Crocs Revolution an Industry Supply Chain Model for Competitive Advantage

CROCS: REVOLUTIONIZING AN INDUSTRY’S SUPPLY CHAIN MODEL  FOR COMPETITIVE ADVANTAGE Prepared by: Syndicate 6 Hannah Fadhilah / 29115‐387 Hariswoyo / 29115‐418 Hyang I. Mihardja / 29115‐270 I Nengah Sagita / 29115‐388 Iman Siregar / 29115‐384 CROCS PRODUCT PROFILE • Unique Design • Foam Clog Shoes • Made from Special Material • (Proprietry resin “croslite” formula) • Did not Sllip (on wet Boat Decks) • Easy to Wash • Odor Resistance • Extremely Comfortable • Colorful (Eye Catching) • Casual / Easy Going Outfit • Extra Ordinary Design • Amphibious Nature (Wet & Dry)   ‐ substantial innovation in footwear.  Source: http://www.CROCS Innovation Footwear • Crocs brand shoes feature Crocs'  proprietary closed‐cell resin. hospitality and  gardening. comfortable.6% more than  standing barefoot.surfanddirt.  • Crocs certified by United States  Ergonomics as proven to reduce  muscle fatique up to 62. light‐ weight.  boating. non‐ marking and odor resistant shoes.  professional and recreational uses . • Crocs footwear ideal for casual wear. Croslite.  • The Croslite material. hiking. unique  elements ‐soft. superior‐gripping.com/crocs‐shoes . Ronald Snyder ‐ The CEO  Expertise:  Manufacturing Operation  Merger& Acquisition  Sales& Marketing  Shifting “Design & Distribute” business into  Manufacturing Company  Purchase Canadian Manufacturer FinProject NA – Formula Resin “Croslite”  Build a strong Team  Think Big ‐ Global Vision ‐ IPO  Continues Improvement Strategy  Crocs Supply Chain  Acquisition & Product Extension . CROCS INC. 1st pair of  shoes sold  June 2004 Former  Flextronics Executive  Ronald Snyder is named  President. Acquires  Finproject NA Jan 2005 Ronald Snyder  is named CEO and  enacts global market  penetration strategy . HISTORY Jan 2007 Acquires Ocean  Minded. Total Market  Cap of $1.2 Mil  2002 Crocs is founded by  3 friends sailing in the  Caribbean. Crocs owned  manufacturing (Mexico & Italy) &  compounding (Canada. Total Market Cap  of $1 Bil 2003 Total  Rev $1. China &  Mexico) facilities opened  2006 Year end Rev of  $355 Mil.7 Bil Feb 2006 Crocs goes  public. LLC Designer &  Manufacturer of Sandals 2006 Global Supply chain  brought in house.  The raw materials in  pellet form are shipped to  compounding facilities #2. The finished products are  shipped to warehouse to be  packed Warehousing #5.CROCS SUPPLY  CHAIN Compounding #1. The chemicals are combined  in a compounding facility where  color dyes are added Molding & Assembling #3. The finished products are  shipped to retail/ customer . The compounded colorized  pellets are molded and  assembled #4. SUPPLY CHAIN DEVELOPMENT Phase 1 : Taking Over Production To own the ‘Croslite’ formula and control manufacturing Phase 2 : Global Production Using Contract Manufacturers To added the manufacturing capacity due to entering Asian  and Europe markets. Crocs took control of the  compounding activity and warehousing . Phase 3 : Bringing the Global Supply Chain In‐House Due to inefficient shipping of materials and reduced  manufacturing flexibility.   Packaged and  shipped to  customers by  Third‐party  distribution  company in  Denver  .PHASE 1 Raw Materials  (various  companies in  EU and US) Third‐party  compounding  company in  Italy Molded and  Assembled in  Foam  Creations  (Canada) Warehoused.   Mexico and Italy Warehoused.  Packaged  and shipped  to customers  by Third‐ party  distribution  company in  Denver  .PHASE 2 Raw  Materials  (various  companies in  EU and US) Third‐party  compoundin g company in  Italy Molded and  Assembled in  Foam Creations  (Canada) and  Contract  Manufacturers  in China. Florida.  and  Romania.  Company‐ Owned  Manufacturing  Operations in  Mexico and  Italy (Brazil  and India  soon) Warehousing  operations to  each factory.  and Mexico Molded and  Assembled in  Foam  Creations  (Canada) and  Contract  Manufacturers  in China. China.  other  warehouses  were owned  by Crocs or  were being  transitioned to  Crocs  ownership .PHASE 3 Raw Materials  (various  companies in  EU and US) Company‐ Owned  Compounding  facilities in  Canada.  Chinese  warehouse  owned by one  of the Crocs  suppliers but  run by Crocs  personnel and  Croc’s systems.  Florida. . CROCS SUPPLY CHAIN vs TRADITIONAL SUPPLY CHAIN CROCS SUPPLY CHAIN • Focused on customer needs • Fast response to demand changes (Be able to make the product during season and ship them to customers quickly) • High collaboration with suppliers • Retailers don’t need to take a big risk by placing large orders. they could place smaller pre-booked orders and order more when they saw how well the product sold TRADITIONAL SUPPLY CHAIN • Slow response to demand changes • Lack of collaboration with suppliers • Retailers had to estimate the orders (Fashion was subject to trends that were difficult to predict) • Risk of underestimating or overestimating the orders • No change to place orders within the season . factories is ‘anywhere’ Customizable product style High chance on collaborating the product Moveable marketplace Be able to fulfill both small and large retail Good Planning and Warehousing Be able to combine in-house and outsourced components .