Crocs & AAA Supply

Chain
Group 1
Aayush Gupta (19302) | Manish Kapgate (19329)
Priyal Jaiswal (19253) | Sushmita Das (19371)

A A
AGILE
• Agility has become
essential because demand
and supply constantly
fluctuate, while consumers
are highly demanding.
• Firms need to have a
contingency plan in place to
deal with emergencies that
might disrupt supply chain
and hence maintain agility
The AAA Supply Chain
A
ADAPTABLE ALLIGNED
• Best companies need to • Achieving alignment of
constantly innovate and goals of partners in supply
adapt their supply chains chain entails alignment of
to the changing market information, responsibilities,
conditions. tasks, risks, incentives, etc.
• Lack of alignment between
the goals of different
partners in supply chain will
prevent the supply chain
from achieving best
performance
 The Thumbs Rule
AGILE
• Provide data on changes in supply
and demand to partners
• Develop collaborative
relationships with suppliers and
customers
• Design products so that they share
common parts and processes
initially and differ substantially
only by the end of the production
process
• Keep a small inventory of
inexpensive, non-bulky
components that are often the
cause of bottlenecks
• Put together a team that knows
how to invoke backup plans
ADAPT
• Track economic changes,
especially in developing countries,
because as nations open up their
economies to global competition,
the costs, skills, and risks of
global supply chain operations
change.
• Decipher the needs of your
ultimate consumers not just your
immediate customers
• Develop new suppliers that
complement existing ones
• Ensure that product design teams
are aware of the supply chain
implications of their designs
ALLIGN
• Redefine the terms of their
relationships so that firms share
risks, costs, and rewards equitably.
• Companies must align incentives,
so that when companies try to
maximize returns, they also
maximize the supply chain’s
performance.
• Companies must try to predict the
possible behaviour of supply
chain partners in the light of their
current incentives.
• Companies must perform analysis
to predict what competitors would
do if they raised prices or entered
a new segment.
Key Learnings
01 Globalized complex supply chains
This means a shock can occur anytime , anywhere and demands companies to
be agile and adaptable

Proactively monitor structural changes

02
This is the key to to having an agile response to change in supply chains in
case of a shock

Commonality, postponement and standardization

03
These characteristics in a product allow re-engineering during the period of
supply chain adaption.

04 AAA supply chain does not need huge investment

Most companies already have the infrastructure to implement the AAA
approach , a change in mind set is required
 Fundamentals of Crocs supply chain
Reach with smaller retailers
• Grass-root reach with smaller retailers for superior
brand recognition
• Custom configuring packaging to meet their needs
Production near Markets
Quick Replenishment system
• Manufacturing was situated close to
• Crocs offered shoes in direct response to
the destination market, as opposed to
consumer demand, eliminating the
the industry practice of production in
risk of stockouts or discounting
nations with lower labour costs such
• The quick replenishment system
as Asia or South America
convinced retailers to provide exclusive
retail space for Crocs products

Unique Products Early worldwide launch

• Crocs products were unique in design with • To gain Brand Recognition & an
bold colors which differentiated it from exclusive consumer connection with
others croslite footwear
 Evolution of the Supply Chain
• To reach the global market, Crocs
started with contract manufacturing
in China
• Crocs also added capacity through
contract manufacturers in Florida,
Mexico & the US
• As compounding in the single location of
Italy was inefficient, Crocs created
compounding facilities in Canada, China
& Mexico
• This enabled them to delay the
colourizing decision & adding further
flexibility – and also provided IP
protection for the Croslite resin

Shift to Shift to in
Taking over Decentralized Decentralized
contract house
production Compounding Warehousing
manufacturing manufacturing
• Sourcing raw material pellets • Contract manufacturers outside Asia
from the US & Europe couldn’t cope with Croc’s supply chain • Decentralised the warehousing
• Shipping it to a 3rd party model operation and taking complete control
compounding company in Italy • Thus, Crocs began to develop its own of the operation,
• Shipping the product back to manufacturing sites in Mexico, Italy & • This led to a reduction in the
Canada for moulding & assembly Brazil inefficiencies of a central warehousing
• Finally shipping to a distribution • It also replaced an inept Romanian location in such a large global supply
company in Denver contractor with a Bosnian one, to serve chain
the European market.
• Crocs also retained the Florida contract to
leverage the Made in USA label
 Challenges and Responses related to SCM
Challenge - High Duty Embargos
Response - Manufacturing & supply was
Challenge - Infeasible to move Moulding Machines synchronised between geographies to optimise
Response - the Moulds themselves were frequently duty charges between nations
transferred globally to meet production needs
A B

