Crocs: Revolutionizing an Industry’s Supply Chain Model for Competitive Advantage

Case Analysis

Contents
Executive Summary .............................................................................................................................. 3
Company Background .......................................................................................................................... 4
Question 1: What are Croc’s core competencies? .......................................................................... 5
Identification and Analysis of Alternatives ........................................................................................ 7
Question 2: How do they exploit these competencies in the future? Consider the following
alternatives: ....................................................................................................................................... 7
o Further vertical integration into materials. ............................................................................ 7
o Growth by acquisition .............................................................................................................. 7
o Growth by product extension................................................................................................... 7
Question 3: To what degree do the alternatives in Question 2 fit the company’s core
competencies, and to what degree do they defocus the company away from its core
competencies? .................................................................................................................................... 9
Question 4: How should Crocs plan its production and inventory? How do the company’s gross
margins affect this decision? .............................................................................................................. 11
Conclusion ........................................................................................................................................... 12
Works cited ........................................................................................................................................... 13
 Executive Summary

Crocs, Inc. is a shoe designer, manufacturer, and retailer, which is based in the United

States of America. The organization initiated its business in the year 2002. The core business

of the organization was to sell plastic clogs, which had straps and were available in a number

of solid and bright colors. The initiation of the business, it products and its commendable

supply chain made it a tremendous business success story.

This paper analyzes the core competencies of the organization. In addition to that, it

also highlights the strategies that the organization might adapt for the further enhancement of

its growth and the decisions that it might make in relation to its inventory and production.
 Crocs: Revolutionizing an Industry’s Supply Chain Model for Competitive Advantage

Case Analysis

Company Background

Crocs, Inc. is a shoe designer, manufacturer, and retailer, which is based in the United

States of America. The organization initiated its business in the year 2002. The core business

of the organization was ti sell plastic clogs, which had straps and were available in a number

of solid and bright colors. The initiation of the business, it products and its commendable

supply chain made it a tremendous business success story. (Stanford Graduate School of

Business, 1-20)

The tremendous and bold strategic move of the organization enabled it to come out of

the conventional red ocean by achieving both low costs as well as differentiation. The

organization, as a result, entered the blue ocean. (Stanford Graduate School of Business, 1-

20)

The organization was able to generate 847 Million dollars in terms of revenues and

168 million dollars in terms of profits in the year 2007, only six years after the launch of its

products. After the generation of such huge amount and attainment of great success, the

organization, unfortunately, move away from the blue ocean strategy and avoided the very

basic foundations that led the organization towards great success. (Stanford Graduate School

of Business, 1-20)

The organization kept on attaining tremendous rates of growth on the basis of its wide

array of products. The success of the organization primarily depends on the formula of

Croslite. Croslite is a light, low cost and flexible material, which is being used in the products

of the organization. Another important critical success factor of the organization is its highly

flexible supply chain. (Stanford Graduate School of Business, 1-20)

 The supply chain of the organization is vertically integrated. This vertical integration

enables the organization to fulfill the needs of the consumers in a more effective and fast

manner. In addition to that, the organization does not stop its product range on a single

product, instead it kept on producing various products that can be used for a number of

purposes, such medical or collegiate. (Stanford Graduate School of Business, 1-20)

Question 1: What are Croc’s core competencies?

The organization has a number of core competencies. Some of these competencies are

discussed below:

Highly Responsive and Flexible Supply Chain:

Such a supply chain enabled the organization to produce and supply more products

during the seasons in which sales are high. In case of a traditional supply chain the

organizations can achieve a growth of about only 25 percent above the pre booked orders

during the high sales season. It, therefore, is impossible for an organization with a traditional

supply chain to experience an explosive growth that is similar to that of Crocs. (Stanford

Graduate School of Business, 1-20)

In addition to that, the ability to produce extra products during the selling season

enabled the organization to enhance its production capacity. The organization added an extra

production capacity of 1 million per month. Furthermore, it also went for redundant

operations such as compounding and molding. These operations, as a result, enabled the

organization to shift production to the areas where the demand was high, in an immediate

manner. (Stanford Graduate School of Business, 1-20)

Global Capabilities:

The organization had the ability to draw on the strengths of various nations in

performing a number of functions in relation to the production of its goods. The organization
outsourced its manufacturing functions to highly flexible and low cost units in China. The

organization could produce locally in Canada to address the demands of the Canadian

consumers. (Stanford Graduate School of Business, 1-20)

