environmental project a couple of years ago, and a new system is now being introduced in European LEGO factories."

The cardboard boxes now have been largely replaced by a system of modular plastic returnable cartons. An analysis based on German and Swiss experience suggests this system will impact the environment significantly less than the use of cardboard, Sorensen said.

Billions of Blocks
Since its founding in 1932, the LEGO Group has manufactured more than 170 billion LEGO elements and 11 billion DUPLO bricks for more than 300 million consumers worldwide.

The company today is the largest toy manufacturer in Europe and among the top five in the world.

All tooling and molds for LEGO toys are made and tested in Billund. LEGO's operations there also manufacture 50 percent of the company's total output. Switzerland, the company's second-largest manufacturing site, creates a quarter of all LEGOs. Enfield, Conn., produces 20 percent and serves the entire North American market; sites in Brazil and Korea manufacture the remaining 5 percent. Ninety-eight percent of LEGO's total production is sold outside Denmark, according to corporate statistics.

LEGO may be worldwide, but Europe continues to be its biggest market with 17 sales companies handling many versions of the product as opposed to three sales companies in North America and one in Japan.