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Supply Chain Management of Crocs

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Sarit Ventura

top 2%Operations
493 and Supply
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Global
Chain Management, Prof. Luis Eduardo Solis Galvan
Individual final exam, Sarit Ventura, GMBA N1

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CROCS: REVOLUTIONIZING AN INDUSTRYS SUPPLY CHAIN MODEL FOR COMPETITIVE

ADVANTAGE
What are CROCs supply chain competitive capabilities?

A large
of players
in theshare
footwear
against each
other
tonumber
gain maximum
market
and industry
increase are
theirintensely
returns. competing
However, industry
growth is low and there is constant pressure on the firms to lower prices. Differentiation
is hard to achieve and low switching costs mean that the consumer power is high and
knock-offs and substitutes can quickly eat into market share. The most important
capability for competitive advantage is of efficiency in supply chain and a customeroriented, responsive delivery of products to the right place at the right time.
Flexibility: Crocs has a highly flexible supply chain which can fill new orders within the
season by quick manufacturing and shipping of new products to retail stores. Therewith,
the retail stores are not limited to adjust their orders in accordance with the volatility of
the demand in the selling season. This is a competitive capability in the footwear industry
which usually places bulk orders for each seasons inventory several months ahead with
little ability to adjust to changes during the selling season and run risks of excess
inventory or be out of stock. Hence, demand forecast is crucial in order not to enter into
bullwhip effect which is difficult in the footwear industry. The flexibility of Crocs supply
chain made the company a popular supplier to retailers of shoes who neither had
pressure to forecast exact demand nor were obliged to order bulk orders several months
before the selling season.
Speed/Responsiveness: Crocs had in place fast manufacturing and shipping process
(short lead time), fast replenishment system and excess capacity and capability which
enabled them to meet unexpected increase in market demand at short notice. Positioning
several manufacturing operations around the world which cater certain markets created
closeness to local customers and allowed fast responsiveness to market trends. The
company had a very agile, customer-centric and responsive supply chain process in place
and they understood customers needs and changes in the market trends. Crocs clearly
understood the dynamic nature of the footwear industry where a product might no longer
be in fashion the following year, and developed the ability to produce additional stocks in
the same season, thereby creating a competitive advantage through a more agile and
market responsive supply chain.
Cost/Price: Until 2006, Crocs managed to keep costs of material low (proprietary
closed-cell resin, croslite. They had an efficient and standardized simple production
process (injection molding) and no excess inventory due to on-demand increase of
production. Until 2007, Crocs Inc. had the highest gross profit margin in the footwear
industry at 56.5% compared to their giant competitors Deckers Outdoor (46.4%), Nike
(43.7%) and Timberland (47.3%) (Exhibit 4).

How these capabilities are created in CROCs supply chain?

The efficient and agile production and supply chain process which differed from the
traditional industry norms and exceeded competitors in success and profitability was an
outcome of several factors:

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Supply Chain Management of Crocs | Sarit Ventura - Academia.edu

Global Operations and Supply Chain Management, Prof. Luis Eduardo Solis Galvan
Individual final exam, Sarit Ventura, GMBA N1

Business model
Due to the electronic contract manufacturing background of Crocs CEO Ronald Snyder
and other key Crocs executives, the supply chain was modeled to rapidly respond to
variations in demand, building the product according to actual demand (and not
according to sales forecasts) thus, preventing a significant amount of lost sales. As a
result of the Just-in-time manufacturing, there was no excess inventory and thus, no
need to mark down its shoes at the end of the season because of its efficiency in closely
matching production to sales which positively affected profit margins.
The customer-centric, flexible supply chain model further added benefits to Crocs
reputation with the retailers who preferred to order from Crocs due to a reliable
partnership and the higher flexibility of ordering that Crocs offered its retailers which also
prevented them from excess inventory and lost sales. In return, they offered Crocs very
good shelf space for its products and even encouraged Crocs to produce complementary
products such as Jibbitz, apparel, accessories etc. The good retail space enabled fast
awareness and growth of the Crocs brand.
Moving from contract manufacturing to a global, vertical integrated
organization
Thanks
to the
Ronald
already
started
to sell their
products
right from
the CEO
beginning
inSnyder,
order toCrocs
get early
brand
recognition
and to
developworldwide
it
sustainable. Hence, they applied a global strategy for logistics with various
manufacturing facilities around the world catering certain markets but with a centralized
inventory in Italy who compounded the raw material and sent the semi-finished goods to
Canada for molding and assembly which sent the finished goods to the contract
warehousing in Denver which shipped the goods to the customers. At this time, Crocs
worked with contract manufacturers in China and added more contract manufacturers in
Florida Mexico, Romania and Italy because Snyder believed the contract manufacturing
model would not only work in electronics but also in footwear (Appendix 1a). However,
Crocs realized that except of China, the other third party contract manufacturers did not
match their business model. They could not be both flexible and produce high volumes
and required long-term contracts and forecasts. Furthermore, centralized inventory and
warehousing didnt make sense in a global supply chain and would not meet the
responsiveness of Crocsbusiness model. Hence, Crocs decided to vertically integrate
their global supply chain.
By implementing Foam Creations into its supply chain, Crocs could own the proprietary
croslite resin technology and control manufacturing. Continuing the relationship with the
same compounder in Italy as the Foam Creations avoided further supply chain
interruptions. Furthermore, except of China, Florida and partly Bosnia Crocs brought the
global supply chain in-house by developing company-owned manufacturing operations in
Italy, Mexico and Brazil which added capacity in each geographic region and enabled
Crocs to apply its fast, responsive, customer-focused business model around the world.
Moreover, the company realized that consolidated compounding in Italy resulted in
inefficient shipping of materials around the world and reduced manufacturing flexibility in
each location. As a result, Crocs created in 2006 state-of-the art compounding facilities in
Canada, China and Mexico which reduced inefficiencies in shipping and opened again
flexibility to ship raw materials to each plant according to demand. Moving compounding
in-house provided also IP protection for the proprietary croslite compound. Finally,
warehousing operations were added to each factory which enabled bulk orders to be
shipped directly to the customers through the Crocs owned warehouses instead of going

