E0 - 10Sept2020 Carsten Rasmussen COO LEGO

Yes, I can. First of all, thank you for inviting me back again. It's truly fantastic to be part of this event again. So you could say supply chain's role in Lego is, in my role, it's quite big. We even call it operations because it consists of, you can say, both globally and regionally everything within manufacturing, distribution, short and long term planning, S&OP, engineering, R&D, quality, safety, facility management, and procurement across the company. So it's a broad scope.

The impact is huge because we are a very consumer driven organization, of course. So what we do in the factories and in the operations plays a massive impact on actually how we perform the year. So we need great products, we need great marketing, we need great sales channels, but at the end of the day, if we don't get the right mix of product out to the kids and the parents, especially around Christmas, then we don't succeed as a company. So impact is big. It's also a big part of the organization itself.

Yeah, in operations across Lego we have roughly 10,000 employees, where 8,000 are hourly and then we have 2,000 where a big majority of that sits in our R&D and element and materials and machine development, etc., etc. As we have a pretty big novelty portfolio each year, it requires a lot of R&D, but also for the more long term, as maybe we'll talk about later, the sustainability journey, we have a big staff sitting in there as well. And then the way we have set up our footprint, if we say we have a global look at everything, and the responsibility of the factory sits with me, but the factories are very regional anchored. So a factory in China is really producing for the Asian market or the Chinese market, the same in Europe and US as well. But the beauty about the setup is also they are all fully standardized and our portfolio is global, so if there is needs or like we have seen this year also a need to support each other, we have that flexibility as well. But they are very regional focus in the day-to-day to ensure we get the products out to the children.

I can definitely talk for myself and there might be different formulas for others, but I think for me personally, but also for the company, it has been massively important and a big, big benefit for me. Actually, to be first of all, I've been living globally, so I also have a culture aspect. I've been living in America, I've been living in Asia, I've been living in Central Europe and the Western part of Europe, so understanding different cultures when you want our organization to perform is crucial, I think. But then to set up the right strategy and understand actually what do we need to serve, because ops we need to serve, and in our journey is to serve the children and the shoppers to make them happy and please them with the right product at the right time. For me, to be in that specific role that I was in for two years plus, which was shopper marketing and channel development, it was really in the front line, you could say, understanding customers, consumers, the whole e-commerce journey, what was happening back then about omni-channel, what are the different dynamics. That was a massive help coming back into operation in this role to actually set the strategy with an offset of what do I believe is going to happen with the understanding of shoppers and consumers. So I can only recommend that to become a good COO or a CEO that can support the company strategy, have a strong end-to-end interest, but also seek the opportunity to be out in the field and get a deeper understanding. So fantastic learning for me.

Yeah, definitely. And it's super relevant. First of all, I'm super proud of our results that we have managed to still secure growth and reach many more children and shoppers out in the world, which is our ultimate purpose. But there's absolutely no doubt going into 2020, what I thought would be the agenda was slightly different, you could say. Overall, the strategy we have put in place both in operations and also as a company a couple of years ago have shown up it was super relevant. We had a big focus on particularly e-commerce and the omni journey, the shopper journey. What we learned in COVID-19 is we need to accelerate our thinking, so there was about speed of getting more capacity and actually to be able to serve and help some of our customers. But luckily we had a foundation and a starting point we could accelerate from. Then our supply chain, you could say, if we didn't have the forced lockdowns in our factory in particularly in Mexico, but actually also in China for a period of time, our supply chain would actually be okay. You are in the execution room every day, even myself, ensuring you know we are on top of the things. But the reliability and the flexibility and how it supports in our system actually made us go through that quite well. But then we had a close down particularly in Mexico for two months, and the impact was quite big because at the same time our demand was actually increasing dramatically overnight. So it was about how can we deplete inventories in the right smart ways very, very quickly, and also how then we ramped up our other factories as I talked about in the rest of the world overnight basically to max capacity, getting more staff in. But at the same time they were also hit by COVID-19 and a lot of restrictions, so it was about creating a super, super safe environment for our employees so we can actually attract and make it safe to come to work. So we ramped up our factories in China and in Europe to max while we were depleting inventory, and then coming out of July, I would say we are back to normal. We have recovered what is lost in the retailer inventory, our own inventory, and we are back to normal. So we came out of it quite strong, but it required heavy execution focus from all of us and one team approach really to make this happen. One global team that pulls together has been the key for us.

Definitely. In the situation of the pandemic when it was really the lockdowns, it was about agility and speed. So you could say just ramping up e-commerce, it was about making a decision today and making it happen tomorrow. Absolutely. But forecasting I think is still important even in this situation because you still need to be able to react, you need to be able to forecast. So that we had capacity available on the other side was due to great forecasting as well, also last year about what capacity you need. So I think it's a good mirror for me about having strong forecasting, having strong scenario planning, but when you execute, its speed, agility, and really go into faster decision making is absolutely crucial.