#1. What are Crocs core competencies? Highly Responsive and Adjustable Supply Chain Process         Fast on increasing productivity when demands increase Fast on delivering the product. Mexico Prod Italy Prod.Europe Compounding Compounding R&D (in Italy) Outsourced Florida Prod China Prod Bosnia Prod .ON-SHORE – OFFSHORE IN HOUSE – OUT SOURCE Onshore (geographically close to market) Offshore In-house Warehouses Canada Prod. #2. How do they exploit these competencies in the future? Further Vertical Integration into materials    Relatively low cost chemical material Available in Europe and USA Outsourced give more flexibility and advantage Compounding Outsource In‐house Molding & Assembling Warehousing & Distributors . #3. It does NOT fit the company’s core competencies . To what degree do this alternative fit the company’s core competencies and to what degree do they defocus the company away from its core competencies? This would require Crocs to get into the chemical industry which could be time consuming and costly!    Materials used are low cost chemicals Can be produced by any company Little advantage of taking this in-house No. Total $ 9. mature companies would substantially defocus Crocs.#2. However Acquisition of large. Does if fit to core competencies? Does it defocus away its core competencies? Yes.5 Million (Dec’06) $ 1.75 Million (Jan’07) . How do they exploit these competencies in the future? (continued) Growth by Acquisition Acquire medium size companies which support the diversification of the product for sustainable purpose #3. it does fit to the company core competencies.6 Million (Oct’06) $ 13. boating.#2. etc. gardening. fashion. Take advantage of the company’s flexible supply chain   Utilize large amount of existing retail shelf space     Look at markets where customer demand is volatile Shelf space is a valuable commodity – can add more products Light weight – higher product density per sq. How do they exploit these competencies in the future? (continued) Growth by Product Extension   Strong relationship with its retailers  Obtain information on potential new products  Developing new product. medical. Does if fit to core competencies? Does it defocus away its core competencies? Yes. foot of floor space Customers could serve themselves – better display of all sizes Other product extensions such whih can help the brand image #3. It does fit the company’s core competencies . Proposed Plan 1. Reduce holding cost . 3. Crocs have a low inventory turnover rate. utilities. it may point to overstocking. Low Inventory.less money on rent. theft and other costs of maintaining a stock of good to be sold 2.# 4. Increases net income and profitability 3. insurance. How should Crocs plan its production and inventory? Compared to the competitor. Keep the molding capacity higher than production target such as > 1 million/month capacity 4. Crocs various the product. allow company to: 1. More quickly increase responsiveness to changes in customer requirements . Continuing each geographic region to response local customer 2. It means Crocs has a strong foundation to expand. This will allow company to run under low inventory level and invest to the other region in the world. How do the company’s gross margins affect this decision? Compared to the competitor. Crocs has the best profitability ratio rate 56. .#4.5%.  Acquisition.SUMMARY Crocs Supply Chain Model is a good example of  How a supply chain strategy of a company  can influence all the other aspects of the  company such as Marketing. This is because the Supply Chain was efficient and was able to exploit the core  competencies of Crocs. . etc. THANK YOU any question? . THANK YOU any question? . 4%) – exhibit 3  Expected Revenue $ 670 millions – $ 680 millions  Industry Comparisons. Timberland  (exhibit 4) • Highest Gross Profit Margin 56. Lyndon Hanson. Scott Seamans & George Boedecker – Found Canadian Foam Clog Shoes.   In 2003 CROCS sold its first shoes  In 2007:  Revenues $ 142 millions (Q1) – 3 times 2006 (Q1) • Gross Profit (% of Sales 59.5% • Lowest Inventory Turn Over • Extremely Highest Growth . Nike.CROCS – Rapid Growth  In 2002. Decker Outdoor.   China and Mexico • Consistency in molding machinery to facilitate  interchangeability .QUALITY MANAGEMENT & CONTROL WITH HIGH GROWTH • Purchase of Foam Designs to have sole control over  Croslite resin • Started company‐owned manufactures in Mexico  and Italy • Arrangement with Bosnian company • Integration of in‐house compounding in Canada. GLOBAL CONSIDERATIONS • Off‐shored equipment to rapidly meet  demand • Online inventory module and planning system  to meet requirement for each market • Reduced paying higher tariffs by shifting  production to countries who can export the  product duty free. . PERFORMANCE ANALYSES & MEASUREMENT SYSTEMS . CUSTOMER EXPECTATION .