Furthermore, the organization can also go for production in nations like Israel that

have a duty free relation with the Canadian region. In addition to that, the organization could

also use its proximity with the region of Mexico to fulfill the supply needs of the region of

the United States of America. The global and highly flexible supply chain of the organization

was the one of the most important competencies of the organization. (Stanford Graduate

School of Business, 1-20)

Ability to Service Small Retailers:

Small retailers played an important role in the enhancement of growth and

productivity of the organization. They contributed significantly to the revenue of the

organization. In addition to that, they also created a marketing buzz of the organization and

played an influential role in establishing the brand. In addition to that, they also provided the

organization with the feedback and test marketing for the new products. (Stanford Graduate

School of Business, 1-20)

Can do Culture and Product Design:

The can do culture of the organization, which motivated the employees to work up to

their maximum potential and contribute effectively and efficiently to the profitability of the

organization also contributed effectively to the growth of the organization. (Stanford

Graduate School of Business, 1-20)

In addition to that, the unique and comfortable design of the product and a wide range

of product variety enabled the organization to enhance its customer base in an effective and
consistent manner. This, as a result, enabled the organization to achieve high levels of

growth. (Stanford Graduate School of Business, 1-20)

Identification and Analysis of Alternatives

Question 2: How do they exploit these competencies in the future? Consider the

following alternatives:

o Further vertical integration into materials.

o Growth by acquisition

o Growth by product extension

In order to further exploit its core competencies the organization can opt for any of

the following approaches:

Further Vertical Integration

The further integration of the supply chain would enable the organization to have a

more effective supply chain and distribution channels as well. As the organization has a

flexible supply chain, which enables it to enhance the production capacity during the high

sales season, the organization can enhance its control over the value chain and production

distribution through the further vertical integration. (Burt, Starling and Dobler, 39-117)

In addition to that, vertical integration would enable the organization to invest in more

specialized and advanced products. This, as result, would increase the efficiency of the

organization and would provide it with a strong competitive edge over its competitors. (Burt,

Starling and Dobler, 39-117)

Another way to increase the market share can be the downward vertical integration.

This would enable the organization to access the distribution channels that it could not have
accessed before. This would lead towards an enhancement of the manner in which the

organization distributes its products. (Burt, Starling and Dobler, 39-117)

In addition to that, the downstream vertical integration enables the organization to

gain an access to the scarce raw materials. This sole access to the raw materials provides the

organization, again, with a strong competitive edge over the competitors and hence enhance

the growth tremendously. (Burt, Starling and Dobler, 39-117)

Growth by Acquisition

Growth by acquisition will enable the organization to make innovations in the existing

product line. In addition to that, the organization would also be able to extend its product line

and explore new and productive areas for growth. In addition to that, acquisition would also

provide the organization with an access to advanced and upgraded technological tools. (Burt,

Starling and Dobler, 39-117)

This, as a result, would enable the organization to effectively meet the changing

demands of the customers. Furthermore, acquisition will also provide the organization with

an increased number of number or supply chains. This would lead towards an enhancement in

the flexibility of the organization and would affect the production and distribution capabilities

of the organization in a positive manner. (Burt, Starling and Dobler, 39-117)

In addition to that, the above mentioned approach would also enable the organization

to get hold over a more efficient and skilled work force. This as a result would increase the

productivity of the employees of the organization and ultimately of the organization itself,

which would help the organization in attaining tremendous and commendable levels of

growth. (Burt, Starling and Dobler, 39-117)

Growth by Product Extension

 The organization can also opt for enhancing its growth through product extension.

This strategy would enable the organization to increase its sales revenue in an evident

manner. In addition to that it would also enable the organization to explore new directions in

which it can move its products. (Burt, Starling and Dobler, 39-117)

In addition to that, through the strategy of product extension the organization may

introduce new product lines. The introduction of new product lines may enable the

organization to diversify its risks and enhance its revenue in an effective and appropriate

manner. (Burt, Starling and Dobler, 39-117)

Furthermore, the strategy of product extension has an influential and positive impact

on the consumer base of the organization. This is because it enables the organization to attract

a wide number of consumers who have varying tastes and preferences. (Burt, Starling and

Dobler, 39-117)

This, as a result, increases and expands the potential target market as well as the

market share of the organization. This strategy expands the supply chain of the organization

and also enables the organization to have strong and reliable relations with its retailers as

well. (Burt, Starling and Dobler, 39-117)

Question 3: To what degree do the alternatives in Question 2 fit the company’s core

competencies, and to what degree do they defocus the company away from its core

competencies?

