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Crocs Supply Chain

1. What are Crocs core competencies? * Highly flexible supply chain * Innovative and proprietary material: crosslite * Innovative product development * Efficient manufacturing processes that allows the company to produce more than 250 styles of shoes * Global Marketing & Distribution; the company is selling its products in 125 countries 2. How do they exploit these competencies in the future? Consider the following alternatives: a. Further integration into materials

Crocs has taken advantage of its manufacturing capabilities to add more variety to its products by incorporating traditional materials such as fabrics and leather into many of their styles. The company should explore creating blends of Croslite with other materials to develop new products such as the creation of Croslite rt (relaxed technology) by blending Croslite with cotton to make sweat resistant clothing. b. Growth by acquisition As seen in the table below, Crocs has expanded very rapidly since the company started thru several acquisitions:

Company| Year| Price (in M)| Description| | Foam Creations Inc| 2004| $6. 90 | Manufacturer of Croslite foam clog shoes| | Jibbitz, LLC| 2006| $20. 20 | Decorative charms for Crocs shoes| | Fury Hockey, Inc| 2006| $1. 50 | Hockey, soccer and lacrosse equipment manufactured with Croslite| Discontinued| EXO Italia| 2006| $8. 10 | Designer of ethylene vinyl acetate (EVA) products for footwear industry| | Ocean Minded, Inc| 2007| $5. 50 | Manufacturer of leather sandals for beach/action sports| | Bite, LLC| 2007| $4. 0 | Manufacturer of performance shoes and sports sandals| Discontinued| Tidal Trade, Inc| 2008| $4. 60 | Crocs distributor in South Africa| | Tagger International| 2008| $2. 00 | Manufacturer of messenger bags| Discontinued| | | | | | The following brands were discontinued by Crocs shortly after acquisition: Fury Hockey was discontinued in 2008 since the company wasn’t able to extend their Croslite technology in their products since the integration didn’t work out as planned.

Bite was a shoe manufacturer whose products were very similar to Crocs. Crocs bought out the company in 2007 but decided to discontinue that line in 2008 after integrating all of Bite’s designs and development know-how into their own Crocs’ sports products. Tagger International was discontinued by Crocs in 2009. Due to the recent failures in acquisitions, the company should approach any future acquisitions very carefully by ensuring that the intended goals are indeed attainable.

I believe that it would be more beneficial for the company to concentrate on product innovation and enter into partnerships or licensing agreements in order to expand the appeal of the brand always leveraging their key competitive advantage which is the proprietary Croslite material. c. Growth by product extension Owning the formula for the Croslite material used to produce their footwear is a key competitive advantage that the company has exploited in producing kneepads, socks, purses, and other products that include Croslite.

The company should exploit this technology further by developing other products or licensing the Croslite material to manufacture new products such as: For Consumer Market: * Children’s toys * Garden supplies For Business Segment: * Boat parts/components * Sporting goods * Sports stadium and gym flooring This would allow the company to branch out to a more stable business-to-business segment instead of being completely dependent on the consumer market. 3. To what degree does each of the alternatives fit the company’s core competencies?

To what degree do they defocus the company away from their core competencies? Alternatives| Focus on Core Competencies| Defocus from Core Competencies| | | | Further integration into materials| Croslite in new supplementary products| Crocs doesn’t currently have control of the raw materials for Croslite. If they decide to acquire their suppliers, it could create greater complexities in the oversight of the manufacturing process| | – Croslire rt for clothing| | | – Purses| | | – Kayak seats| | | | | Inegrating traditional materials – leather, suede, fabric to produce a wide array of shoes| | | | | | Mix croslite with other materials to create new products| | | | | Growth by acquisition| Own crucial supply chain processes such as compounding and molding| This alternative is the most likely to defocus the company from its core competencies if Crocs doesn’t do suffiicient due dilligence to ensure that the acquired company is going to add value to its offerings | | | | | Own supplementary products to current footwear offerings such as purses, clothing, etc| | | | |

Growth by product extension| Use current manufacturing capabilities to produce childrens’ toys, garden supplies, swimming gear, etc that could be improved by using the Croslite technology and that would be complementary to its footwear | This alternative could be more costly as Crocs would embark on producing new products for which it has no expertise. Also new molds and materials would be required for production. | | | | | | | | | | | | | | | | | | | | | | | | | | | | 4. Analyze Crocs current supply chain. Give recommendations on how they should improve their supply chain.

