Building Blocks of Recovery: How LEGO Snapped Its Supply Chain Back Together

In the early 2000s, LEGO, the iconic Danish toy company known for its colorful interlocking bricks, found itself in a supply chain mess so big it could have sunk the company. Faced with rising costs, inventory issues, and product complexity spiraling out of control, LEGO was stepping on more than just bricks—they were stepping on their own profitability.

Let’s break down what went wrong, how it impacted every aspect of the supply chain, and, most importantly, how LEGO managed to turn things around and build one of the greatest comeback stories in business history.

The Problem: Too Many Bricks, Not Enough Solutions

LEGO’s troubles started in the late 1990s when they expanded their product line too aggressively. The company was trying to innovate, releasing a huge variety of new themes and unique pieces. In theory, more variety would mean more appeal to different markets. In practice, however, it created a logistical nightmare.

By the early 2000s, LEGO had over 12,000 unique parts in their portfolio (up from around 7,000). Think about that for a second. Every one of those pieces needed to be designed, manufactured, stocked, and shipped, which introduced overwhelming complexity into every stage of the supply chain. This wasn’t just a problem for manufacturing—every department, from procurement to distribution, felt the pain.

1. Procurement & Sourcing: The explosion in the number of unique pieces meant LEGO had to source a huge range of raw materials and components. Each piece required specific molds, some of which were used for only a few sets. The procurement team was stretched thin, juggling multiple suppliers for small, specialized orders. This led to higher sourcing costs and long lead times. In other words, the more unique pieces LEGO needed, the more suppliers they had to deal with, driving up the complexity and cost of the procurement process.
2. Manufacturing: In the factory, things were even worse. With so many different molds and parts, production lines had to switch frequently between making different pieces. Imagine constantly retooling machines for each new set of pieces—this wasn’t a quick changeover, and it led to huge inefficiencies. Each time a machine was reconfigured, production would come to a halt. These frequent changes led to costly downtime and higher labor expenses, resulting in LEGO producing more at a higher cost but not seeing equivalent revenue.
3. Inventory Management: With 12,000+ unique parts came the need for large warehouses to store them all. Inventory management became a headache. It was difficult to predict which pieces would be needed in which quantities, leading to overstocking of unpopular parts and shortages of in-demand ones. Stockouts hurt sales when LEGO couldn’t meet demand, while overstocking tied up valuable cash in unsellable inventory. The worst of both worlds: excess stock they couldn’t sell and not enough of what customers wanted.
4. Distribution: LEGO’s distribution centers were also hit hard. With so many SKUs (Stock Keeping Units), keeping track of which pieces needed to go where was a challenge. Different sets with different configurations meant that packing and shipping became more labor-intensive. And since demand forecasting was off, they were often shipping products to retailers that wouldn’t sell while running short of items in demand. Shipping the wrong products to stores not only increased transportation costs but also hurt relationships with retailers who couldn’t keep popular products on shelves.
5. Sales & Retail: Retailers were frustrated. LEGO was producing so many different sets and pieces that predicting which would sell was a guessing game. Stores would either be overloaded with niche sets that no one was buying, or they'd run out of popular products like the LEGO Star Wars series, missing out on peak sales opportunities. This inconsistency led to a loss of trust with retailers, who began to question LEGO’s ability to supply what their customers wanted, when they wanted it.

The Turning Point: Enter J?rgen Vig Knudstorp

LEGO was teetering on the brink of financial disaster. The company brought in J?rgen Vig Knudstorp as CEO, and he quickly realized that LEGO’s over-complicated supply chain was at the heart of the problem. Knudstorp’s diagnosis was clear: too many parts, too much complexity, and too little focus on efficiency.

Knudstorp’s solution? Simplify, streamline, and refocus.

Knudstorp’s first order of business was to reduce the number of unique pieces LEGO produced. He cut the number of unique components by almost half, bringing it down from 12,000 to about 6,000. This drastically reduced the complexity in production, procurement, and distribution. It also lowered manufacturing costs by enabling longer production runs and reducing the frequency of retooling machines. The move was similar to IKEA simplifying its product range—fewer options, more efficiency.

Next, LEGO implemented more advanced forecasting tools to better align production with demand. Instead of relying on old-school guesswork, they started using data analytics to predict which products would sell best. This helped them avoid overstocking and ensured they could quickly meet demand for popular sets. Improved inventory management also meant that LEGO could keep less stock on hand, freeing up cash that was previously tied up in unsellable products.

Knudstorp didn’t stop at fixing LEGO’s internal operations—he reached out to retailers and built stronger partnerships. By working closely with stores to understand what customers were buying, LEGO could plan production and distribution more effectively. Retailers, in turn, had more confidence in LEGO’s ability to deliver the right products at the right time.

Why try to do everything when you can focus on what you do best? Centralizing production allowed LEGO to cut down on inefficiencies, while outsourcing non-essential items freed up resources to focus on their core products. It’s a strategy similar to delegating chores at home—don’t spend hours trying to do everything yourself when you can get someone else to handle the smaller stuff.

For LEGO, that meant fewer headaches and lower costs, while still keeping up with demand for their most popular sets. After all, no one wants to be the person sweating over details when you can get someone else to handle the grunt work.

Alas!

The LEGO story is a powerful reminder of how even the most iconic brands can stumble—and recover—if they are willing to adapt. Through smart leadership, simplification, and a relentless focus on efficiency, LEGO turned its broken supply chain into a competitive advantage. Today, LEGO’s supply chain is agile, sustainable, and future-proof, positioning the company for continued success in a rapidly evolving global market.

For any business facing supply chain challenges, LEGO’s journey serves as a blueprint for how to rebuild and grow, brick by brick, into something stronger than before.

the LEGO Group