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TIDES Crocs Case Study

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by

Chloe Anderson

on 9 November 2012

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Transcript of TIDES Crocs Case Study

CROCS On a boat in 2002... Original Supply Chain of Footwear Co.'s Crocs Supply Chain Three friends, Lyndon "Duke" Hanson, Scott Seamans, and George Boedecker, decided to start selling a new design of a Canadian company's shoes after one of the friends brought a pair along on a sailing trip. The design was made of a material that did not slip on boat decks, was easy to wash, prevented odor, and proved extremely comfortable. Wanting to capture the amphibious nature of the shoe, the founders decided on "Crocs." Six years later, they reported revenues of $142 million for the first quarter of 2007... Companies prepared for upcoming fall season by taking products to shows around world in Jan.
Buyers book orders for fall delivery after
Orders dictate production plan

Limitations:
Forced retailers to estimate customer demand
Underestimation would create shortage and overestimation would force clearance sales
More difficult to predict trends in fashion industry Focused around the customers need
Depending on popularity of product, allows company to quickly respond to changes in demand
Mitigated limitations of original model Developing Supply Chain Phase One: Taking Over Production Bought manufacturer of original shoes (Foam Creations), allowed control over manufacturing and croslite resin
Purchased raw material from European and US companies then shipped to compounding co. in Italy
Colored pellets shipped back to Foam Creations, where final assembly occurred
Finished products to warehouse in Denver to be distributed Phase Two: Global Production Using Contract Manufacturers Ron Snyder, President, CEO, Director With Crocs since 2004.
Prior: Senior Exec with Flextronics John McCarvel, SVP, Global Operations With Crocs since 2005.
Prior: Exec with Flextronics Peter Case, SVP, Finance, CFO, Treasurer With Crocs since 2006.
Prior: EVP, CFO and treasurer of sports apparel/accessories co. Michael Margolis, VP, Sales and Marketing With Crocs since 2005.
Prior: Founder and exec with apparel and merchandising co. Started production in China early 2005, using large contract manufacturer, now sending compounded pellets to both Canada and China
Added more manufacturers in Florida and Mexico
Expected similar outcomes as in electronics business Problems With 3rd-Party Manufacturing: Footwear industry not nearly as responsive to customer demands
Manufacturers expected order details months in advance
Did not fit Crocs model
Only Asia flexible and high volume enough Phase Three: Bringing Global Supply Chain In-House: Developed company-owned manufacturing operations in Mexico and Italy
Agreed to contract with Bosnian company where Crocs owned molds and all equipment but used contract company's personnel
Created compounding facilities in Canada, China, and Mexico to mitigate the supply chain inefficiencies of only compounding in Italy Inefficient shipping, reduced manufacturing flexibility Phase Three: Continued... Could process each order in general area of where it was placed
Similar problems arose with contract warehousing so took complete control, added warehousing operations to each factory Retailers Small: More willing to take risks with new company than large chain
Helped that Crocs provided high level of support and rapid shipment
Recognized importance of small retailers for building brand
Account for much larger percentage of orders, just at smaller dollar levels
Product shipped to warehouse in Colorado to store product because most retailers had no warehousing capabilities
Then direct to shops VS. Large: Great initial success placed Crocs in a much stronger negotiating position
By mid-2007, 75% of revenue from large retailers
Larger retailers had own distribution centers, sent orders electronically
Orders were packed and shipped from factories to retailers distribution center, then shipped by retailer to stores Marketing: Used creative merchandising
Mainly word-of-mouth marketing to build buzz
Very low marketing costs
Pick up in popularity when celebrities seen wearing
A fair amount of people hate them Culture: Prior to McCarvel becoming CEO in 2010, not much emphasis on company culture
Spoke of "soulful culture" and their belief of giving back, donating $3Mil+ pairs of Crocs around the world
Colorado lifestyle attracts young, vibrant workers The Ugliest Fad In Footwear Design: Holes increase air flow Croslite is odor
and bacteria
resistant Material cushiony for long-wearing comfort Heel straps to hold feet in or fold in front for easy slip-on Small nubs on the
inside help
prevent slipping
and increase blood
circulation Soles are slip-resistant and non- marking Process: Raw materials purchased in pellet form
Converted into slurry, mixed with whatever color dye and then reformed into new pellets
Shoe formed by injection molding
Then assembled, although original model only required attachment of heel strap
Finished products tagged and put in boxes of 24 Further Vertical Integration: Crocs supply chain is almost completely vertically integrated already
After minimal success with third-party manufacturer and warehousing contracts, brought most of global supply chain in-house
Have control of all compounding in Canada, China, and Mexico, and all warehousing
Unsure about new products but to maintain current level of vertical integration will have to control almost every facet of new products Exploiting Competencies: Growth By Acquisition: In 2006 and early 2007 acquisitions in sports protection equipment and apparel market, and action footwear
Jibbitz
All products compatible with model and strategy Growth By Product Extension: Crocs has extended their product line past the original clog model and even past shoes altogether
Now 350+ different models of shoes for men, women, boys and girls
Crocs Rx, college-themed, Disney contract, Mario Batali
Also utilized popularity of brand to extend line past footwear
More product extension unneeded because of adverse results of previous product extension Effects of Product Extension and Acquisition: Introduced more complicated therefore costly designs
Instead of just croslite material, products now include leather, fleece, corduroy
Defocused company away from core competencies and strategy of simplicity, low cost structure, and focused growth Five Forces Analysis: Buyers: Good relationship with buyers, Crocs possessed more power because product so unique
Explosion of popularity helped increase Crocs power within relationship Suppliers: Level of vertical integration decreases numbers of suppliers to only producer of pellets
Pellet prices low therefore must be weak within relationship with Crocs Substitutes: Not many due to uniqueness of product
Maybe "Skele-toes" by Fila or Vibram's "Fivefinger" shoes
This shoe model similar in being light-weight, slightly ugly, and comfortable
Gaining similar explosion in popularity that Crocs saw
"Skeletoes" and "fivefinger" shoes allow you to do more, fit more securely New Entrants: New entrants will constantly threaten company's because something is always in the progress of being made
Better looking style of shoe will help guard against them
Very specific market to go into so probably not many Rivalry: Not much rivalry because any company who tries to make a shoe similar to Crocs will be imitating them
Will most likely be same shoe with a different brand name Supply Chain
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