Crocs Case Study free essay sample

The ability to fulfill orders based off of true and current demand is the staple of the Crocs supply chain. The flexibility in the Crocs supply chain has been in the company’s ability to provide additional products within the same season of release by not requiring their customers to order one time for the season and months in advance (Marks, Holloway, Lee, Hoyt, Silverman, 2011, para. 11). However, this design is not without dependency for a demand for the product. In its current structure, this supply chain is designed for continuous periods of demand. There is a lack of a strong contingency plan for periods of lower than anticipated demand or unforeseen disturbances, such as a recession (Suresh, 2013, para. 6). In order for Crocs to continue to grow and for the Crocs supply chain to remain successful during both periods of low and high demand, Crocs will need to centralize its facilities and continue to either own or run their partner’s operations with the assistance of a developed ERP system. We will write a custom essay sample on Crocs Case Study or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Crocs began in 2002 selling out of a warehouse in Florida and turned into a multi-country, multi-building, multi-partner supply chain (Marks et al, 2011, para. The first edition of the Crocs supply chain existed in two locations, U. S. and Canada, and two companies, Crocs and Finproject NA. Finproject manufactured the shoes and distribution of the shoes occurred through Crocs outsourcing over the U. S (Marks et al, 2011, para. 6, 10). The next edition of the supply chain is where Crocs took the first steps to vertically integrate their supply chain and developed two core competencies. In 2004, when Robert Snyder from Flextronics joined Crocs, Finproject became company owned, under the new name of â€Å"Foam Creations. † Now, Crocs owned the manufacturing of their product and the proprietary croslite resin that comprised their shoes (Marks et al, 2011, para. 5-6). As per the Crocs’ website, croslite is â€Å"a proprietary closed-cell resin that gives each pair of shoes its soft, comfortable, lightweight, non-marking and odor-resistant qualities† (http://company. crocs. com/fact-sheets/). At this point, raw materials were acquired in Europe and the United States but compounded in Italy and manufactured at Foam Creations in Canada (Marks et al, 2011, para. 25). To expand capacity limits beyond Foam Creations, Crocs began working with a manufacturer in China, and later in Florida, and Mexico. This later expansion was a result of Croc’s global strategy to enter the Asian and European markets (Marks et al, 2011, para. 27-28). Having the compounding activity occurring in Italy limited the amount of flexibility Crocs wanted in their supply chain. â€Å"Compounded material had to be sent from Italy to each production site, in the correct amounts and colors† (Marks et al, 2011, para. 35). Thus, manufacturers could only produce the colors they had received from Italy. In response, in 2006, Crocs took over this piece. As they already established ownership of the croslite resin, they created compounding facilities in Canada, China, and Mexico, where they could ship the raw materials and hold off on compounding until product demand was determined (Marks et al, 2011, para. 36). Although the manufacturers in Asia were willing to work with the unknown levels of production, manufacturers in most other markets were unwilling to do so. As a result, Crocs went from contract warehousing to company owned warehousing in those locations. They continued vertically integrating by owning manufacturers in Mexico and Italy with plans for a location in Brazil. â€Å"As Snyder noted, â€Å"We don’t lose interest in our own stuff† (Marks et al, 2011, para. 41). In Europe, they were able to locate a manufacturer in Bosnia that would meet the need for quick response to demand. Crocs would not own the company, but would instead own the equipment and molds and use Bosnian labor (Marks et al, 2011, para. 33). By 2007, the Crocs supply chain was fully developed in a manner that would allow Crocs to switch  between compounding facility, manufacturer facility, and distribution facility in order to fulfill customer’s orders with the quickest turnaround. Within these locations, Crocs had extra molding equipment and moldings so design capacity could be met at a moment’s notice. Crocs used an innovative material with the croslite resin material, which made their product unique. Crocs had developed two aspects of a competitive supply chain. There was built in responsiveness given this was the basis of Crocs supply chain. Since Crocs owned many pieces of the supply chain or had their employees or equipment in their partner’s locations, Crocs established healthy relationships between their partners. Nonetheless, the Crocs supply chain did have a major flaw. In its nature, the Crocs supply chain is built to have continuous demand but is not durable enough to manage slumps in demand, leading to concerns about continuing to be profitable (Mui, 2009, para. 3). In order to become more sustainable during low demand, Crocs has four options. Crocs built a majority of their supply chain by purchasing or implanting their equipment or staff into their partner’s locations. Crocs chose to vertically integrate instead of attempting to collaborate with their partners and allowing their partners to control the major activities. Crocs can continue to vertically integrate. This can be completed by adding the sourcing of raw materials under their ownership, expanding their company owned manufacturer and distribution facilities, and centralizing operations in top markets by relocating company owned facilities. The advantage of continuing to vertically integrate means that Crocs core competency is maintained. As responsive as Crocs tries to be, the supply chain still exhibits signs of the bullwhip effect due to the remaining outside vendors. Especially with the responsiveness required from Crocs, inventory is stored needlessly amongst partners. As per the Washington Post article Crocs Shoe Company Stumbles During Recession (2009), as a result of the recession, â€Å"Now its [Crocs’] stuck with a surplus of shoes.. (Mui, 2009, para. 3). If Crocs eliminates or reduces the remaining partners, they can further decide on the production schedule. The bullwhip effect will be reduced, if not eliminated, as they will have fewer partners to provide demand too. By building new facilities, Crocs can bring activities closer together and centralize some activities, reducing distance barriers. At this time, sourcing can occur in one country, compounding in another, manufacturing in yet another, and distribution in another. Centralizing allows Crocs to lower the production costs associated with having their product go to various locations before becoming a completed product, especially during low demand. The responsive production is still maintained, however, as these are still Crocs facilities and operate in accordance with Crocs principles. Nevertheless, purchasing and relocating are expensive endeavors. To