MS-797, Global Supply Chain Management StrategiesAssignment #2, Mike StollDue Date: 05/15/11

Map the supply chain structure chosen by Croc's management and key decisions at major echelons along thesupply chain?

Raw Materials – USA & Europe (Outsourced)

Compounding– Canada, China, Mexico (Company Owned)

Manufacturing/Molding/Assembly– Canada, Mexico, Italy, Brazil (Company Owned)– Bosnia, China, U.S. - Florida (Contract Manufacturer)

Warehouse/Distribution– Canada, Mexico, Italy, Brazil (Company Owned)– Denver (Contract Warehouse)– China (owned by Crocs supplier, but run by Crocs)

Customers– Large Retail DCs and Small Shops

Key Decisions

Compounding

Crocs bought out Finproject who was the Canadian manufacturer who created the Coslite resin from raw material pellets.

Crocs now controlled the IP over the unique material that made their shoes so unique. They eventually established state-

of-the-art compounding facilities in Canada, Mexico, and China.

Manufacturing

Crocs initially used contract manufacturers to product their products, but found that many of them wanted long-term

forecasts, formal contracts, and other demands. Only the contract manufacturer in China was flexible, responsive, and

could handle high volume orders. Based on this, Crocs decided to assume responsibility for manufacturing and developed

company owned plants in Mexico, Italy, and Brazil (including their original Canadian plant). Besides China, they still

outsourced some manufacturing operations to plants in Florida and Bosnia.

Warehouse/Distribution

In the beginning, Crocs was using a contract warehouse in Denver to handle all of its shipments. They felt this centralized

warehouse/distribution operation was inefficient, so they added company owned warehousing operations to all of their

manufacturing sites. Crocs wanted to control order fulfillment. They tried using 3rd party warehouses which did good in

the short term, but seemed to “lose interest” in the business, which is why Crocs decided to also take control of this part of

the operation.

Summary

Crocs utilized a postponement strategy by having compounding facilities close to manufacturing plants. They would

typically ship larger orders to Retailers from the factory, and small orders from the DC’s. They had different fulfillment

models based on the type/size of the customer. The supply chain chosen by Crocs is vertically integrated. This provided

them with a lot of control over the SC, but this also tied up capital in external operations.

What are Croc's core competencies and how does the company exploit these competencies 2. (hint: VRIN)?

Definitions:

Core Competencies - Those capabilities that are critical to a business in achieving a competitive advantage, or a

unique ability that a company acquires from its founders or develops and that cannot be easily imitated.

VRIN - Valuable resources, rare sources, imperfectly imitable, Non substitutable. A resource is what a firm possesses

or has learned so far that allows the company to believe and enforce those planned strategies, which further enhances

the efficiency and effectiveness.

Crocs Core Competencies

Based on the definition above, the following are the core competencies that in the “beginning” provided Crocs with a

competitive advantage.

1. Croslite Material – This is the material from which Crocs makes their shoes. The material is light weight, durable,

odor resistant, low cost, did not create skid marks, and made their shoes very comfortable to wear. This material could

be considered a VRIN since it could not be easily replicated by the competition at the time.

2. Product Innovation – Crocs came up with a variety of footwear products that were unique, simple, funky, easy to

wash, came in a variety of colors and designs, comfortable to wear, and also had practical applications for the average

consumer and for commercial industries.

3. Marketing – Along with a successful word of mouth campaign, Crocs was very successful in marketing their products

at trade shows, concerts, festivals, sports events, and other venues. Their marketing team was able to come up with an

effective strategy that helped them understand how and where to market their products. One example of this was their

creative merchandising ideas such as “out-of-box vertical displays”. These marketing campaigns were very cost

effective and non-traditional.

4. Vertically Integrated Supply Chain (VISC) – Their supply chain network was unusual for the apparel industry and

allowed them to be much more responsive than their competition in meeting their customer’s needs. Since they were

able to turn orders very quickly, retailers were not required to place large orders before the selling season, unlike other

footwear brands. Crocs was also able to quickly respond to replenishment orders. Their VICS allowed them to get

their product to market quickly in the early days to secure market share before the competition could come out with a

substitute.

Execution:

Besides developing a product for the average consumer, they also designed products with their new, low-cost material that

could be used in a variety of work environments including the food and healthcare industries where people were on their

feet for many hours of the day. They also developed the Crocs RX line, which were targeted for consumers who needed

specialized footwear to provide relief from various medical conditions including heel pain, post-op conditions, diabetes

plantar pain, etc. Crocs entered into collegiate licensing agreements with various schools, and into agreements with sports

franchises like the MLB, NHL, NFL, NASCAR, AVP, and with Disney. At one time they also got involved with the

Olympics and the Australian Football League. Crocs was able to develop a global footprint for their product distribution,

and were able to serve both small and large customers.