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Supply Chain Management of Crocs | Sarit Ventura - Academia.edu

shipped directly to the customers through the Crocs owned warehouses instead of going
through contracting warehousing (Appendix 1b).
Taking control over warehousing also enabled Crocs to create different fulfillment order
processes for their small and large retail customers (direct shipment from factory to
2

Global Operations and Supply Chain Management, Prof. Luis Eduardo Solis Galvan
Individual final exam, Sarit Ventura, GMBA N1

customers distribution center or via the company -owned warehouse in Denver,

Colorado). With the different fulfillment order processes Crocs could maintain both
customer segments which were equally important. While the small customers accounted
for the highest percentage of orders (but lower dollar level), the large retailers ordered
high volumes and generated 75% of Crocs revenue by mid-2007.
The vertical integration was a perfect strategy to achieve cost leadership and
differentiation, and at the same time gain a high degree of control over their entire value
chain. Furthermore, this enabled the creation of different market segments and foray into
more traditional materials in footwear which increased their competitiveness in the
industry.
Agile Supply chain process: in order to quickly meet a growing demand in a certain
market during the season, Crocs had the ability to move equipment (molds and
sometimes also molding machines) to one of their several manufacturing operations,
usually the closest production location of that market to better capture and fulfill local
customer needs (ex. Mexico for Western US-market, China for Asia). This was also
thanks to Crocs supplier who managed to reduce delivery-time from 3 months to 6
weeks. Besides providing agile capacity, having different manufacturing operations
created further cost-savings of tariffs as high-tariff products (use of special material like
leather) were produced in low-or no-tariff countries (e.g. Mexico, Canada). Furthermore,
Crocs had the policy to increase capacity and equipment during the season above actual
production needs in order to meet changing market demands at short notice.
Risk-takers: This business model of a customer-centric and very fast-responsive supply
chain wouldnt work if Crocs management wouldnt have the optimistic and risk-taking
mindset which is reflected for instance in their belief to increase capacity and production
during the season even if the pre-booked orders do not indicate further growth (e.g. flipflop sandal boom in 2006). Moreover, Crocs has the policies to keep total manufacturing
capacity at about 1 million pairs of shoes beyond the actual production plan, have
infrastructure (systems and people) and marketing campaigns ready ahead of demand to
be able to respond immediately to increases in demand. Hence, Crocs takes big risks of
high capital expenditure in advance (without clearly knowing the future customer
demand) which paid off during the first years of high growths and exploding revenues.

What
are the future challenges for CROCS supply chain in order to keep
competitive?
The uniqueness of the Crocs clogs and the overwhelming popularity of the products
indicate that the company had not yet reached its maturity stage in 2007 even when the
footwear industry was already mature and stagnated in growth1. Crows was able to
garner opportunities to differentiate its products from those already available in the
market. As mentioned in the beginning, Crocs had succeeded its competitors because its
main business model was to focus on a highly responsive and agile supply chain which
was effective and cost efficient. However, its business model, production process and
inventory management still relied on the time period before 2006 where only the original
clogs were Crocs main product and customer demand was exploding. However, the
company and the market are naturally changing with time which might defocus Crocs
core competencies and provide several challenges for its business model and supply
chain.

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1

The footwear industry was already a quite saturated market in 2007 with fierce competition and already
established big players,https://www.wewear.org/assets/1/7/ShoeStats2008.pdf
3

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