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Crocs, Inc. was established in 2002 in Colorado, USA and is today amongst the fastest
growing brands and companies in the world. The company started designing and
manufacturing footwear for all age groups under the Crocs brand, which are now sold in
over 100 countries around the world. The Crocs brand shoes feature the proprietary closed-
cell resin, Croslite, a special kind of plastic that softens up due to the body heat of the wearer
resulting in a perfect fit and a high degree of comfort. The innovative, „trade secreted‟
material has been considered as significantly original in the footwear industry and the shoes‟
unique looks and range of brightly coloured designs have made Crocs highly favoured by
people who are looking for comfortable, lightweight, slip-resistant, and odour-free footwear.
The phenomenal success of Crocs in a short span of less than 10 years has been discussed
widely, and besides the skyrocketing popularity of the shoes, one of the main reasons behind
this mindboggling growth has been the company‟s efficient supply chain management.
Until 2006, Crocs, Inc. had the highest gross profit margin in the footwear industry at 56.5 %
as compared to 43.7 % and 47.3 % by the giants of footwear, Nike and Timberland
respectively, and the sales revenues of the company are very likely to cross the US $ 0.5
Billion (Hoyt, D. and Silverman, A., Exhibit 2, p.16).
The case study (Hoyt, D. and Silverman, A.) has discussed the astounding growth of Crocs,
Inc. and provides information on its highly flexible supply chain. Crocs showed that by
being more agile and by digressing from the traditional industry norms they could be more
successful and profitable than any other competitor (Hoyt, D. and Silverman, A., Exhibit 4,
p.18). Their efficient supply chain was an outcome of their CEO, Ronald Snyder‟s, vision of
meeting customers‟ demands by creating a hyper-efficient production and supply chain
process that would enable the company to produce and supply at short notices and thereby
create a market leading advantage in the industry. The text also mentions how the firm
moved from contract manufacturing to developing a more vertically integrated organisation
and expansion through building infrastructure and become a truly global company. It
seemed that through vertical integration (Harrigan, K. R.) Crocs had developed a perfect
strategy to achieve cost leadership and differentiation (Porter, M. E., 1998) and at the same
time gain a high degree of control over their entire value chain. Not only this, but with
unimaginable growth Crocs was able to create different market segments and also take a
chance to foray into more traditional materials in footwear and increasing their
competitiveness in the industry.
This paper has been structured to critically evaluate the footwear industry in generally and
the supply chain of Crocs Inc. (Appendix A) in particular and provides insights into possible
drawbacks and improvement areas in the strategy adopted by the organisation in the years
leading up to its present position. In the latter half, the paper describes my views on how
Crocs, Inc. can better their position in the footwear industry and become a more stable
competitor to its major challenges in the environment. I have used a number of theories and
models, both in analysing the system prevalent at Crocs, Inc. and in providing insights into
how they can build up on their successes and create a more stable and extended future for
the company. Of course, it cannot be claimed that this paper will provide a foolproof
solution to the issues of today‟s footwear industry and Crocs Inc in particular, but it does
portray a different perspective especially by providing arguments against vertical
integration as a means to achieve competitive advantage.
This paper contradicts the theoretically sound and widely accepted principle of vertical
integration to achieve competitive advantage. The paper highlights the probable drawbacks
and bottlenecks plaguing the supply chain of Crocs Inc. The paper begins with a brief
overview the footwear industry based on Porter‟s Five Forces model (Porter, M.E., 1980) and
introduces the Crocs‟ supply chain process. It explains how Crocs suffers from the Forrester
Effect (Forrester, J.W.) and using the 3PL (Christopher, M.) description the paper conducts a
critical analysis of the highly agile and vertically integrated supply chain environment of
Crocs. Using the Fisher and Kraljic models, I have demonstrated how the company can
needs to revise its foundation in developing a strategically sound supply chain process.
Furthermore, the Japanese philosophy of Kaizen (Imai, M.) and Kanban have been uniquely
combined and later superimposed on the Kraljic model to create an interestingly different
perception of the supply chain integration. The paper ends with recommendations
adequately supported by the above theories/models and indicates the existence of the
INDUSTRY ANALYSIS
Using the concept of Product Life Cycle (PLC) (Wasson, C.R.) (Appendix C), it could be said
that the footwear industry as a whole is at the „saturation/maturity‟ stage and is likely to
continue at this stage. Of course, it is unlikely that the demand for footwear will fall
considerably; there are chances that with the development of more durable and cheaper
products, the profitability of the industry will decline over the years. I have used the Five
Forces Model (Porter, M. E., 1980) to conduct an analysis of the global footwear market
(Appendix B).
Entry Barriers: The footwear industry seems to provide relatively easy entry for new players.
