Question

If the products sell extremely well, we will build more in season, and will be back on the shelves in a few weeks. And we'll build even more, and even more, and even more, in that same season. We're not going to wait with a hot new product until next year, when hopefully the same trend is alive. —Ronald Snyder, CEO of Crocs, Inc.1 On May 3, 2007, Crocs, Inc. released its results for the first quarter of the year. The footwear company, which had sold its first shoes in 2003, reported revenues of $142 million for the quarter, more than three times its sales for the first quarter of 2006. Net income, at $0.61 per share was more than 17 percent of sales, nearly four times higher than the previous year.2 These results far exceeded market expectations, which had been for earnings of $0.49 per share on $114 million of revenue.3 As part of the earnings release, the company announced a two-for-one stock split. Immediately after the announcement, the stock price jumped 15 percent. The growth and profitability of Crocs, which made funky, brightly colored shoes using an extremely comfortable plastic material, had been astounding. Much of this growth had been made possible by a highly flexible supply chain which enabled the company to build additional product to fulfill new orders quickly within the selling season, allowing it to respond to unexpectedly high demand—a capability that was previously unheard of in the footwear industry. This ability to fulfill the needs of retailers also made the company a very popular supplier to shoe sellers. This success also raised questions about how the company should grow in the future. Should it vertically integrate or grow through product line extension? Should it grow organically or through acquisition? Would potential growth paths exploit Crocs' core competencies or defocus them? CROCS, INC. In 2002, three friends from Boulder, Colorado went sailing in the Caribbean. One brought a pair of foam clog shoes that he had bought from a company in Canada. The clogs were made from a special material that did not slip on wet boat decks, was easy to wash, prevented odor, and was extremely comfortable. The three, Lyndon “Duke” Hanson, Scott Seamans, and George Boedecker, decided to start a business selling these Canadian shoes to sailing enthusiasts out of a leased warehouse in Florida, as Hanson said, “so we could work when we went on sailing trips there.”4 The founders wanted to name the shoes something that captured the amphibious nature of the product. Since “Alligator” had already been taken, they chose to name the shoes “Crocs.” The shoes were an immediate success, and word of mouth expanded the customer base to a wide range of people who spent much of their days standing, such as doctors and gardeners. In October 2003, as the business began to grow, they contacted Ronald Snyder, a college friend, to become a consultant for the company. Snyder had been an executive with Flextronics, a leading electronics contract manufacturer, heading up the company's design division. He had extensive experience in manufacturing operations, mergers and acquisitions, and sales and marketing. When he first started consulting with Crocs, Snyder said, “I thought I would work a few hours a day. I thought it would be restful.”5 But seeing the rapid growth of the company based on word-of-mouth marketing, Snyder joined Crocs in June 2004 as its president, becoming CEO in January 2005. When Snyder joined the company it was headquartered in Colorado, but essentially distributing shoes made by the Canadian manufacturer Finproject NA. One of Snyder's first moves was to purchase Page 493 Finproject, which was renamed “Foam Designs.” Crocs now owned the formula for the proprietary resin “croslite™” that gave the shoes their unique properties of extreme comfort and odor resistance. The company now also controlled manufacturing. Snyder encouraged the company to think big. He brought in a number of key executives from Flextronics, and built infrastructure in preparation for growth. (See Exhibit 1 for Crocs executives and directors.) He also launched the product worldwide. Snyder explained the rationale behind launching worldwide at an early point in the company's life:

Questios.

1. What are Croc’s core competencies? Explain why you believe the attribute is a core competency, and also the advantages each competency provides to Crocs.
2. How do they exploit these competencies in the future? Consider the following alternatives:
   1. Further vertical integration into materials.
   2. Growth by acquisition.
   c.Growth by product extension.
3. To what degree do the alternatives in Question 2 fit the company’s core competencies and to what degree do they defocus the company away from its core competencies? ( A)Further vertical integration into materials. (B)Growth by acquisition. (c) Growth by product extension

4. How should Crocs plan its production and inventory? How do the company’s gross margins affect this decision?

Answer 1

Croc’s core competencies:

A vertically coordinated Supply Chain

• Highly adaptable supply chain takes into account satisfaction in-season and permits Crocs to be increasingly receptive to vacillations sought after.

• Crostlite material was novel and imperative to Crocs in light of the fact that it gave the organization an upper hand. The material was light-weight, form capable, agreeable, and simple to clean. Crocs had the option to take into account neglected market need utilizing this material.

• Relatively modest item on the grounds that the shoes were made in-house and created at a lower cost.

• Word of mouth publicizing and promoting effort made a buzz in the commercial center

• Focus on specialty stores; agents were sent to strength stores (sailing, outdoor supplies) and exchange shows to exhibit the utilization of the item and answer questions.

• Positive associations with retailers

Supply Chain Competencies:

• Respond rapidly to changes sought after, particularly for design trends
• Abundance limit at generation offices to have the option to build creation when Helps catch the deal
• Not separating creation for various product offerings in a single office
• Can redirect creation to an area, for example, Mexico to diminish lead times, levies related with transportation items from nations like China, or transportation costs
• The utilization of molds
• Ready to catch request and minimize expenses by making items that were nearer to the market
• Capacity to secure a littler, specialty organization and disseminate those items universally utilizing Croc's acceptable worldwide supply chain

a. Further vertical integration into materials

• Vertical Integration permits Crocs to gain or possess conveyance channels, infusion machine, and crude materials.
• This matches their capabilities.

b. Growth by acquisition

• Doesn't coordinate - altogether different societies may cause difficulties.
• Matches in some sense in light of the fact that Crocs can obtain an organization that takes into account specialty showcase.

c. .Growth by product extension

• Croc's have the chance to utilize the shoes to showcase new items
• New items may improve brand perceivability

Crocs is a high edge organization and faces rivalry like Nike, Adidas, and Reebok. More inventory - accessible more available to be purchased, more interest in more spot. Less inventory - less to oversee. It's advantageous if testing another market. Less inventory implies that your supply chain is adaptable and can satisfy need.