Crocs case
MIS 3537 Internet & Supply Chains
Spring 2014
Due Date: Jan 30, 2014
Refer to the case “Crocs: Revolutionizing an Industry’s Supply Chain Model for Competitive Advantage” from the Harvard Business Publishing website
Answer the following questions briefly:
1. What are Croc’s core competencies?
2. How should they exploit these competencies in the future? Consider the following alternatives and comment how each alternative matches / does not match with Crocs core competencies.
- Further vertical acquisition into materials
- Growth by acquisitions
- Growth by product expansion
3. What are the drawbacks of having too little or too much inventory?
4. Is Crocs a high margin or a low margin company (compared to competitors)? How does a company’s margin impact its inventory decisions? In other words, should a high margin company carry more or less inventory?
One group will present this case in the class, and another group will post the correct answers to these case questions on the blog after the class discussion. Rest of the groups are required to submit a printout of their answers to the instructor at the beginning of the class. Also, be prepared to discuss the case in the class.
Here are some tips for writing the case answers:
1. Answers should be brief and to the point (10 lines max)
2. Answers should be substantiated by proper reasoning from the case or other sources.
3. Avoid general statements such as “make customers happy”, “increase profits” etc without proper explanations
1. What are Croc’s core competencies?
Croc’s core competencies are that it has a dynamic supply chain, a flexible product line, and the patent to the Croslite material. Crocs differentiates by applying supply chain practices from the electronics industry. Its supply chain enables it to fulfill new orders quickly within the selling season, allowing it to promptly respond to demand shocks. With the previous industry model, buyers experienced a long lead-time. Stores ordered in the beginning of the year got deliveries in the spring and fall. Croc’s supply chain had customized boxes configurable to just 24 boxes, which allowed it to cater to small stores. Finally, Croc’s supply chain structured its market to capitalize on minimizing tariffs and better serving regional markets. Since Crocs owns the patent for Croslite material, it is the only company that can market the odor resistant, extremely light, non-skidding and non-surface marking product, allowing it to have a competitive advantage because of this core competency.
2. How should they exploit these competencies in the future? Consider the following alternatives and comment how each alternative matches / does not match with Crocs core competencies.
Further vertical acquisition into materials:
· The material in Croc’s supply chain is plastic. It is unnecessary and may be inefficient to backwards integrate suppliers because plastic is a near commodity good. Thus, Crocs has leveraged buyer power and the vendors do not have any bargaining power because multiple vendors sell plastic which has no differentiation.
Growth by acquisitions:
· Acquisitions fit Crocs core competencies only if it can apply its supply chain model to the acquired companies. For example, if Crocs acquires a company that produces complementary good such as Jibbitz, it will maximize synergies between the two companies. However, if Crocs acquires a company, which its core competencies of a dynamic supply chain or unique patented materials cannot be applied to, the rapid growth it experienced will be unsustainable.
Growth by product expansion:
· Product expansion will match Crocs core competency competency if Crocs can take advantage of economies of scope. Crocs has gained a competitive advantage by differentiating with the use of Croslite. If it can produce additional products that capitalize on the unique material (knee pads, tote bags…etc), growth by product expansion will match Crocs core competencies. However, if Crocs introduces new products that do not use Croslite it cannot capitalize on its superior supply chain model or the ability to gain a competitive advantage because of the use of this material.
3. What are the drawbacks of having too little or too much inventory?
The drawback of having too little inventory is stockouts, which are missed opportunities for sales. Which ultimately dilutes brand value because customers turn to competitors to serve their needs. The drawback of having too much inventory is the additional cost it adds to inventory control. The excess inventory has to be stored, transported, and may have to be discounted/marked-down in order to liquidate.
4. Is Crocs a high margin or a low margin company (compared to competitors)? How does a company’s margin impact its inventory decisions? In other words, should a high margin company carry more or less inventory?
Compared to industry leaders, Crocs is a high margin company. Thus, it should have a strategy of carrying excess inventory to reduce the risk of stockouts. Since the gross margins are relatively large, it is more expensive for Crocs to miss out on a sale due to stockouts than to carry additional inventory.
(Group: Shichao(Charles) Yan, Brooke Grierson, Tara Hoffman, Scott Keating, Anik Saha)
1. What are Crocs core competencies?
Crocs has many core competencies from its product to its logistics. Its shoes are unique from its competitors. They are made of croslite, which is a comfortable material that form fits to your foot. Its unique supply chain, which was taken from its electronics contract manufacturing background, allows them to focus on customer needs while retaining a strong relationship with its retailers. Retailers wouldn’t have to take a risk of ordering large orders in the beginning of the year but rather could place smaller pre-orders and continue to order if they would run out of stock. Since retailers wouldn’t have to worry about overstocking, the relationship between them and Crocs were positive which led to additional benefits.
2. How should they exploit these competencies in the future? Consider the following alternatives and comment how each alternative matches / does not match with Crocs core competencies.
Further vertical acquisition into materials
Crocs currently purchases its raw materials from other companies and are sent to a third-party company in Italy to compound the materials into croslite. Crocs could compound the materials themselves instead of going to a third-
party, which would eliminate an additional step.
Growth by acquisitions
Just as Crocs had done with Foam Creations, they could acquire the Italian company that does the compounding of its raw materials and build more compounding sites closer to its factories where the shoes are molded and assembled.
Growth by product expansion
If Crocs were to expand its products through a new selection of shoes, these shoes should continue to follow the brand’s unique design and features. This is what differentiates the brand from competitors and what consumers are expecting from the company.
3. What are the drawbacks of having too little or too much inventory?
There are financial consequences for having both too little and too much inventory. Since the amount of inventory caps the maximum amount of sales, Crocs’ underproduction of products will limit the revenue. In contrast, having too much inventory will be increase the expenses. Unsold inventory will occupy space longer than anticipated, which means higher than expected stockage expenses. In order the unload the excess inventory, the units must be sold at a discounted rate, undercutting the anticipated sales of the units.
4. Is Crocs a high margin or a low margin company (compared to competitors)? How does a company’s margin impact its inventory decisions? In other words, should a high margin company carry more or less inventory?
Crocs currently has a net profit margin of 18.2%, significantly higher than its competitors and the industry average. Crocs is able to sell its products for a lot more than it costs to produce and sell, making it a high margin company. Like other high margin companies, Crocs is able to keep an excess amount of inventory on hold without the risk of a loss if sales were to decrease. Because of this, high margin companies should carry more inventory.
Group: Janella Datu, Jim Davanzo, Joe Edgar, Michael Nguyen