Crocs Inc. was started in the entire year 2002 in the state of Colorado of USA. It really is one of the quickest growing companies on the globe, manufacturing footwear range for consumers of all age as Crocs (brand). Crocs, is sold over 100 countries across the world. Their particular product of sale is recognized as Croslite (manufactured from special plastic king). This is their trade secret, is known as to be original tech in the industry. This becomes its competitive advantage as time passes as it provided its consumers with high comfort, light weight and bright in colors and modern design, most importantly was odor free. Main reason behind the company's success in its short stint of ten years and high increase in popularity is because of its efficient supply chain.
This paper is gets the critical analysis of the footwear industry generally speaking and the supply chain of Crocs Inc.
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The idea of this assignment is to demonstrate some of the concepts and theories thought in class while applying them in the business's current scenario. The argument has been made out of opposition to vertical integration of the business to accomplish its competitive advantage by bettering on its success and shoot for its (Crocs Inc. ) sustainable growth and development in the a long time.
This paper will show the constraints and the shortfalls of the existing supply chain of the business. The case has been studied by reviewing the business on par with the industry using Porter's Five Forces model. The organizations suffering consequently of Forrester effect is proven, also the 3PL is used to examine and analyze the supply chain. Kaizen theory of the Japanese philosophy can be used for better management of supply chain.
Industry Analysis
Porter's Five Forces Analysis
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Entry Barriers: Entry for new players is rather easy due to need of low capital and easy governmental policies. Economies of scale to be performed are a little difficult due to too many players on the market. There is straightforward availability and accessibility to recycleables.
Supplier Power: Shoes are more or less created from the similar material with varying dissimilarities in the house of the raw to suit the product quality standards of each organization and the raw materials can be found abundantly and there are enough suppliers too to meet up with the demand.
Threat of Substitutes: Low cost of entry and changing technology is any day an imminent threat for substitutes, large players however would be able to overcome this with frequent improvement to current product portfolio.
Buyer Power: Customer is king, footwear industry today is similar to fashion industry because of the commodity growing to be more of an accessory than essential. This means ever changing needs of customer wants.
Rivalry: Most simple entry and exit methods means, immense competition, this however has never proven failing or threat to large players who are already established in the industry. With very sound supply chain and good rapport with their suppliers and distributors, they dominate the quickly changing market. Crocs Inc. is one such organization which includes laid strong foot hold.
The above factors gives us a definite picture that this not only large players who are key in the market, however even small players have admission and might turn out to be successful with few differences in their product if it's found to be of interest of the consumers.
With getting the industry standard before us, I've analyzed that the supreme popularity of the organization in discussion has years to move before it could hit the maturity stage of the product life cycle (PLC). The overall PLC of the industry shows in the below diagram that the industry takes some time to mature and decline.
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According to Christopher, M. (2005). Crocs Inc. uses global technique for logistics. He elaborates that Crocs. Inc. has different production facilities catering to varied markets, with centralized inventory they have a specific localization scheme, average (general) semi- finished goods level and small scale order directed by their suppliers and distributors from the neighborhood markets. This gives them the capacity to focus on sudden fluctuation on the market demand with little or no effect on their supply power.
Discussion
The reason for Croc to fail despite successful with their supply chain and their continuous improvement to they failed because that they had rapid crank up of raw material orders located under the assumption of meeting out excess market demand. However they did not recognize that customer demand on fashion goods don't go longer compared to regulars. To provide a much better understanding, I have added pictorial representation of the results Forrester (Bullwhip) Effect is.
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Outcome of Forrester Effect
What they failed to realize was that customer demand is rarely correctly stable and it becomes essential for each business to come up with accurate demand forecasts. As mentioned earlier on the market analysis, the "customer power" is very strong and it was necessary for Crocs to stretch its perception of customer demand so far as possible. Usually, companies resort to holding reserve stocks due to overcome forecasting errors but that's not the situation with Crocs. They believe in holding excess capacity and their ability to produce the mandatory stock as so when required. In my opinion they were not totally correct! Misperceptions of the stakeholders risk and time delays caused panic ordering by suppliers due to unfulfilled market demand. Forecasting errors and constantly changing inventory control strictures created variations in lead time and replenishment of stocks.
Adopting a 3PL system
3PL is most effective for large organizations like Crocs. Inc. as they have lot of these cashflow being blocked (this replicates dead assets). This might have a severe impact over time as it was centralized inventory and logistics channel they adapted to.
Free up resources: The organization had funds blocked. It proved highly uneconomical to them despite the high ROA of the company in 2007 at 34 % (Hoyt, D. and Silverman, A. , Exhibit 4, p. 18). Crocs had on the million pair of footwear excessively. Instead of investing such huge capital they can share the burden and risk as well by outsourcing.
Cost advantage: There is no concrete evidence for what made them loose their cost advantage over their competitors. In my own honest opinion this may have occurred by acquiring/ buying out factors in China and Mexico where outsourced parties were running the show. Assumption of making more profit margins would have led to inverse effect. They need to also have forgotten that new entrants to the market use more advanced and cheap equipment. Using obsolete machinery and dyes is of no economic benefit any more.
Core competencies: Crocs. Inc. 's greatest advantage was their immaculate supply chain model, however due insufficient regular development and early adoption of owned manufacturing made them go off-track from concentration on their core competence of supply chain. Using 3PL can help them stay focused. The organization will need to have spent the money and time on R&D and market analysis rather than wasting on owned- manufacturing.