The approach of vertical integration may benefit the organization the most as it is

most strongly aligned with the core competencies of the organization. This is because the

organization already has a very supply chain and enjoys global capabilities of producing and

distributing the goods. (Burt, Starling and Dobler, 39-117)

 The process would enable the organization to use these capabilities to further enhance

its growth. In addition to that, the strong workforce of the organization would also enable it to

appropriately handle the supply and value chain by getting indulge into them and eliminating

unnecessary elements from these chains. (Burt, Starling and Dobler, 39-117)

The only drawback that the organization might face due the process of vertical

integration would be the reduction in the number of suppliers. This reduction in the number

of suppliers would reduce the competition that exists between them and would have a

deteriorating impact on the bargaining, negotiating and pricing power of the organization.

(Burt, Starling and Dobler, 39-117)

The prospect of growth through acquisition is very time consuming and expensive as

well. This is because the acquisition of another organization may require Crocs to invest huge

amount of money on the transaction. But the long term return, which may be provided by this

strategy, is very high. (Burt, Starling and Dobler, 39-117)

In addition to that, after the acquisition of the enterprise, Crocs and its management

would be required to perform a number of tasks so that they be able to reap all the possible

benefits of the acquisition. These tasks may include alteration of infrastructure, reengineering

of processes and training and development of the employees. (Burt, Starling and Dobler, 39-

117)

The approach of product extension also aligns with the core competencies of the

organization. This is because the organization has a large and flexible supply chain, which

might enable the organization to produce and distribute the new product in an effective and

easy manner. (Burt, Starling and Dobler, 39-117)

In addition to that, the organization also shares strong and reliable relations with the

small retailers. These retailers will market the new product and will position this product
appropriately in the minds of the consumer and hence enhance the potential target market for

the organization. In addition to that, the retailers would also provide the organization will test

marketing services and feedback in relation to the new product. (Burt, Starling and Dobler,

39-117)

The two important and evident drawbacks of this approach are the high time and

money consumed on research, development and production of the new products and the

deteriorating impact that the sales of the new product might have on the sales of the existing

products of the organization. On the basis of these drawbacks the organization might avoid

using the ‘growth by product extension’ strategy for the further enhancement of its growth

and profitability. (Burt, Starling and Dobler, 39-117)

Question 4: How should Crocs plan its production and inventory? How do the

company’s gross margins affect this decision?

The organization shall plan its production and inventory on the basis of the demands

and needs of the consumer. In other words, the organization must have high production and

inventory during high sales seasons and low production and inventory during low sales

seasons. (Staff of Cognizant 2-20)

This can be accomplished through the deployment of highly advanced technological

equipment. As the advanced technological equipment enables the organization to effectively

produce the number and range of products necessary to meet the needs and demands of the

customers in an effective manner. In addition to that, the organization would also require an

effective and flexible supply chain and a strong and skilled workforce. (Staff of Cognizant 2-

20)

All of the above mentioned variables depend heavily on the gross profit of the

organization. This is because the higher the gross profit, the higher would be the ability of the
organization to incur all the expenses that would be required for the implementation of the

above mentioned decisions in relation to the inventory and production of the organization.

(Staff of Cognizant 2-20)

Conclusion

Crocs has a great potential for the further enhancement of its growth. Through the

deployment of effective strategies for growth, the organization can attain higher rates of

growth. In addition to that, another important factor that might enable the organization to

enhance its growth is the effective decision making in relation to its inventory and

production. Another critical success factor that the organization must keep under

consideration is to abide by the basic values, which acted as the foundation for the growth

and profitability of the organization.

 Works cited

Burt, David N, Stephen L Starling and Donald W Dobler. World class supply management.

Boston: McGraw-Hill/Irwin, 2003. Print.

Staff of Cognizant. Five Strategies for Improving Inventory Management across Complex

Supply Chain Networks. Teaneck: Cognizant, 2011. 2-20.

Stanford Graduate School of Business. Crocs: Revolutionizing an Industry’s Supply Chain

Model for Competitive Advantage. Stanford: Stanford Graduate School of Business,

2009. 1-20, E-book.