The cost advantages are low with a large number of players globally as well as locally.
However, the manufacturers have reasonably easy access to raw materials and have been
able to achieve economies of scale through outsourcing of production. Capital requirements
are not too demanding and so are the general governmental policies. Companies have been
able to achieve propriety over designs and styles and are in a position to consolidate their
gains from the industry.
Supplier Power: Most shoes are made from similar material with Crocs being the exception
of having propriety on the Croslite material with which its shoes are made. Due to wide
availability of raw material and a large number of suppliers, larger producers have been able
to get better prices as compared to smaller players. At the same time, switching costs for the
firms are low and as a result, the supplier power is not considerable.
Threat of Substitutes: Since entry barriers are low and switching cost are low substitutes are
a constant threat in the footwear industry. Moreover, the intense competition leads to lower
prices, which affects consumer choice. Companies have to continuously bare a trade-off
between price and performance. However, large players are in a position to achieve a higher
MES (Minimum Economic Scale), which might act as a barrier for substitutes.
Buyer Power: Customers are the most powerful in this highly competitive industry. Success
is dependent on the extent of penetration in to the market and achieving a balance between
price and quality. Moreover, footwear would be termed as innovative products and are
subject to frequent changes in trends and therefore, demands of the consumers. Once again,
Rivalry: With easy entry and exit from the industry, a large number of players in the
footwear industry are intensely competing against each other to gain maximum market
share and increase their returns. However, industry growth is low and there is constant
pressure on the firms to lower prices. Differentiation is hard to achieve and low switching
costs mean that the consumer power is high and substitutes and knock-offs might eat into
market share. The most important aspect is of efficiency in supply chain and the delivery of
products to the right place at the right time. Most large companies have been successful due
to superior supply chain processes.
The above five forces reflect that competition in the footwear industry is not related only to
the larger players. They jointly determine the industry competition and profitability and
with many commonalities amongst the players, there are very few crucial aspects that
govern the strategy formulation of these companies. Creating and developing an efficient
and responsive supply chain aimed at reducing costs seems to be one of the most vital
components in the industry.
Comparing the PLC Curve of Crocs with the industry curve, it would be wise to put Crocs at
the stage of „competitive turbulence‟ as suggested by Wasson (Appendix C). The uniqueness
of the Crocs clogs and the overwhelming popularity of the products indicate that there is
quite some time for Crocs to reach the maturity stage, even when the industry in general is
not performing so well. Crocs Inc.‟s main focus has always been better supply chain
coordination and to garner opportunities to differentiate its products from those already
available in the market. Crocs seemed to have adopted a global logistics strategy
(Christopher, M.) in that it had focused factories manufacturing shoes to cater for certain
markets; its inventories were centralised and it followed a system of localisation, generic
levels of semi-finished inventories and small orders from suppliers/distributors. In order to
supplement this system, Crocs had in place capacity and capability to meet changing market
demands at short notice. In general, Crocs had a very agile supply chain process in place and
that the firm understood the customers‟ needs and changes in the market trends. Crocs
clearly understood the dynamic nature of the footwear industry where a product might no
longer be in fashion the following year, and developed the ability to produce additional
DISCUSSION
At this point it would be interesting to explain the situation faced by Crocs using the
Forrester (Bullwhip) Effect (Appendix D). Crocs has historically chased demand since its
inception and hence felt the need for excess capacity to react quickly to market demands.
They obviously considered its supply chain to be highly effective and in fact they did prove
themselves to be correct for a few years. Theoretically Crocs could have continued to
achieve success at this had they been able to meet all customer orders in every season.
What they failed to realise was that customer Outcome of the Forrester Effect
with Crocs. They believe in holding excess capacity and their ability to produce the required
stock as and when required. In my opinion they were not entirely correct! Misperceptions of
the stakeholders‟ risk and time delays caused panic ordering by suppliers due to unfulfilled
It seems that there was a misalignment in the corporate strategy and the supply chain
strategy adopted by Crocs. In 2002, when the company was established it was obvious that
it had centralised operations since its market was limited. As it began to grow the firm
expanded globally and chose to enter contract manufacturing and be able to make the
products available faster and economically. However, the company found that the 3PL
system was not effective and so it began to consolidate its assets and create a closely
integrated organisation. In doing so Crocs got too involved in managing the external
resources and process and lost focus on its key areas of operation and as a result this affected
its competitive advantage. At this rate Crocs is well on its way to moving into the „Stuck in
the Middle‟ position (see diagram on this page) with reduced profitability and limited
alternatives for growth and survival in a highly competitive industry. Mentioned below are
some of the points that explain how Crocs‟ competitive advantage was affected and why it
makes more sense for Crocs to implement a 3PL system rather than focus only on a vertically
integrated firm.
