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CROCS (A): Revolutionizing an industrys supply chain model for 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 for Crocs over its rivals. It distinguishes
the company from whole industrys competitors and creates through that its own personality. From the
details mentioned in the case we can figure out that Crocs 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.
2. How do they exploit these competences in the future?
a) Further vertical integration in to materials: There exist two types of supply chain practices.
Efficient Supply Chain Practices 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. 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 Crostile. 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 and this move tremendously boosted the companys 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 companys
website shows that the company sells close to 31 31 basic footwear models, ranging from sandals to
childrens 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 companyalso
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
companys core competences:
Strength Weaknesses
Vertical
integration

Economies of scale
Effective competitive barrier
to entry
Higher degree of control over
value chain
Better position to negotiate
with suppliers and buyers.

Capacity balancing issues due
to excess production in times
of falling sales
Possibility of higher costs due
to lack of efficiencies by
suppliers

Growth by
Acquisition

Access to developed
technologies
Reduction in competition and
defense against substitute
products
Ability to meet varied
customer expectations

Acquisition costs should be
able to have a positive Net
Present Value
Integration concerns due to
cultural change and
differences in organizational
practices.

Product
Extension

Economies of scale and scope
Ability to meet customer
expectations
Making product obsolete before
competition catches up and
copies design

Increased production cost
Increased capacity allocation
and 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 companys
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 companys 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.