Student: Chihab EL ALAOUI
ID: 118989
CROCS (A): Revolutionizi Rev olutionizing ng an industry’s supply chain model for f or competitive advantage
1. What are Croc's core competences? The core competencies are the sustainable capabilities that are valuable, rare, costly to imitate and no substitutable, which serve as a source of competitive advantage advantage for Crocs over its rivals. It distinguishes
the company from whole industry’s competitors and cr eates eates through that its own personality (Ireland, the th
Management of Strategy, Strategy, 9 Ed.). From the details mentioned in the case we can figure out that Croc’s
core competencies that fit with all four criteria of core competencies concept is it highly responsive supply chain, by maintaining the flexibility to the unexpected demands and offers of retailers, with efficiency of its distribution model and cost advantages created. The crocs top management examined the footwear industry supply chain and immediately noticed its limitations. The existing supply chain used to process requests that companies receive from retailers at the beginning of the year on January and manufacture the demand supplies for the next spring and fall seasons with some excess in order to manage any unexpected demand. However, this traditional supply chain system had many deficiencies, because retailers had to base their requests on their forecasts which definitely will lead either to overestimation and unsold stock and subsequently loss, or underestimation which meant loss of potential profit. Instead, Crocs developed a revolutionary supply chain system which strengthens its relationship with retailers by quick response to
any fluctuations in customers’ demands. This result was possible due to the heavy investment made by the company in its infrastructure and the development of the supply chain with the new management through 3 steps: Further vertical integration into materials; Growth by acquisition; and Growth by product extension. This will be discussed in 2nd question.
2. How do they exploit exploit these these competences competences in the future? future? a) Further vertical integration in to materials : There exist two types of supply chain practices. Efficient Supply Chain Chain Practices (Lean) which is applied when demand is supply chains are
forecast-driven that implies that they are inventory based. Agile supply chains are more likely to be information based (Fisher, M. 1997, What is the right supply chain for your product? HBR, 2, pp105-116). Crocs understanding the dynamics of the industry established an agile network to
connect to its retailers. The main objective was to vertically integrate its operations to the best extent possible and exercise an option for it to control its inputs and distribution of its products and services. Specifically this agile supply chain is:
Market sensitive: it is closely connected to end-user trends.
Virtually integrated: it relies on shared information across all supply chain partners.
Network based: it gains flexibility by using the strengths of specialist players
Process aligned: it has a high degree of process interconnectivity between the network members.
b) Growth by Acquisition : Ronald Snyder realized that acquisition would play an important role to support growth and started a string of acquisitions to horizontally integrate and support its strategic moves. Within 2 years of operations Crocs first acquired Canadian manufacturer Finproject NA in June 2004, which was renamed Foam designs, originally manufactured Crocs products. The acquisition gave Crocs the intellectual rights to the patented “Crostile” material. In October 2006 Crocs acquired Fury and started manufacturing protection gears based on Cr ostile. Subsequently in October 2006, Crocs acquired EXO Italia, a company engaged in designing Ethylene Vinyl Acetate (EVA) products used primarily in footwear products. The most successful acquisition in December 2006 was a company called Jibbitz, which specialized in manufacture of colorful Snap-On products as accessories for Crocs footwear. In January, 2007 Crocs acquired Ocean Minded, LLC a company which manufactured high quality leather and EVA based sandals for the beach, adventure and sports market. Crocs thus offered a variety in its product range for varying target markets an d this move tremendously boosted the company’s sale. c) Growth by Product Extension : the industry knows changing in requirements, Crocs has performed extremely well in this sector to fuel the excitement for its customers. Beach and Cayman the
original models is most popular and has been used as a basis of developing other shoe products.
The company’s website shows that the company sells close to 31 31 basic footwear models, ranging from sandals to children’s boots to shoes designed for professionals. It got also license agreement with Disney, and made shoes incorporating Disney characters. In addition to brand CrocsRX that was specially designed to meet the special needs of those medical problems that affected their feet, such as diabetes. Crocs sponsored the AVP Professional Beach Volleyball Tour, and offered two models with the AVP logo. The company also started to launch accessory products such as caps, shirts, socks, shorts, hats, and backpacks.
3. To what degree do the alternatives in Question 2 fit the company's core competences, and to what degree do they defocus the company away from its core competences? To answer this question, we will try to discuss the strengths and weaknesses of every alternative and the
consequences possible on the company’s core c ompetences:
Strength Vertical
Economies of scale
integration
Effective competitive barrier to entry
Higher degree of control over value
Weaknesses
production in times of falling sales
Possibility of higher costs due to lack of efficiencies by suppliers
chain
Capacity balancing issues due to excess
Better position to negotiate with suppliers and buyers.
Growth by
Access to developed technologies
Acquisition
Reduction in competition and defense against substitute products
Acquisition costs should be able to have a positive Net Present Value
Integration concerns due to cultural
Ability to meet varied customer
change and differences in
expectations
organizational practices.
Growth by
Economies of scale and scope
Increased production cost
Product
Ability to meet customer expectations
Increased capacity allocation and
Extension
Making product obsolete before competition catches up and copies design
possibility of excess capacity.
Possibility of lack of supplier and retailer coordination and as result low response and flexibility in future
4. How should Crocs plan its production and inventory? How do the company's gross margins affect this decision? Most of Crocs products are manufactured in house and this helps reduce inefficient outsourcing. Crocs could primarily focus on producing molded shoes in China, because of the low duty structure levied in exporting. It needs to do a quick assessment of other regions in the world and their duty structures and shift production by transferring adequate production resources and eliminating adjustment schedules for the short run. Also since the European and US market is saturated with Crocs products, the focus should be on other countries where excess capacity could be leased. This opens the option of increasing geographical diversity. Denver distribution network could be as a lean to distribute other company’s products as a step taken to cover the minimum fixed costs. Crocs implemented the global inventory planning system (ERP). The system will help them take faster decisions and better inventory management practices as electronic data at point of sale will be now available. All the strategic moves Snyder has done were to increase Crocs profit margin. The company has a high gross profit margin compared to competitors and even the industry average 58.8% in 2007. It affects
Crocs’ ordering behavior of inventory and supplies. Companies with higher margins can afford to keep more inventories in stock and have a lower turnover rate, as demonstrated in exhibit 4. Crocs has the highest margins 56.5% and the lowest inventory turnover at 3.5% . The company’s margin also gives it access to more cash on hand to buy into more steps in its supply chain. It also is effectively managing its production and inventory levels to keep supplies in the stores and shoes in demand.