C D Challenge - Updating Supply Chain Software

Challenge -Uncertain Demand Forecasting
Response - Future plans to modernise the existing
Response - Manufacturing capacity of 1 million
database system with a global inventory module, in
pairs/month was maintained, which could be
addition to geography and product based planning
switched on at a moment’s notice
 Challenges and Responses related to SCM
Challenge – Inefficient Centralised Compounding
Response – Initially, compounding was done only in
Italy, which resulted in supply chain inefficiencies of
shipping to each production site.
To counteract the inefficiencies, Crocs moved
compounding in house for each production
facility
Challenge – Serving Small Retailers
Response – Small retailers were not serviced from
distribution centres, products were shipped directly to
them, and cartons had customised SKUs
Challenge – Centralised Contract
Warehousing
Response – Initially, all the warehousing
operations were handled solely in a facility at
Colorado, which made labelling and shipping
inefficient.
Crocs added warehousing facilities to each to
factory to counteract these inefficiencies
A B
C D Challenge – Market Demand for New Products
Response – New products tended to be more
complicated, hence Crocs acquired Ocean Minded to
incorporate the necessary core compentencies
 Operating Performance 8
7.4
6.5 6.6
6
Efficiency Parameters
5.6
5 4.7
4.3
3.5

Inventory turnover Ratio: Crocs has very low inventory turnover ratio than the industry
average . Crocs built the product after seeing the actual demand to avoid unsold inventory.
Agile supply-chain reinforced with excess capacity helped crocs to function with less Inventory Turnover Ratio Receivables Turnover Ratio
inventory.
Receivables turnover ratio: Crocs has higher receivables turn-over ratio than the industry
average. It signifies that Croc’s accounts receivable is efficient and it also enjoys a high- Crocs Deckers Outdoor Nike Timer-Land Industry Mean

quality customer base which is a result of the healthy relationship of Crocs with its retailers. 34%

Returns on Assets: The return on assets is very high for Crocs which signifies that the
company is using its assets efficiently to generate revenue.
18%

Profitability Parameters 14% 14%

13%
10%
9%
Net Profit Margin: Crocs has very high net profit margin as compared to its peers. Crocs has 7%
3%
6 times more net profit margin than the industry average. This is possible due to its highly 3%

efficient supply chain and superior quality product.

Net Profit Margin Return on Assets

Crocs Deckers Outdoor Nike Timer-Land Industry Mean

Growth Parameters
Revenue Growth: Crocs’s revenue has increased 62 times in 4 years ( from 13.5 mn $ in Revenue i n $ mn 847.4
2004 to 847.4 mn $ in 2007) . By 2007, Crocs was selling in 90 countries with production
facilities in 3 continents.
The product range consisted of 31 footwear models and other accessories. 354.7

108.6
It was also growing inorganically through acquisitions, but the majority of growth was 13.5
organic. 2004 2005 2006 2007
 AGILITY
 In House Manufacturing- Company owned manufacturing operations ensured quick
response to consumer demands. It gave Crocs the flexibility to change the production
needs as per demand
AAA in
 Bringing manufacturing closer to the customer- Manufacturing facility in each Crocs
geographic region enhanced the ability to respond to the local customer needs

 Vertical integration of Manufacturing- Crocs integrated compounding activity in its

supply chain creating compounding facilities in Canada, China and Mexico. Now the
compounding could be done as per customer demand.

 Excess Capacity- Crocs acquired excess capacity to quickly ramp up production in case
of sudden increase in requirement. It helped crocs maintain an agile inventory. Also
moulds could be transferred from one plant to other in very short notice to meet varying
production needs.

 Factory Warehousing- Crocs added warehousing operations to each factory enabling

fast replenishment to customers directly from the factory
 ADAPTABILITY
• Shift from the seasonal ordering model-
Crocs enabled the retailers to order flexibly
as per the demand. This reduced the risk of
unsold inventory and stockouts of the
retailers. It resulted in improved
relationship with the retailers
• Global Launch- To gain the first mover
advantage, Crocs launched globally very
early.
• Evolving product assortment- A wide
variety of products were either already
being offered or were in the pipeline to
cater to a wide variety of market segments
• Varying Demand- To adapt to the varying
demand excess capacity was maintained.
Also moulds could be transferred from one
plant to other in very short notice to meet
varying production needs.
ALLIGNMENT
AAA in
Taxation Alchemy- Crocs shipped products
in between countries such that it incurred the
lowest tax duty costs and utilized free trade
agreements between nations
Building Competencies- Crocs started its
Crocs
own compounding and warehousing
facilities which were decentralized to stay
close to a major chunk of the market
Technical Upgrades- The age-old database
system was updated with a modern SCM
Inventory module to streamline cost savings
and faster delivery across the supply chain
Retailer Service- Both large and small-size
retailers were catered to using tailored
strategies such as delivery centers and
customized packing for large and small-scale
retailers respectively
Thank You