Student: Chihab EL ALAOUI ID: 118989

CROCS (A): Revolutionizing an industry’s 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 industry’s competitors and creates through that its own personality (Ireland, the

Management of Strategy, 9th Ed.). From the details mentioned in the case we can figure out that Croc’s

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. This will be discussed in 2nd question.

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 (Lean) 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 (Fisher, M. 1997, What is the right supply chain for your product? HBR, 2,

pp105-116). 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 company’s 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 company’s website shows that the company sells close to 31 31 basic footwear models,

ranging from sandals to children’s 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 company also 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 company’s core competences:

Strength Weaknesses

Vertical  Economies of scale  Capacity balancing issues due to excess

integration  Effective competitive barrier to entry production in times of falling sales

 Higher degree of control over value  Possibility of higher costs due to lack of

chain efficiencies by suppliers

 Better position to negotiate with

suppliers and buyers.

Growth by  Access to developed technologies  Acquisition costs should be able to have

Acquisition  Reduction in competition and defense a positive Net Present Value

against substitute products  Integration concerns due to cultural

 Ability to meet varied customer change and differences in

expectations organizational practices.

Growth by  Economies of scale and scope  Increased production cost

Product  Ability to meet customer expectations  Increased capacity allocation and

Extension  Making product obsolete before possibility of excess capacity.

competition catches up and copies design  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 company’s

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 company’s 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.