Rendering: Lego
Will a U.S. factory transform Lego’s supply chain and eco-footprint?
Hoping to support its logistics speed and sustainability goals, Lego Group has developed plans to open its first U.S. manufacturing plant.
The 1.7 million-square-foot factory, costing $1 billion, is set to open in Chesterfield County, south of Richmond, VA, in the second half of 2025, creating more than 1,760 jobs.
The site in Virginia was chosen in part for its access to the country’s transportation networks. The Danish toy manufacturer currently operates six factories worldwide. In the Americas, it also operates a factory in Monterrey, in northeastern Mexico, which is also being expanded to support growth in the U.S. market.
“Our factories are located close to our biggest markets, which shortens the distance our products have to travel,” said Carsten Rasmussen, Lego’s COO, in a statement. “This allows us to rapidly respond to changing consumer demand and helps manage our carbon footprint.”
In December 2020, Lego committed to reducing its carbon emissions by 37 percent by 2032 in line with the goals of the Paris Agreement. Lego said 90 percent of emissions come from the supply chain, including areas such as raw materials and distribution; the remainder relate to energy use at factories, offices and stores.
Supply-chain disruptions over the past two years have driven more Western companies to look at moving production close to home for more resiliency.
A global survey of procurement decision makers taken in March by Forrester Consulting on behalf of Ivalua found 46 percent of organizations have turned to onshoring or nearshoring to minimize the frequency and impact of supply disruptions. Other steps being taken include implementing automated risk-monitoring solutions, increasing inventory and rationalizing supply bases.
According to a recent Wall Street Journal, it could take years to match the supplier networks and availability of raw materials on a scale found in Asian manufacturing hubs.
“Undeniably, China is the single biggest market for all sorts of nuts and bolts, everything from your basic components to sophisticated components,” Kamala Raman, VP, supply chain research & advisory, Gartner, told the WSJ. “You cannot recreate that ecosystem in any other country of the world.”
- The LEGO Group to build US$1 billion, carbon-neutral run factory in Virginia, USA – LEGO Group
- First Lego manufacturing facility in U.S. is coming to Virginia – The Washington Post
- Lego plans to build a factory in the United States. – The New York Times
- Will onshoring really solve supply chain nightmares? – Raconteur
- Are U.S. manufacturing sources an absolute necessity for American retailers today? – RetailWire
- The LEGO Group’s carbon goal approved by Science Based Targets initiative – Lego
- Collaborate or Capsize: Research highlights Supplier Collaboration is Critical to minimize Supply Disruptions – Ivalua
- U.S. Companies Face Hurdles in Moving Production Closer to Home – The Wall Street Journal
Discussion Questions
DISCUSSION QUESTIONS: Do you see Lego’s logistics resiliency, sustainability ambitions or some other factors benefiting most from opening a factory in the U.S.? Do you expect a significant shift to onshoring and nearshoring among CPG manufacturers?
Poll
Loading …BrainTrust
DeAnn Campbell
Head of Retail Insights, AAG Consulting Group
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
The balance of power in manufacturing has long needed to be redistributed more equitably. Any business that relies singularly on manufacturing plants half a world away will be at higher risk to changes outside their control. Creating more balance by spreading the load between offshore and domestic sources will create the most flexibility to weather the environmental, economic or other unanticipated changes that arise. And although U.S. based manufacturing is not currently considered as cost effective as foreign because of our wage structures, it’s only by expanding our domestic manufacturing that we will learn how to make it work.
The U.S. is, to be fair, still the world’s second-biggest manufacturing center, but for certain industries and products the supply chain has been utterly offshored. From the children’s product world, here’s one tiny example: there’s only one crayon factory in the U.S., and it’s 100 percent dedicated to Crayola – no chance for domestic private-label. (It’s the only product I have to import!)
Good job of siting for Lego – they can use container backhauls to reach the West Coast at a decent shipping rate, and possibly even use ocean freight from Hampton Roads to supplement supply into the EU.
It’s so simple. “Our factories are located close to our biggest markets, which shortens the distance our products have to travel.” Not many product categories have the eco-system to replicate this, but localized manufacturing of localized products seems to make abundant sense.
Onshore in a major market like Virginia is a brilliant move because it ensures timely distribution to a high growth, high demand market. Always a responsible and responsive manufacturer, reducing carbon footprint gives Lego a “leg up” on its competition.
This move to nearshore for the U.S. market makes total sense. The U.S. market is big and continues to grow. Their business has reached the critical mass volume for Lego to build a second factory in the Americas. All the reasons touted by Lego are a factor. This makes sense because Legos are a low-weight, high-cube product.
Companies will continue to look for near nearshoring opportunities. Just as Oreos are made in India and Volkswagen and GM factories are in China, look at the markets they are servicing and if it is cheaper to manufacture locally than it is to ship from a faraway factory. But it is not a willy-nilly decision. It is a dollar-and-sense decision that becomes clear. It creates a significant advantage for large international companies to compete worldwide.
Both will be positively impacted which is the good news. The question of which of its goals will have the greatest benefit is unknown but my bet is on its logistics. The closer you manufacture to your major markets the shorter and simpler are the logistics of serving them.
There are many positive elements of Lego opening of a domestic manufacturing plant. While at the surface, investing in an onshore manufacturing plant will help to mitigate the significant supply chain challenges, this investment will help drive continued commitment to a sustainability-focused future. By having a supply chain sourcing diversification strategy, Lego will have an on shore presence to help drive inventory availability and a domestic-based workforce in a manufacturing industry that has been ravaged by offshoring.
Here are a few more highlights of this welcome development, especially from a sustainability perspective:
For Lego, both their logistics resiliency and sustainability ambitions will benefit from having a manufacturing facility in their largest market because it will reduce both the product distribution costs and the carbon footprint associated with distribution.
Re: onshoring and nearshoring, other CPGs will absolutely look at it. Why? Transportation costs are up due to the high cost of gas. The global reaction to Russia invading the Ukraine has people hedging against any escalation between China and Taiwan. And companies with strong ESG programs need to take all measures to reduce their carbon footprint.
The pandemic has accelerated the need to shift towards onshoring or nearshoring to minimize the effect of supply chain disruptions. This move will not only help the brands cope with the issues but also reduce carbon emissions. Setting up manufacturing plants in China may have lowered the cost levels but with this decision, the harm we have caused to the environment is much bigger than that. If we bring manufacturing into the US, this will create more job opportunities here, ensure minimized effects from supply chain delays, and will also help brands to bring back the synchronization which was previously disturbed because of covid. I appreciate Lego’s strategy to set up a manufacturing plant here. America holds a big market for Lego’s products, this step will help them to serve their customers better.