Porter’s Competitive Advantage Matrix
bit too much. Their Denver facility, for example, was highly underutilised as it catered to
only the smaller retailers in the Americas and shoes were sent there from manufacturing
plants that were in Italy and China. Until recently, their compounding activities were
concentrated in Italy and that again was a highly centralised and uneconomical.
Cost advantage: In my opinion, Crocs lost its cost advantage by reverting back from contract
manufacturing to owned-manufacturing. The emergence of knock-offs in large numbers
may be reasoned as an outcome of this move. Crocs had outsourced its manufacturing to
China and Mexico and after a few years they had their own manufacturing facilities.
However, it seems probable to argue that in trying to achieve higher profit margins and
creating a better supply chain model, they overlooked the important facts of creating entry
barriers and maintaining their cost advantage. It can be said that the large number of knock-
offs (Oakland Tribune) have dented the uniqueness of Crocs and in spite the difference in
quality the lower price of the Crocs-duplicates have made a large number of customers
switch brands. As discussed earlier, customer power is very strong in the footwear industry
and as a result, Crocs shoes have come to be considered as a commodity rather than a
differentiated product.
Core competencies: The main advantage of adopting a 3PL system is that the firm is able to
concentrate on its core competencies. Although Crocs‟ supply chain model is considered to
be revolutionary, it does not help the company in improving and maintaining its core
competencies. It is a plausible argument that had Crocs not been involved in owned-
manufacturing, it could have utilised the same resources for better development of its
products and ensuring that cheap knock-offs do not harm its market share. Although there
has not been any significant change in the market share of the inventory turnover of the
company‟s products is lower than the industry average and its stock prices have taken a
hard beating on the stock market.
Another drawback that could be attributed to the supply chain model was that Crocs might
be considered as conservative to some extent. In view of the fundamental basis of being
flexible and highly responsive to market demands, Crocs was not willing to change its
supply chain model as per the requirements of the suppliers or even as per the changes in its
organisational structure. In this sense, it is comparable to the traditional approach adopted
by Marks and Spencer (Harrison, A. and Pavitt, J.).
In view of the issues that have been brought to light in the existing supply chain of Crocs
Inc., it may be suggested that Crocs carry out an internal alignment of its system and then
move towards creating better integration between the internal and the external systems.
RECOMMENDATIONS
Of course, this is only an illustration and this is what my seriously limited knowledge in
shoe making could conjure in terms of the Kraljic matrix for Crocs. Notwithstanding this
Consequently, it may be
recommended that Crocs strives
to achieve vertical integration on Paint/colours Warehousing
Rivets Production
the items on the top row and
Ankle straps/fasteners Labour
similarly, it may
outsource/contract-out the Non-
critical and Bottleneck items. In
doing so, Crocs should be careful in selecting the suppliers for its raw materials and be able
to achieve competitive pricing. As for the machinery and equipment, the firm might find it
more suitable to procure it on behalf of the contract manufacturer rather than relying on the
latter. Strategically, it should try and find suppliers for leverage items that are closer to the
manufacturing facilities otherwise, the transportation costs of raw materials might outweigh
the benefits of the same. On the other hand, Strategic items should be kept under the direct
control of the Crocs management as the moulds and compounding are the two key
advantages that Crocs has over its competitors. Non-critical items like colours and
replacement parts should be given to 3PL organisations and so should the bottle neck items.
Point to be noted here is that since the actual production of the products can be outsourced
to countries with low labour costs, the labour is termed as a bottleneck item. Similarly,
warehousing would become the contract manufacturer‟s worry and Crocs need keep only
limited warehousing facilities under its direct control.
Other improvements in the supply chain could be brought about by adopting the Kaizen and
Kanban system in conjunction. This is not to say that these could act as replacements or
alternatives to the Kraljic model. Where the Kraljic model shows us an approach to supply
chain integration, Kaizen and Kanban (HBR on Supply Chain Management) provide us the
means to maintain and continuously improve the supply chain process. Kaizen (Imai, M.) is
based on five basic elements (Teamwork, self-discipline, high morale, quality and
suggestions for improvement), and provides three key factors that will help Crocs achieve
reduced wastage and inefficiency, improved internal working environment and
Furthermore, I can superimpose the Kaizen-Kanban combine on to the Karljic matrix and it
may be inferred that Crocs needs to be lean for the processes it controls itself (Leverage and
Strategic items) and be agile for the items that are being outsourced (Non-critical and
bottleneck items). Besides the above, rather than depending on its own estimates of stocks,
Crocs can use the Kanban system to provide a more accurate and real-time information
about replenishment schedules, which will improve the efficiency of the production and
inventory management processes.