Inventory management: Crocs. Inc. had the task inventory management. That they had a steady upsurge in their inventory level that was not matching their product cycle. At confirmed point their inventory were near 3 x there fixed assets (Hoyt, D. and Silverman, A. , Exhibit 2, p. 16). This is all despite their high profit percentage. Ultimately their inventory turnover ratio was way below industry average (Hoyt, D. and Silverman, A. , Exhibit 2, p. 16 and Exhibit 4, p. 18).
One more flaw in Crocs. Inc. supply chain model was that it was conservative to include more cream agility to the model changes were discarded which resulted in distortion of supply and demand phenomenon.
Recommendations
In my opinion application of Kaizen model to achieve better integration of supply chain in Crocs. Inc. The organization has to keep a detailed eye onto it direct strategy product line and should be mindful in selection of suppliers for recycleables. This is necessary to keep up its competitive advantage and cost escalation at check. To add to this management must keep moulds and compounding products under watch. 3PL Organizations should take over secondary supplies. This would be applicable for cost advantage only when low cost production hubs (countries) are chosen. Using this method warehousing and raw-material inventory costs and problems are solved, this is transferred to the maker.
Of course, this is only an illustration which is exactly what my seriously limited knowledge in shoe making could conjure in terms of the Kraljic matrix for Crocs. Notwithstanding this ignorance, it can be noted that the Leverage Items and the Strategic items are likely to affect Crocs Inc. more than the items on the bottom row. Consequently, it can be recommended that Crocs strives to attain vertical integration on the things on the top row and similarly, it could 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 will dsicover it more desirable to procure it with respect to the contract manufacturer rather than counting on the latter. Strategically, it should try and find suppliers for leverage items which are nearer to the manufacturing facilities otherwise, the transportation costs of recycleables might outweigh the great things about 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 stuff like colors and replacement parts should be given to 3PL organizations and so should the bottle neck items. Indicate be noted here is that because the actual production of the merchandise can be outsourced to countries with low labor costs, the labor is referred to 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 as a result of adopting the Kaizen and Kanban system in conjunction. This is not to say these could act as replacements or alternatives to the Kraljic model. Where in fact the Kraljic model shows us an approach to supply chain integration, Kaizen and Kanban (HBR on Supply Chain Management) provide us the methods to maintain and constantly improve the supply chain process. Kaizen (Imai, M. ) is based on five basic elements (Teamwork, self-discipline, high morale, quality and recommendations for improvement), and three key factors that will assist Crocs achieve reduced wastage and inefficiency, improved internal working environment and standardization across the whole organization. On the other hand, there is a need to establish a demand-driven supply chain capable of reacting to actual customer requirements, which can be met through the concept of Kanban. Taking into consideration the successful implementation of this model by Wal-Mart, Crocs can establish an EPOS system to regulate replenishment and delivery from the distribution centers to the stores and from the suppliers to the Crocs' distribution centers. This creates a more accurate and clear picture of customer demand and inventory management throughout the supply chain. This may create better inventory positioning at lower costs and an IT based infrastructure providing flexibility and higher value for the customers. These two methods supplies the right solution for Crocs to work at a supply chain system that is agile as well as lean, which is an improved balance than the existing system that is highly agile and less lean. GE had an identical process set up which was known as the Quick Response Program (Bartlett, C. A. and Wozny, M. ), and it helped GE decrease production cycle in two and reduce inventory costs by more than 20%. The financial implications for Crocs by implementing the recommended system are evident.
Furthermore, I could superimpose the Kaizen-Kanban incorporate on to the Karljic matrix and it might 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 may use the Kanban system to provide a more accurate and real-time information about replenishment schedules, which will enhance the efficiency of the production and inventory management processes.
Another important area where I feel Crocs Inc. can have faltered is their ability to tell apart their products as either, innovative or functional (Fisher, M. ) (Appendix E). According to Fisher, it is vital to match the supply chain with the sort of product that the company has. And based on this kind, the supply chain of the firm will be efficient or responsive. That is similar from 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 merchandise. 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 within that the final product of Crocs Inc. , their shoes, will be the innovative product, characterized by changing fashion trends, consumer demands, and new designs and therefore, Crocs should adopt a more responsive supply chain (can also be termed as Agile). Alternatively, the critical and strategic processes involving the procurement of its secret recycleables and moulds would be mentioned under functional products. As a result, Crocs should develop a better supply chain for the products.
In relating this to the changes required in Crocs' supply chain management it could be termed as the necessity for incremental change rather than undertaking transformational change. It really is, after all, a big change in the work culture of Crocs that is being suggested here and the aspect of change management cannot be overlooked at this time. If Ron Snyder is himself not convinced about this need for change he will not have the ability to implement the same through the organization. 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 limited to a brief 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 increase this, the Forrester effect explained above contributes to stock-outs, sub-optimal usage of resources, poor customer support and financial costs all along the supply chain. To stretch this a little further, the harm to the stakeholder image and loss of loyalty can result in greater losses for the business.
Of course, the company has continued to show increasing profit quarter after quarter but they have lost the faith of the stockholders on the market and with increasing competition, Crocs must alter its stance. The focus on core competencies, demand-driven supply chain and adding value to the end user is exactly 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 via a Hybrid supply chain process combining both agility and leanness. Although Crocs did eventually shift to the IT based inventory management and planning process, it might have performed far better had it implemented this earlier. Moreover, referring back again to Kotter, the change in corporate culture is also an area which Crocs could benefit from when you are more flexible and reactive to advertise trends and consumer/supplier requirements.