Crocs' first core competency is its extremely flexible supply chain that is quickly able to
respond to variations in demand thus, preventing a significant amount of lost sales. In contrast
with other players in the footwear industry, Crocs owns manufacturing facilities which enables
to it vary production in line with the demand. This also has the added benefit of improving
Crocs' reputation with the retailers who are more likely to order from Crocs due to a reliable
partnership as compared to its competitors. The retailers even want to offer more space to
Crocs' products. Moreover, Crocs doesn't have to mark down its shoes at the end of the season
because of its efficiency in closely matching production to sales.
Crocs' second core competency is its proprietary resin "croslite" technology that gives the
company's shoes their unique comfort as well as odor-resistance properties. The material of
the shoes instead of their design and looks is responsible for the phenomenal success of
Crocs.
Crocs already owns the proprietary resin "croslite" technology and it has also built state-of-the-
art compounding facilities in Canada, China, and Mexico thus, reducing its reliance on the
Italian company. Italian company has done a good job so far but building new compounding
facilities has improved Crocs' supply chain network in terms of time and cost savings and has
eliminated the risk of total collapse in case Italian company runs into unseen problem. Further
vertical integration opportunity for Crocs lies in purchasing suppliers of raw materials such as
pellets as well. Raw materials such as pellet are not expensive at the moment but as the
company will continue to grow as well as increase demand for raw materials, the demand
force may push the prices of raw materials upward as well. Purchasing suppliers of raw
material will ensure that Crocs will have more control over production costs in the future.
Crocs may own the croslite technology but that may not be enough to stop competitors from
buying pellets and attempt to come up with alternative technologies through slight
modification. By purchasing raw material providers, Crocs will ensure exclusive excess to the
raw materials.
Crocs may also continue to grow through acquisitions as it has already done with Jibbitz, a
Crocs shoes accessories supplier. The benefit of this approach is that the company will have a
diversified brand portfolio and in addition, it will not have to develop new manufacturing
technologies. Crocs specialty is shoes and focusing on products other than shoes may distract
the management from core strengths. Thus, it may be better to acquire companies that
already have proven business model and whose products (not necessarily shoes) complement
Crocs strategy or product lines.
Crocs may also consider growth through product extensions. Crocs has built considerable brand
goodwill among its customers which provides opportunities to introduce new product lines or
expand existing product lines just like Nike and Adidas. Crocs has already been approached by
at least one large retailer to introduce new products. This will diversify Crocs revenue stream
and allow the company to introduce new products with minimum marketing efforts. This is
because Crocs has already an established brand and the retailers will be willing to allocate
generous shelf space to Crocs' products.
The company is focused on controlling as many aspects of its supply chain as possible because
control and close management is the key to its industry leading supply chain model. Thus,
acquiring raw material providers may be a sound strategy because it will further improve
Crocs' control over supply chain. The problem with this alternative is that it may not make
economical sense because raw materials are already cheap and it will use up funds that can be
better spent somewhere else. The company is still in its early years thus, it should be careful
with capital spending.
The benefit of acquisition is of course, buying established companies that are good fit with
Crocs' strategy or product offerings. The drawback is that Crocs may be paying premium prices
for acquisitions and could develop technologies or product lines cheaper by itself. There is also
a possibility that Crocs' management fails to integrate the acquisitions with existing business as
effectively as expected.
The third option of product extension will enable the company to leverage its brand into more
products and create additional revenue and profit opportunities. The problem with such an
approach is that it will shift the company's focus away from its core strength which is shoes.
Crocs is still a young company and has room to further improve brand recognition. Introducing
non-shoe related products too soon may confuse the brand image. In addition, Crocs' shoes
have gained popularity due to the proprietary technology involved. If Crocs' other products fail
to live up to Crocs' image of provider of unique and quality products, it will hurt the company's
entire progress so far.
Crocs current production and inventory strategy is right on the mark and should be maintained.
Because the company employs Just-in-Time manufacturing, it doesn't have excess inventory
left at the end of the season. This allows the company not to mark down its excess inventory
at the end of the season, an action that may hurt its profit margins. Crocs has the highest gross
profit margin in the industry which is even more impressive when one takes into account the
fact that Crocs' gross profit margins are more than twice the industry average. Even in 2011,
Crocs continues to lead the footwear industry in terms of gross profit margin (YCharts). In
addition, costs of raw materials are low so there will not be much economic gain from higher
production level due to economies of scale. Even if there are cost reduction opportunities from
economies of scale, Crocs will still be required to sell all of them. There is no indication that
Crocs is unable to meet excess demand. One way of increasing demand will be to lower prices
but that would affect Crocs profit margin. Thus, Crocs' current production and inventory
strategy is sound and should be maintained.