Crocs and Zappos Supply Chain Management
Crocs' first core competency is its extremely flexible supply chain that is quickly able to respond to variations in demand thus, preventing a significant amount of lost sales. In contrast with other players in the footwear industry, Crocs owns manufacturing facilities which enables to it vary production in line with the demand. This also has the added benefit of improving Crocs' reputation with the retailers who are more likely to order from Crocs due to a reliable partnership as compared to its competitors. The retailers even want to offer more space to Crocs' products. Moreover, Crocs doesn't have to mark down its shoes at the end of the season because of its efficiency in closely matching production to sales.
Crocs' second core competency is its proprietary resin "croslite" technology that gives the company's shoes their unique comfort as well as odor-resistance properties. The material of the shoes instead of their design and looks is responsible for the phenomenal success of Crocs.
Crocs already owns the proprietary resin "croslite" technology and it has also built state-of-the-art compounding facilities in Canada, China, and Mexico thus, reducing its reliance on the Italian company. Italian company has done a good job so far but building new compounding facilities has improved Crocs' supply chain network in terms of time and cost savings and has eliminated the risk of total collapse in case Italian company runs into unseen problem. Further vertical integration opportunity for Crocs lies in purchasing suppliers of raw materials such as pellets as well. Raw materials such as pellet are not expensive at the moment but as the company will continue to grow as well as increase demand for raw materials, the demand force may push the prices of raw materials upward as well. Purchasing suppliers of raw material will ensure that Crocs will have more control over production costs in the future. Crocs may own the croslite technology but that may not be enough to stop competitors from buying pellets and attempt to come up with alternative technologies through slight modification. By purchasing raw material providers, Crocs will ensure exclusive excess to the raw materials.
Crocs may also continue to grow through acquisitions as it has already done with Jibbitz, a Crocs shoes accessories supplier. The benefit of this approach is that the company will have a diversified brand portfolio and in addition, it will not have to develop new manufacturing technologies. Crocs specialty is shoes and focusing on products other than shoes may distract the management from core strengths. Thus, it may be better to acquire companies that already have proven business model and whose products (not necessarily shoes) complement Crocs strategy or product lines.
Crocs may also consider growth through product extensions. Crocs has built considerable brand goodwill among its customers which provides opportunities to introduce new product lines or expand existing product lines just like Nike and Adidas. Crocs has already been approached by at least one large retailer to introduce new products. This will diversify Crocs revenue stream and allow the company to introduce new products with minimum marketing efforts. This is because Crocs has already an established brand and the retailers will be willing to allocate generous shelf space to Crocs' products.
The company is focused on controlling as many aspects of its supply chain as possible because control and close management is the key to its industry leading supply chain model. Thus, acquiring raw material providers may be a sound strategy because it will further improve Crocs' control over supply chain. The problem with this alternative is that it may not make economical sense because raw materials are already cheap and it will use up funds that can be better spent somewhere else. The company is still in its early years thus, it should be careful with capital spending.
The benefit of acquisition is of course, buying established companies that are good fit with Crocs' strategy or product offerings. The drawback is that Crocs may be paying premium prices for acquisitions and could develop technologies or product lines cheaper by itself. There is also a possibility that Crocs' management fails to integrate the acquisitions with existing business as effectively as expected.
The third option of product extension will enable the company to leverage its brand into more products and create additional revenue and profit opportunities. The problem with such an approach is that it will shift the company's focus away from its core strength which is shoes. Crocs is still a young company and has room to further improve brand recognition. Introducing non-shoe related products too soon may confuse the brand image. In addition, Crocs' shoes have gained popularity due to the proprietary technology involved. If Crocs' other products fail to live up to Crocs' image of provider of unique and quality products, it will hurt the company's entire progress so far.
Crocs current production and inventory strategy is right on the mark and should be maintained. Because the company employs Just-in-Time manufacturing, it doesn't have excess inventory left at the end of the season. This allows the company not to mark down its excess inventory at the end of the season, an action that may hurt its profit margins. Crocs has the highest gross profit margin in the industry which is even more impressive when one takes into account the fact that Crocs' gross profit margins are more than twice the industry average. Even in 2011, Crocs continues to lead the footwear industry in terms of gross profit margin (YCharts). In addition, costs of raw materials are low so there will not be much economic gain from higher production level due to economies of scale. Even if there are cost reduction opportunities from economies of scale, Crocs will still be required to sell all of them. There is no indication that Crocs is unable to meet excess demand. One way of increasing demand will be to lower prices but that would affect Crocs profit margin. Thus, Crocs' current production and inventory strategy is sound and should be maintained.