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Crocs: Revolutionizing An Industry’s Supply Chain Model Essay

Executive Summary

Crocs is a footwear manufacturing company founded in 2002 by Michael Hagos, Lyndon Hanson, and George Boedecker, Jr. The company specializes in shoes featuring its proprietary Croslite™ material, a revolutionary technology that gives each pair of shoes the soft, comfortable, lightweight and odor-resistant qualities. Crocs pride itself in its highly flexible supply chain which consist of manufacturing facilities all around the world. With this model, Crocs is able to revolutionize supply in footwear retail industry by producing shoes throughout the season. In this paper, we would look at Croc’s business model, strategies the company could adopt and look at its production and inventory planning.

Crocs core competencies

Crocs core competencies lies in several factors. Frist, Crocs adopted a radical retail model that differs from the industry. Current practices in the industry requires buyers to book orders for the season which results in overstocking or foregone sales if demand is estimated wrongly. Crocs had a manufacturing advantage due to the simplicity in their original footwear. This allowed them to produce shoes and ship them out in a relatively short time. By taking ownership of part of their manufacturing process and having a global presence, Crocs is able to move machines/ molds to adjust to demand of different models at various locations around the world. The current model gives Crocs the ability to ship a produce a new shoe in two weeks and this is key in reducing their risk of foregone sales by being able to build more footwear during the season to respond to changes in demand.

Second, Croc’s positioned itself with a unique product that is comfortable, slip resistant and odor resistant. The company able to coordinate a global launch relatively rapidly and that helped minimized the risk of competition and allowed them to establish strong branding across the globe.

Lastly, Crocs maintains good relationship with both small and large retailers. This allows them to establish their branding, market their product and test out new lines of footwear across a wide range of retail options. Due of the flexibility of ordering more footwear during the season, Crocs is able to solve a problem faced by small retailers and this is critical to Crocs in developing a strong relationship with them.

Further vertical integration into materials.

Crocs’s proprietary resin called Croslite™ is a primary raw material used in most of their products and accessories. Croslite™ stands out as a good choice of material as it is slip-resistant, non-marking and extremely lightweight (Crocs, 2009). Currently, Croslite™ is produced by compounding elastomer resins purchased from major chemical manufacturers. In 2009, Crocs has two suppliers that produce the particular elastomer resins used in Croslite™ and multiple suppliers that can supply the rest of the raw materials (Crocs, 2009). Aside from the specific elastomer resin, Crocs has little incentive to integrate the rest of their raw materials into their supply chain as the risk of shortage is low due to the availability of suppliers and the cost savings would likely be minimal. As for the elastomer resins, Crocs could either source of alternative materials or suppliers to mitigate the risk of stock outs or acquire these suppliers to achieve a greater stability of supply.

Growth by acquisition

Crocs made a couple of acquisition from 2004 to 2007. Crocs’s first acquisition, Finproject , gave them ownership of the resin Croslite™ which was key to Crocs products. In 2006, companies competing in comfort footwear and protective gear Fury and EXO Italia was acquired to solidify Crocs position as a provider of comfort products. The Jibbitz and Ocean Minded acquisitions allowed Crocs to extend their product by making them more customizable and also enter into a new market segment that they were previously not in. Crocs could increase its competency by acquisitions into product lines that fit into Crocs image and could be placed in their current retail locations. In addition, Crocs would be susceptible to fashion changes and could diversify their risk by acquiring footwear companies that follow fashion trends. In general, Crocs should actively look out for acquisitions that allows them to reduce cost and increase flexibility in their supply chain, prevents future competition and diversifies its business risk away.

Growth by product extension

Crocs should look into extending their products into markets that complements their goal of providing comfortable foot or body wear. By having products that fit into the company’s values and image, Crocs can easily integrate them in their current retail channels. At the time of the case, Crocs is has extended its products in beach ware, working professionals, diabetic patients and protective ware and they should continue doing so. Crocs could look into markets like sports, boating, outdoors etc which all have potential use for Croslite™. Due to its flexible supply chain, Crocs would have an advantage in markets with highly volatile demand. This would give them an advantage over traditional footwear makers and allow them to be profitable in such cases. With a close relationship with their retailers, Crocs is able to gain information on potential new products and would have no issue getting their extended product lines out on shelves.

Production and inventory planning

In its production and inventory planning, Crocs should consider stock out cost, overage cost and inventory holding. Having a high profit margin of 18.2%, stock outs are critical to Crocs. Crocs should keep a healthy level to inventory to reduce stock outs. Crocs recognized this and keeps a manufacturing capacity at 1 million parts per month beyond the actual production plan.

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