What recommendations would you make to Croc's management to exploit these competencies for growth?

Since 2002, the market has changed and Crocs was faced with a lot of challenges (see exhibit 1). Crocs should consider

making some changes to their supply chain configuration that matches the product and the current global market. They are

spending too much time and money managing their external resources like manufacturing and warehousing. Though their

supply chain is agile (with high fixed costs), Hau Lee also says a supply chain also needs to be adaptive to changes in the

market. Their current supply chain seems a little complicated and stretched out. Vertical integration has its advantages

(Exhibit 4), but it also has its disadvantages. The following are some recommendations that Crocs should consider.

1. Outsource Manufacturing – Crocs should consider using more contract manufacturing like it is doing in China and

Florida. My having company-owned manufacturing operations, they are tying up a lot of capital that could be spent in

areas to facilitate a competitive advantage. The factories are injection molding operations, which is not a special

operation. Crocs can still procure the molds, but require the contract manufacturers to maintain them.

2. Outsource Warehousing – Crocs should consider using 3PLs to handle their warehouse and distribution operations.

Like manufacturing, this is not a strategic operation and could be done more effectively by an experienced 3PL.

3. Focus on Core Competencies – The core competencies have changed since the start of their business, due to changes

in the market and competition. The Croslite material and compounding operations should still be controlled by Crocs,

along with the molds.

4. New Product Development and Marketing – Crocs has always been good with new product development, and based

on the capital that would be freed up from outsourcing the manufacturing and warehousing operations, they could use

these monies for coming up with new products and applications for the Croslite material. They could also use these

monies to strengthen the customer relationships, and marketing campaigns to help differentiate their products from the

competition. They may be able to achieve what Coke and Pepsi have done in their marketing campaigns, and

eliminate the need to compete on price. Crocs needs to reinvent themselves and continue to offer “fresh” ideas an

products in the footwear business. Being innovative is one of the ways to provide them with a strategic advantage

over the competition. See the Kraljic Matrix for Crocs (See Exhibit 2).

5. Control Costs – Since the competition has come out with knock-offs, they need to control their costs. As mentioned

above, outsourcing some of their non-strategic operations is one way. For their remaining company-owned operations,

they should incorporate lean initiatives to remove wastes and control costs.

6. ERP – Crocs can use the new ERP system to help generate forecast models to help manage demand and improve

planning throughout its operations. Should Crocs decide to outsource the manufacturing and warehousing operations,

they can integrate their ERP systems with their suppliers to improve communication and develop collaborative

relationships.

.

Exhibit 1:

Challenges & Changing Times

As of 2007, it is my opinion that market conditions were changing. At the launch of this product in 2002, the material and

show concept was innovative. Over the years, though, Crocs products appeared to have moved from what was considered

an innovative product, to a functional product.

Supply uncertainty was low due to the readily available raw materials and that companies could perform injection

molding operations. Knock-offs, though not made of the exact same material, looked very similar, were also made of a

light weight material, and were priced much more aggressively. Demand spikes and dodging tariff restrictions were

handled by moving molds around to different factories, which some view was not cost effective. Crocs were a durable

product and did not wear out like other types of shoes, which meant one pair of shoes could last years, thus reducing the

amount of repeat businesses. Being vertically integrated, though it created a responsive supply chain, it tied up a lot of

capital in managing external resources. Also, by Crocs using a VISC, it makes it difficult to realign costs to match demand

(no risk pooling opportunity). Another issue was that Crocs added an extremely large amount of SKUs by branching out

into other accessory products, making it more difficult to effectively manage the business. By adding to their product

offering, they got into products made of more expensive materials. This expansion into more complicated styles and

designs was divergent of their original strategy based on low cost and simplicity, and added complexity to its operations

and business model. They seem to be too focused on growing the business, and may get into trouble if the economy takes

a turn for the worst (which it did).

Exhibit 2:

Kraljic MatrixLeverage Strategic

Molding Equipment and Pellets Molds and Compounding

Non-Critical Bottleneck

Pigments, Fasteners, Buckles Manufacturing, Warehousing, Labor

Exhibit 3: Crocs may be somewhere in between Low Cost/Product Uniqueness regarding Porter’s strategy matrix below.

Exhibit 4: