Crocs: Revolutionizing an Industry’s Supply Chain Model

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During this course we have studied the matter of Operations, which analyzes the supply chain management, the principal operations in the process of the quality, supply chain, strategy model and the case of study for this semester was Crocs: Revolutionizing an Industry’s Supply Chain Model for Competitive Advantage. We prepared this project among three out of four participants in Group C and distribute the activities to elaborate the final project in the following way: Katia Tobias is the organizer, compiler and editor; Abraham Robles Romero and Jose Cuevas Gonzalez are the researchers.

In this project, we will demonstrate the information obtained after having analyzed the Case of Crocs Revolutionizing an Industry Supply Chain Model for Competitive Advantage, such as its new product development and quality deployment, the process flow analysis and process redesign, the application of lean principles and its management of product and service quality. Also how its supply chain model has changed towards a competitive advantage, and Crocs forecasting and capacity planning, as well as our recommendations for Crocs operations,Crocs’ Operation Strategy ModelWithin time, Crocs developed an operations strategy model in order to have their own manufacturing plants, due to the company’s successful unique products. Unlike other shoe companies, they are the ones who produce and distribute their footwear to countries where the product has a high demand.

By having its own manufacturer, it allows them not to have contracts with other companies, that would affect them within time, and it also helps to maintain a low-cost structure through the use of inexpensive materials and efficient processes with a lower cost of production, while creating value on costumes with their unique, fun, colorful, comfortable and casual shoes.In their operations strategy model, we would also like to acknowledge the fact that their priority is the diversification of their shoes, which has let them have different market segments, that goes from kids to professionals like nurses, chefs and many others that find themselves identified with the product. Having done this, it increased their sales tremendously leaving the company with more gains.

Having this model of operation allows Crocs to create their own style of footwear, they are not forced to use the material or color that the manufacturer has available. On the contrary, they innovate and produce unique shoes for demanding clients; they have also let costumes decide what styles they want to buy so that they could also order online, by doing this, it allows the company to have a stock full but also to be prepared for unexpected demands.

New Product Development and Quality Function Deployment

The new product development of Crocs has a principal goal in their product design and development, which is to create and introduce new and innovative footwear products that combine standards of comfort, functionality, and style, and enhance the awareness of the Crocs brand. Crocs’ associates pursue to be the global leader in active casual footwear products. Their footwear product line is created by a combination of internal design and development staff supported by outside designers.In order to expand Crocs’ internal design capabilities, they acquired EXO in 2006, an Italian company that has been involved in the design of several of your new styles. They are committed to continue to dedicate significant resources to produce quality product design and development to sustain commitment to innovation, maintain or grow current level of revenue and drive a global brand.Crocs’ new product development could be defined as an agile Supply chain process, due to the fact that it quickly meets a growing demand in a certain market during the season. Furthermore, Crocs had the policy to increase capacity and equipment during the season above actual production needs in order to meet changing market demands at short notice.Also, the vertical integration was a perfect strategy to achieve cost leadership and differentiation, and at the same time gain a high degree of control over their entire value chain. There more, this enabled the creation of different market segments and foray into more traditional materials in footwear, which increased their competitiveness in the industry.

Analysis of Crocs in the North American, European, Asian, and South American markets and product-process strategies. The global strategy for logistics with various manufacturing facilities around the world catering certain markets, but with a centralized inventory in Italy who compounded the raw material and sent the semi-finished goods to Canada, for molding and assembly which sent the finished goods to the contract warehousing in Denver which shipped the goods to the customers.At this time, Crocs worked with contract manufacturers in China and added more contract manufacturers in Florida, Mexico, Romania and Italy because Snyder believed the contract manufacturing model would not only work in electronics but also in footwear.In addition, except in China, Florida and partly Bosnia Crocs brought the global supply chain in-house by developing company-owned manufacturing operations in Italy, Mexico and Brazil, which added capacity in each geographic region and enabled Crocs to apply its fast, responsive, customer-focused business model around the world.

And they created in 2006 state-of-the art compounding facilities in Canada, China and Mexico, which reduced inefficiencies in shipping and opened again flexibility to ship raw materials to each plant according to demand.According to Timothy, G. (2013) One strange thing about the Crocs’ recent earnings report was that the European market was the strongest for Crocs in terms of growth. Europe’s economies aren’t exactly booming, so this may mean that consumers across the pond are showing a preference for the Crocs brand. The exact opposite seems to be happening in the Americas and Japanese markets. Wholesale revenue fell by 20% in the Americas and 29.3% in Japan year-over-year, with Asia-Pacific is growing by 2.3% and Europe is growing by 20.9%. The fact that Europe was strong while the Americas were weak leads me to believe that execution is the real problem, not the economy.

Process flow analysis and process redesign. Crocs’ actual product flow process relays on their short inventory, they do not build inventory in excess, which allows them to keep investing in their global distribution infrastructure. On their high growth business model, they calculate their required inventory levels on a forward-looking turn basis. As they work on their product flow process, Crocs believes that it represents a more accurate quantitative analysis of proper inventory levels, which properly gives them a perfect position to meet the anticipated demand of the market.As we analyzed the product flow process, we find more pros than cons in the company. Its strengths are reflected by maintaining a low cost structure through use of inexpensive material and efficient, low cost production because of their own manufacturers. Despite their positive results in the market, they had a wide range of complicated styles and designs.We identified only one limitation in their current flow process, which is the engineering. Because the marketing is the principal objective in the process, but we remember that Crocs has the policy to produce the product for the two seasons and use the marketing in order to show the shoes, and general products for the customer.

Application of Lean Principles. According to Schroeder, R., Goldstein, S., and Rungusanatham, M., (2013) “The lean thinking and lean systems have been applied in a wide variety of industries and settings. It hasbeen clear that the lean principles are being used nowadays to improve operation processes in manufacturing services.”Crocs’ has applied the five lean principles and we have described them according to their actions taken in the market.

Principle 1. – Customer value: This principle applies not only to the physical product. It also applies to service, logistics, information etc., the principle of ”customer value” permeates a Lean organization. A value client of Crocs would get shoes at any season and product could also be order online, in the manner that the costumer feels more comfortable with.

Principle 2. – Define the value stream: When the value has been defined, the value stream that creates the value must be identified and optimized, the value stream is mapped and optimized step by step, the target is to minimize waste. Only the raw material is produced in a plant of corporate, assuring that the quality of our products. Crocs shoes are made using an injection molding process, which helps avoid waste and is environmentally responsible process.

Principle 3. – Create flow: The most powerful tool to minimize waste in the value stream is flow; the value for the customer should be created in a flow of activities and processes. Crocs’ creates flow with its short inventory.

Principle 4. – Create pull: Among other things, the target with flow is to minimize the through put time of a value stream, so that most activities and processes are based on firm customer orders and not forecasting. Is about carrying out as many steps as possible in the value stream based on customer demand. Crocs decided to develop a model focused on the customer, this means that when the customer requires more product, the company is going to provide it, no matter the season or quantity.

Principle 5. – Continuous improvement: Create a culture of continuous improvement. It is more about culture and attitudes than management Lean-tools. The organization should continuously strive to become better. Every day Crocs is always forefront with their designs according to fashion trends and seasons

Management of product and service quality.

Crocs’ has been through a significant change from 2003 to nowadays regarding its operations. Their product planning was very different from the traditional shoe companies. Crocs assured quality planning by basing the product on pre books for each model, as well as receiving information from all the retailers around the world. And due to their well established market in Mexico, Canada and Europe, they could play around with their products and if it did not work in a country, they would try in a different season in other stores, that was one of the advantages of having quality planning towards their product. Also, Crocs analyzed the expected sale of each model of shoe, but they actually built the product after it could see the demand hit to avoid unsold inventory. By not building inventory in excess, the organization instead acquire excess capacity in the form of molds and molding machines so that it could quickly respond in case a product took off

Supply chain and supply chain management. Crocs decided to integrate to its supply chain model ideas such as: moving equipment from one location to another to better meet its productions needs, also, molds were transferred more often than molding machines and they decided to keep capacity at one million pairs per month beyond the actual production plan. What also helped a lot to reduce costs was to plan their infrastructure, their systems and people, ahead of demands to have a quicker and better response to the market’s demand; Crocs also change the production locations to avoid high tariffs and launched an inventory module to globally monitor their inventory.Over the years, Crocs have developed a flexible supply chain model with a focus on customer needs, the founders of Crocs first purchased the external manufacturing company that was in charge of production.

This ensured that Crocs owned the trademarked croslite resin manufacturing facility; this also gave Crocs the ability to alter volume produces based on customer needs. Crocs use of contract manufacturers was a key component of its flexible supply chain. Contract manufacturers were very sensitive to customer demand and could start or stop production based on customer needs. Having these manufacturers in their supply chain helped Crocs’ bring in flexibility in the volume of products being manufactured.Lastly, Crocs changed its warehousing model to increase supply chain flexibility. Crocs original supply chain model had one distributor. All products from different manufacturing units were collected and processed in one facility in Colorado. To make this process more efficient, Crocs added warehouses to each manufacturing facility. Products were shipped to retailers directly from these warehouses and were depended on the warehouse’s distance from these manufacturing units. This cut the time involved in shipping and delivering products to retailers and other customers.Forecasting and capacity planning. Crocs’ is a company that has always pursued the demand from the start and there has been a need for the ability to react quickly to changing market demands. In order for Crocs to anticipate and plan their capacity to react to the market demand, they had to improve its supply chain by making it very effective;

In fact it took a few years to forecast customer’s demand and keep up regularly with the growing market.To quickly find a growing demand in a market during the season, Crocs had the ability to move equipment and sometimes production machinery to its various manufacturing operations, usually the position closest to that market production capture and perform better local customer needs (ex. Mexico for Western US market, China for Asia). This was also thanks to Crocs provider, whom managed to reduce the lead-time of three months to six weeks. Besides providing agile capacity, having different operations of manufacturing created remote cost savings rate as products of high tariffs (the use of special materials such as leather) were produced in low – or countries without rate (ex. Mexico, Canada). Furthermore, Crocs Had the policy to increase capacity and equipment during the current season above production needs in order to meet changing market demands at short notice.Production Scheduling and Management.

Crocs strategy is to maintain a global diversification and flexible manufacturing base and low cost. Croc has several production facilities in several parts of the world and also offers third party manufacturers located throughout the world. Crocs has capabilities in its own production facilities can quickly make changes in production, which gives them the flexibility to respond quickly to requests for high-demand models and colors throughout the year, while hiring external allows us to leverage the efficiencies and cost benefits of using contract manufacturing. This allows lessen production costs and production times and increase and production processes are diminished.All manufacturers and suppliers of products Crocs must meet high standards of quality, which Crocs considered very important. To decide on the amount of products manufactured for each model, Crocs had to analyze the expected sales model. Crocs’ actually maintains total manufacturing capacity by about 1 million pairs a month beyond the actual production plan.

In addition, Crocs produce using the model quality canvas, which makes it more effective, reducing processes and times in the activities of production and improving quality.Analysis and Recommendation(s) for Improvements in Crocs’ OperationsHaving analyzed this case, we affirm that Crocs went from a red ocean, which Kim, C. and Mauborgne, R have defined as “All the industries in existence today” and “The known market space, where industry boundaries are defined and companies try to outperform their rivals to grab a greater share of the existing market.” and jumped into a blue ocean, term defined by Kim, C. and Mauborgne, R. as “All the industries not in existence today” or “The unknown market space, unexplored and untainted by competition.”As a recommendation we should implement Kaizen model for better integration of the supply chain to the current Crocs.

Crocs strategy has led to inefficient production and excess inventory due to inaccurate forecasts of customer demand. The company should have a close eye on the direct product line strategy and should be cautious in the selection of suppliers of raw materials. This is necessary to maintain their competitive advantage. They must choose production centers in which they can reduce the costs of production and continue maintaining that advantage. In doing so storage and raw material costs and inventory problems are resolved, this is transferred to the manufacturer.The implementation of Kaizen and Kanban models chain supplements would create a constantly changing and improving continuously in the process of the supply chain. Also, Crocs should try to get a combined vertical and horizontal integration, terms that Stuckey and White (1993) defined as “A strategy that many companies use to gain control over their industry’s value chain.”; vertically integrated critical and strategic processes and horizontally integrated non-critical and bottlenecks processes.ConclusionWe believe that Crocs revolutionized the process to innovate product when the company only started out with one product. Crocs’ development has been an excellent process in the supply chain and it even helped to reduce cost; also, Croc’s products were introduced in different markets in America, Europe and Asia.

Despite their success, in these days the organization have faced problems with finances and their strategy to stay in all the world with their numerous different types of shoes.

Crocs is a clear example of a company that created a hugely successful new business by redefining traditional red ocean footwear industry boundaries to create an attractive blue ocean that no one discovered before.


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