operate in other countries means to comply with those governments. By continuing to outsource instead of vertically integrate, the outsourcing companies are responsible for compliance with government laws/fees instead of Crocs. There may be some advantages the outsourcing companies are receiving by not being owned by Crocs, where vertical integration will eliminate those. The second option available to Crocs is to acquire outside companies that own intellectual property or have already developed superior methods of producing shoe or shoe-like products. Between 2004 through 2006, Crocs acquired 5 different companies, as seen in Exhibit A. These purchases allowed Crocs to incorporate outside technology, as in the case of Foam Creations, into their products. By continuing to acquire outside companies, Crocs continues to learn of new material and new methods on how to better incorporate current materials into the product. These acquisitions can make the supply chain more efficient as new technologies become Crocs’ property, which Crocs can choose to share with their partners. As with vertical integration, there are high costs associated with purchasing outside companies. However, these costs may be offset by the access gained. In the case of Foam Creations, with this acquisition, Crocs gained ownership of the Croslite intellectual property, which is the key of their product’s core competency. When demand is low, Crocs can make use of their acquisitions by putting those acquisitions to other uses, such as research and design. Acquiring companies has to be decided upon with care, however, as not every company will add to the Crocs product and supply chain. The process of evaluating these choices can be time consuming and lengthy. A third option available to Crocs is growth by product extension. When Crocs began, they had two models, Beach and Cayman. These models were extremely popular and due to their popularity, the designs have been a platform for developing other shoe products and styles (Marks et al, 2011 para. 14). By 2007, Crocs showcased 31 shoes on their website, which included new items such as sandals and children’s boots. Also in 2007, Crocs obtained a licensing agreement with Disney and began incorporating Disney elements into their shoes, such as Mickey Mouse shaped holes. To reach a broader audience, Crocs dove into the college student market by offering shoes for 17 universities in school colors and with school logos. These products can be seen in Exhibit B. (Marks et al, 2011 para. 14). Innovation is key in the fashion world. As per CEO John McCarvel quoted in the Times Magazine article Why are Crocs Profitable Again? (2010), â€Å"If we make it a little more stylish, then we start to appeal to a larger audience† (Oloffson, 2010, para. 2). Expanding their product offerings keeps old customers interested and attracts new customers. Crocs can expand into different markets, such as college students or children, with different product offerings. Crocs can also stay ahead of their competitors by being the first to innovate. This will require additional moldings and molding equipment and clear communication amongst the supply chain to ensure new products can be developed as hoped. However, by innovating and offering multiple products, Crocs is then required to keep inventory to meet the demand. Crocs can maintain lower levels of inventory when declines in demand are identified. Yet, doing so will reduce the responsiveness that they have built into the supply chain and the commitment Crocs has to their customers. New products also require an investment in production. If the new item flops, those costs are lost. To ensure that Crocs is investing and producing the most profitable products, Crocs will need to ensure their marketing department is involved in further product expansion. This option allows Crocs to become seen as more than just boat shoes, but does not come without its risks. Lastly, Crocs can choose to expand their ERP system to their partners and incorporate a point of sale (POS) module within the system. In 2007, Crocs implemented an ERP system that monitored their upstream suppliers. However, there was no handle on actual retail volume because their smaller retailers were not connected to this ERP system (Marks et al, 2011, para. 62). By having all partners in the supply chain referencing the same levels of inventory and same projection for future orders, Crocs can better control their inventory levels. In periods of high demand, Crocs will know what is selling at each retailer. In periods of low demand, Crocs’ will be able to keep inventory low. Their retailers will see the available inventories of current stock and can make orders from these inventories. Yet, Crocs can still fulfill requests for products that are needed if not in inventory as the structure of the supply chain will not change. In periods of high demand, Crocs and their partners will be able to monitor where replenishment is required at a quicker rate improving the supply chain efficiency. Implementing this ERP system into the smaller retailers may not be easy. Crocs may experience resistance from the retailers as they may have to incur additional costs to implement this ERP. In addition, the retailers may not have the IT support to allow for their systems to become integrated with Crocs’ ERP system. Even if Crocs is unable to have all aspects of their ERP system implemented into their retailers programs, by adding the modules associated with inventory levels and product selection, Crocs can improve their demand planning. Of the available options, Crocs would be best advised to continue to vertically integrate, especially by centralizing their facilities. They would also add to their sustainability by purchasing further developments in their ERP system and the ERP systems of their customers. As per Forbes article Crocs Submerges (2008), â€Å"According to the March retail report from the U.S. Department of Commerce, clothing and clothing accessories stores suffered a 1. 6% decline in sales from the level in March 2007† (LaMotta, 2008, para. 12). Because it is known that there has been a decline in sales, Crocs needs to adjust accordingly. When demand is low, sitting inventory is lost money. Centralizing will bring Crocs’ production process closer together. The bullwhip effect will be lessened and extra inventory levels reduced. The costs associated with relocating can be alleviated by the costs saved in the shorter production process and lower inventory levels. By implementing point of sale (POS) software, Crocs will have more visibility to know exactly how their products are responding in each region. This will allow Crocs to make adjustments in production and have better grasp of how to forecast for future demand. Point of sale systems can be used to build customer profiles so Crocs can fine-tune their product offerings. In conclusion, Crocs’ sustainability and growth during periods of low and high demand will be contingent on Crocs continuing to vertically integrate and further developing their ERP system to include a POS module with their retail customers.