Another important area where I feel Crocs Inc. could have faltered is in their ability to
distinguish their products as either „innovative‟ or „functional‟ (Fisher, M.) (Appendix E).
According to Fisher, it is very important to match the supply chain with the type of product
that the company has. And based on this type, the supply chain of the firm will be efficient
or responsive. This is similar to what I have mentioned earlier in relation to the Kaizen and
Kanban system and their correlation to the Lean and Agile supply chain systems. However,
the underlying area according to Fisher‟s model is the classification of the product. I would
like to agree with Fisher here and elaborate this more specifically concerning the Crocs
supply chain process. As recommended earlier, Crocs should aim to achieve a combined
vertical and horizontal integration; vertically integrated for the critical and strategic
processes and horizontally integrated for the non-critical and bottleneck processes. Similarly,
Fisher‟s model applies here in that the final product of Crocs Inc., their shoes, will be the
In relating this to the changes required in Crocs‟ supply chain management it can be termed
as the need for incremental change rather than undertaking transformational change. It is,
after all, a change in the work culture of Crocs that is being suggested here and the aspect of
change management cannot be overlooked at this point. If Ron Snyder is himself not
convinced about this need for change he will not be able to implement the same through the
organisation. It makes me consider that applying the Eight Steps of Leading Change (Kotter,
J.P.) would bring about a wonderfully methodical implementation plan of the proposed
incremental change in the supply chain process at Crocs Inc.
CONCLUSION
As seen from the above discussion, Crocs‟ „revolutionary‟ supply chain might have been so
only for a short period of time. The current strategy at Crocs Inc. has led to inefficient
production and excessive inventory due to inaccurate forecasts of customer demand. To add
to this, the Forrester effect explained above leads to stock-outs, sub-optimal utilisation of
resources, poor customer service and financial costs all along the supply chain. To stretch
this a bit further, the damage to the stakeholder image and loss of loyalty can lead to greater
losses for the organisation.
Of course, the company has continued to show increasing profit quarter after quarter but it
has lost the faith of the stockholders in the market and with increasing competition, Crocs
needs to alter its stance. The focus on core competencies, demand-driven supply chain and
adding value to the end user is what Crocs needs to work at to improve its market position.
Taking cues from Porter, it would be wise for Ron Snyder to rework Crocs‟ approach
towards gaining a competitive advantage through a Hybrid supply chain process combining
both agility and leanness. Although Crocs did eventually shift to an IT based inventory
management and planning process, it could have performed much better had it
implemented this earlier. Moreover, referring back to Kotter, the change in corporate culture
Finally, it may seem like a wild jumble of words in explaining the complex structure of the
supply chain process. But this is the reality. It must be appreciated that supply chains cover
multifarious activities and processes and with ever increasing developments in technology
and methodologies, it is more likely to get even more challenging in the days ahead. From
the above discussion, I would sound wise in admitting that there cannot be a one single
solution to all the supply chain worries at Crocs Inc. or for any organisation for that matter,
especially in a dynamic industry like footwear. It is also easy to argue that the prevailing
supply chain of Crocs is successful, merely based on the fact that Crocs Inc. is still
performing better than its competitors and has shown consistent growth in the last few
years. The bottom line here is to be able to understand the unpredictable nature of the
industrial environment and how important it becomes for every firm to strike a balance
between all internal and external processes. There is little doubt that most managers around
the world are continuously trying to improve their supply chain efficiencies and controlling
costs. However, the question remains as to how many of these managers are taking into
consideration the end user; the consumer, and actually attempting to arrive at more accurate
forecasts?
However, should Crocs miscalculate demand for its footwear, the carrying costs of
bloated inventory levels-warehousing, distribution, work-in-progress and finished
goods-will come back to haunt management, especially if prices start to fall (customer
discounts or forced liquidation of excess inventories) for some of its ‘fad footwear’.
Source: http://seekingalpha.com, David J. Phillips, Crocs: Bloated Inventory Caused Stock Slide, 10Q Detective.
Adapted from Hoyt, D. And Silverman, A. (2007), Crocs: Revolutionizing an Industry’s Supply Chain Model for
Competitive Advantage, Stanford Graduate School of Business, Case GS-57.
Source: www.valuebasedmanagement.net
Source: www.altera.com
Adapted from Lee, Hau L; Padmanabhan, V. and Whang, Seungjin (1997). "The Bullwhip Effect in Supply
Chains". Sloan Management Review 38 (3): 93–102
Fisher’s Matrix
Adapted from Fisher, M. (1997) What is the right supply chain for your product?,
Harvard Business Review, March-April