Logistics and Supply Chain Management, 4th Edition

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

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Structural flexibility is increasingly a prerequisite for doing business in a volatile and

turbulent environment. What can happen when that flexibility is lacking is well illus-

trated by the example of the footwear fashion business Crocs (see box below).

2020 vision

In this age of uncertainty any attempt to develop a scenario of the future is fraught

with difficulties. Nevertheless because there are already some observable trends

and indicators it is possible to paint a picture of the challenges that lie ahead for

supply chain management and also to suggest some possible ways of meeting

those challenges.

‘Doing more with less’ will increasingly become the mantra of organisations that

seek to survive in a resource-constrained world. Eco-efficiency considerations as

we highlighted in Chapter 13 will drive many supply chain decisions, as companies

seek to reduce both their use of scarce resources and their costs. These pressures

will accelerate the move away from the classic large-scale, centralised manu-

facturing and distribution structures that tended to characterise the supply chain

architecture of the past. Instead the focus will switch to what might be termed

‘small footprint’ supply chains which use less resources yet are more flexible and

better able to serve local markets.

Crocs: riding the fashion rollercoaster

Crocs is a North American based business that became famous for its iconic foot-

wear that rapidly became a fashion item around the world. From its inception in 2002

until the end of 2007, the company experienced rapid growth and found it difficult

to meet demand. In order to improve supply, Crocs significantly increased their pro-

duction capacity, warehouse space and inventory. However, as sales peaked and

declined, beginning in 2008, much of that additional capacity became redundant.

The decline in sales continued as the global recession began to bite at the end of

2008 and into 2009. The company finished 2008 with a net loss of $185 million for the

year. In quarter 1 of 2009 their revenues were down by 32 per cent compared to the

previous year and the company reported a net loss of $22.4 million for the quarter.

Now Crocs was faced with excessive capacity with high fixed costs and was

thus confronted with the need to consolidate their manufacturing and distribution

operations. Starting in 2008 they shut down their Canadian and Brazilian manufac-

turing operations and abandoned specialist equipment and moulds that were used

in the production of their unique product. As part of this process of retrenchment

they consolidated their global distribution centres, cut their inventory by a half and

reduced their global headcount by 2000.