I think there's both how you design the ideal operations and then the individuals. I think if you take the individuals first, I think my view on good supply chain leaders or good ops leaders is probably about execution speed and agility is going to play a bigger role because I don't think even if you find a good vaccine for COVID-19 that we all hope for, there's a lot of other disruptions out there that you need to relate to. So it's going to be a world of disruptions. Is it the shoppers, is it the retail landscape, it's a political landscape. You need to be able to... so I think that will play a bigger part than maybe in the past with more strategy and long-term vision. If we take our operations footprint and strategy, we on purpose did not go in in the middle of the pandemic heat moment and say now we need to change everything, because we also need to make sure what we're changing has a strategic fit for purpose in the future. So what we have done now the last three to four months is take a deep dive to see where can we actually become stronger and better, where we can do things even better. And some of that is in the execution engine room, and then it's a few strategic choices we're discussing right now: do we want to do something even better when it comes to responsibility, responsiveness, and flexibility in our factories? Maybe we need a little bit more capacity, etc. But it's not going to be a strategic complete do-over of our strategy, it's just amplifying what's in it.

Yeah, and you're absolutely right. It's fast. The key of course in the April, May was very much in the execution room full focus, but already in May we started up seven streams and say so this is our main learnings, and in three, four weeks I'm going to discuss this with our board so we can actually start executing already now.

Yeah, it definitely does. And we felt a big time in April where there was a massive shift to particularly e-com. But I would say luckily we had it in our strategy, it's something we've been working on, you know, this shift to e-com and how do we embrace the omni shopper. I think it's a better word because brick and mortar will still be relevant, but the share of e-com will definitely grow. So we have been working on that. We saw a massive lift in demand, but since we had been working on it, it was actually about more about adding capacity. But our strategic roadmap will not change, it's probably just moving forward a little bit in timing. So I think we will set up for it, but it requires some good execution again. But we are set up for the fall as well.

Yeah, there is absolutely no doubt digitization will and will be for the next years a key enabler for us to be successful. One area is about forecasting and ideality, understanding what's happening on the shelf and the easiness for us as shoppers to change channel. We need much more analytics in that field, predictability from a big data point of view to foresee some of these changes. You cannot do that manually anymore, you simply need to rely and have a system around that to be able to predict. Otherwise I don't think we have a fighting chance to reach the shopper where they truly are going to do the final purchase. So that's a big, big focus area for us. But also within manufacturing, the innovation space, the requirements of newness from all of us, right? We want something new all the time, kids want to be entertained. We need to come up with new innovations, and here again digitization plays a big, big part of that. How can we use smart robotics, AI technologies in production both to be efficient but also to be able to provide new innovations that's truly needed to keep kids and shoppers engaged and attractive in the years to come.

Yeah, even in an engineering heavy traditional company as we are with 80 plus years legacy and it's about molds, yes we do. We have a lot more data science also coming into ops, much more millennials actually to help us also to embrace. Someone I've been here for 20 years, right? I could be a little bit traditional sometimes, so I need that push as well. So I think we see a lot more of that and we can see the benefit of that mixture between understanding the deep philosophy behind the LEGO brick and our values, but then embrace that with the new millennials thinking and what's actually what kids and parents are looking for. So yes, we see a lot of people that want to join us, but also we are pulling much more in these fields as well.

And have you even asked me the question which one is my biggest headache? It is probably in this field because this is a super important field to invest heavily in and actually adapt your supply chain. It's not going to be something nice to have, it is going to be a license to operate in the future, I'm convinced about that. So our big focus is have different lenses on it. There is very much about how do we make our operations more sustainable: less CO2, less water consumption, renewable energy. We invest heavily in that to optimize that constantly. We have clear targets around that. Then there is the product angle where we also definitely want to even go further on the sustainable journey: get rid of everything single use of plastic, have a circular economy in our products, make sure that whatever is used and at some point will be waste is recyclable, go into the right channel. So that's a big, big focus particularly within packaging materials right now. The last part is then about our core brick which in itself is actually quite sustainable because it's reused from generation to generation. So luckily when it's a plastic it doesn't end in the nature that quickly, it's used between generations. But still, how can we make a circular economy within the brick? Some of it could be new material types, but it could also be systems where you can actually donate your bricks when you're done with them and it's recycled into other generations. So I think our sustainability agenda is huge. It's something we're going to invest hundreds of millions in in the next years because it's not something we would like to do, it is something we want to do.

Yes, there is maybe one element. You could say the people, the culture. What culture do you want to drive in your teams? You could say LEGO we have a culture, all companies of course have described the vision and our people promise or whatever we call it. But I think in the situations where you want speed, agility, and quick decision making, if you don't have one team around you who's really with you the whole way and you have built that trust, and it's very, very clear now we're in the execution and people are able to follow, they're able to challenge and able to execute together, you fail. So I think this part of building a strong operations is also how do you build that culture in your teams? What is it you believe in? That's right. And for me, even we are regional big, we are one team and we only succeed together. So I think that element will also play a bigger role in the future.