Jenny past supply chains Diana current supply chain and analysis http://logisticsviewpoints. com/2009/06/22/crocs-from-revolutionary-supply-chain-to-almost-bankrupt/ http://www. scribd. com/doc/55434898/Crocs-05-13-11 http://www. slideboom. com/presentations/26324/Crocs-Presentation_2 http://turnaround. org/cmaextras/CROX—Carl-Marks-Case-Study. pdf http://seekingalpha. com/article/227456-is-crocs-cool-again http://www. slideshare. net/Marianna09/crocs-presentation1 CASE NOTES The company has a highly flexible supply chain which allows it to: Build additional products to fulfill new orders quickly within the same season * Fast response to unexpected high consumer demand * Fulfill retailers needs * Explosive growth: * Exceeding earnings * Increasing stock price * Superior financial performance * Phenomenal growth from 2003 thru 2006 Timeline * 2002 – Founded Crocs as a distributor of foam clog shoes manufactured in Canada by Finproject NA to sailing enthusiasts in Florida * June 2004 – Ronald Snyder joined the company and became CEO in Jan 05 * June 2004 – Crocs purchased Finproject NA and renamed it Foam Creations * 2005 – Crocs is launched worldwide Feb 2006 – Crocs IPO with initial market capitalization of over $1 billion * Oct 2006 – Purchased Fury, manufacturer of hockey and lacrosse products * Oct 2006 – Acquired EXO Italia, a designer ethylene vinyl acetate products * Dec 2006 – Purchased Jibbitz, a family owned company that made decorative inserts for crocs * Apr 2007 – The company already had 31 basic footwear models * 2007 – Crocs branched out to include ccessory products such as caps, shirts, shorts, hats, socks, backpacks and sports protection equipment * 2007 – Crocs introduced products that incorporated conventional materials such as leather or canvas * Jan 2007 – Acquisition of Ocean Minded – designer and manufacturer of leather sandals. Uses recycled materials whenever possible * Product Characteristics * Foam clog shoes * Don’t slip * Easy to wash * Prevented odor * Extremely comfortable Croslite components are made by injection molding and then each part is assembled by gluing or stitching other materials such as leather or canvas * The finished products are tagged and placed in boxes of 24 shoes which Crocs can configure to include different colors and styles * First shoes sold in 2003 * Immediate success * Expanding thru word of mouth to a wide range of people other than sailing, such as doctors and gardeners * Grass roots selling – participated in garden, boat, and pool supply trade shows and concerts, festivals and sports tournaments * Distribution Initially using representatives and distributors in the US * Brought function in house to control costs * Own sales staff wherever possible in the world with a few 3rd party distributors in some locations * Typical Footware Supply Chain * Two seasons: spring or fall * Manufacturers take shoes to shows around the world in January * Take orders for fall delivery after these shows * Deliveries: Aug thru Nov * Manufacturers would add about 20% excess build to take advantage of potential additional orders * Shoes produced in Asia (China and Vietnam) or South America Crocs Supply Chain * Its main competitive advantage * Crocs didn’t impose advance ordering to retailers since it could fill new orders within the season * Based on customer needs – when a customer needed more product, they would get it * Retailers could place smaller pre-booked orders and order more when they saw how well products sold * Great relationship with retailers – retailers suggested to increase crocs presence by bringing new products Supply Chain Progression * Phase One – Taking over production * Purchased Foam Creations * Purchased raw materials from Europe and United States * Shipped them to a 3rd party compounding company in Italy * Compounded and colored pellets were shipped to Foam Creations in Canada where shoes were molded and assembled * Finished products shipped to 3rd party distribution company in Denver that warehoused the shoes and shipped them to customers (retailers) Phase Two – Global Production using Contract Manufacturers * The company used contract manufacturers in China, Florida, Mexico and Italy to respond to Asian and European markets * Raw materials were still being sent to Italy for compounding * Footware manufacturing contractors except in China were not flexible to meet Crocs business model. They wanted long term forecasts and contracts. Phase Three – Bringing the Global Supply Chain In-House * Part 1 * Crocs developed company-owned manufacturing operations in Mexico, Italy, and Brazil * It also entered into an arrangement with a contract manufacturer in Romania * Crocs kept the contract manufacturers in China and Florida (produced only one high volume product and shipped with a Made in USA label) * Crocs still produced in Canada Part 2 * Compounding in Italy resulted in inefficient shipping of materials around the world * In 2006, Crocs took control of the compounding activity, creating state of the art facilities in Canada, China, and Mexico. * Crocs added warehousing operations to each factory including labeling, installing hand tags and putting products into boxes * Customers that ordered large quantities were shipped from the Chinese warehouses

Additional Considerations/Benefits of the Crocs Supply Chain * Small vs. Large Retailers * Small retailers don’t have the same capabilities as large retailers so Crocs still kept their Denver distribution center to fulfill the smaller orders of these clients * Large retailers accounted for 75% of revenue and they were shipped directly from the manufacturing facilities * Small retailers accounted for a much larger percentage of orders but a much lower dollar levels Dealing with Explosive Growth * Crocs had the flexibility to move equipment, molds, and entire productions of their products to different facilities so that the products are closer to their customers or where higher demand was expected * Total capacity was kept at about 1 million pairs per month beyond the actual production plan * Shifting production to reduce duty payments * The footwear industry has considerable duties at 3-3. 5% for shoes coming from China * Shoes that used leather or other materials would have a higher tariff * However, Crocs paid no duties for products made in Mexico and shipped to the U. S. * Canadian manufacturing operation was retained to take advantage of the duty free relationship of that country with Israel and to sell within Canada * If a low-tariff location didn’t have all the production capabilities as other locations, Crocs would develop those processes in those locations in order to take advantage of the low-tariff * New more complicated products In Feb 2007, the company started to make shoes with uppers made of leather and other conventional footwear materials * The manufacturing process has become more complex but Crocs is still keeping its same model where something is popular, their supply chain has the flexibility to make more. * Introducing new products * Crocs noticed that all its products sold equally well in each market around the world * The company is positioned to take advantage of testing a product in the southern hemisphere and the results could be used to indicate how it might be accepted in the U.

S. and Europe * Because of those reasons, Crocs CEO thinks that the company doesn’t take huge risk in ordering extra raw materials or build up extra shoe stock * Supply chain planning * In mid-2007 the company was using a home-grown database system for planning but it was considering implementing a commercial enterprise resource planning system * Each country generated its own requirements plan but there were global planning staff coordinating the requirements for each local market * Product planning was based on pre-books for each model.

Crocs analyzed expected sales for each model and delayed production until they could see the actual demand to avoid ending up with unsold inventory * Crocs didn’t build excess inventory but they prepared in advance and acquired excess capacity in molds/molding machines so that it could quickly ramp capacity in case the product’s demand increased.

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