What management problems typical of global systems was Crocs experiencing?
Crocs, Inc. is a world leader in innovative casual footwear for men, women and children. From the first mall kiosk in 2004, Crocs has grown to more than 500 branded retail locations around the world. It has outlets in more than 30 countries including Australia, New Zealand, China, Japan, South Korea, the United Kingdom, France, Germany, and the Netherlands but sells footwear in more than 90. The company now produces more than 300 four-season styles including boots, wedges, flip-flops, sandals, loafers, slippers, rain boots, and sneakers.
Rapid expansion from 2005 through 2007 was amplified by the acquisitions of footwear companies Ocean Minded and Bite Footwear, Dutch messenger bag company Tagger, South African third-party distributor Tidal Trade, and Jibbitz, a manufacturer of charms that snap into the holes of the classic clogs. Unsurprisingly, this resulted in a number of disparate IT systems. To keep pace with short-term growth, Crocs purchased best-of-breed systems in a variety of categories for order management, warehouse management, retail merchandising and reporting, and Electronic Data Interchange (EDI) functions. The problem with this approach is that while dedicated systems often perform better within their specialized niche, without an integrated system, enterprise-wide connectivity is compromised and maintenance needs exacerbated.
Regionally, this meant that highly customized systems evolved in order to integrate functions. This in turn meant that integration across regions became increasingly difficult if not impossible. Basic business functions such as closing the books required manually collating and reconciling spreadsheets from multiple countries and regions, punctuated by multiple phone calls and e-mails in pursuit of missing or incorrectly formatted data. Order entry began in numerous locales but had to proceed through three different systems before the order was placed. What’s more, points of failure were unwieldy to locate.
By 2011, it became clear that Crocs’s patchwork system was unsustainable. Cross-currency and multilanguage orders were unmanageable, and local or country-specific business regulations had to be managed manually. Crocs began scrutinizing and revamping its business processes and embarked on an enterprise-level IT project named Sunlight. Only after all vital business processes had been re-envisioned to support and serve the way the company did business did management begin searching for an enterprise resource planning (ERP) system to fit those needs. In this way, a companywide transformation was undertaken.
When management began to search for a solution to implement the standardized global processes it had outlined, SAP Apparel and Footwear was quickly chosen. It is one of a number of SAP Consumer Products solutions that tailor the SAP Enterprise Resource Planning (ERP) platform for specific industries. With its main goal of avoiding customizations uppermost, Crocs was further persuaded by the three-way size grid function and many other features custom-made for footwear sellers. Materials master data now store all size, color, and style information, reducing the number of SKUs (stock-keeping units) by an astonishing 40 percent. In fact, according to Dennis Sheldon, Senior Vice President of Global Distribution, the grid function in SAP Apparel and Footwear was instrumental in excising the surfeit of SKUs that had been driving the numerous system customizations at the regional level, shackling global integration. With shoe size, the key demand variable in the footwear industry, driving the grid, data requirements plummeted, business processes were streamlined, and at least 24 legacy systems were shed.
Phase one of the global rollout began in Australia in November 2012. The objectives were to modify the core product as minimally as possible, validate best practices, and discover areas in need of improvement while problems were confined to a single region. Phased ERP rollouts are often functional, rolling out modules for essential business functions (daily operations) enterprise-wide and gradually adding more modules and functionality. Alternatively, a rollout can be implemented by business unit, starting perhaps in the Human Resources department and then moving on to Accounting, Finance, and so on. For Crocs, neither of these approaches was tenable due to the fragmented state of its systems; thus, a phased global rollout was chosen.
SAP’s general methodology for implementation of any project follows five steps. Phase I, Project Preparation, is the initial planning and preparation stage. Phase II is the Business Blueprint stage in which a detailed description of the business processes and system requirements is compiled producing the project structure and documentation that will be used in the next two phases.
A hierarchical structure of business scenarios, business processes, and process steps is created, and transactions are assigned to each process step. Phase III, Realization, is when all business process requirements are implemented and the system configuration is outlined at two levels: the baseline (major scope) configuration and the final (remaining scope) configuration. Phase IV is the Final Preparation stage in which testing, end-user training, system management, and cutover activities are performed and any unresolved critical issues are ironed out. Phase V is the Go Live & Support stage in which the project moves from a project-oriented, preproduction operation to a live production undertaking.
During the Business Blueprint phase, Crocs worked with an implementation partner, which helped it with development and data conversion. In total, the Blueprint, Realization, and Final Preparation stages took just 17 months, with Crocs’s Australia division going live in April 2014.
Because Crocs also implemented a full suite of other SAP products, including SAP BusinessObjects (a Business Intelligence product), SAP BW (Business Warehouse), a B2B Internet sales application, SAP solutions for GRC (Governance, Risk, and Compliance), and SAP Business Planning and Consolidation to interface with the ERP system, it could use its Australian rollout to discover and implement any necessary modifications in a complete system before it proceeded to the next region, which it did within two months.
However, when Crocs took its Japan division (a six-times-larger business—$120 million as opposed to $20 million) live, it ran into language and cultural barriers that even advance training with a change management consulting firm could not forestall. Change management (CM) focuses on the human side of change—how to guide people through major organizational changes, including those brought about by information systems. Nevertheless, despite having to navigate several unforeseen cultural hurdles, the Japan rollout saw fewer data migration problems, and in short order, the company announced a target date of January 7, 2015, for its full global rollout.
To meet this goal, Crocs built regional “readiness” teams of subject matter experts (SMEs) from the different functional departments by immersing them in the training, development, and testing of the system. This eased adoption and bolstered the change management side of the equation. Often, companies will fly in IT department project managers and/or vendor project managers to train employees and oversee system implementation. Instead, Crocs made sure that known quantities familiar with local culture, business practices, and habits guided the process. These resident teams proved invaluable in troubleshooting and crisis management during the Go Live & Support phase.
With more than 100 of these “readiness” team leaders and SMEs on the ground and, equally as importantly, an enterprise-wide buy-in and broad understanding of the project goals, 1,400 users successfully finalized the launch across 32 countries, speaking 15 different languages and using 23 different currencies. What’s more, Crocs could not have been more pleased that only 25 customizations were required, and those were to satisfy local legal and regulatory stipulations.
Crocs now administers the automation of purchasing, delivery tracking, inventory segmentation, chargebacks, and nearly every other aspect of the design, manufacture, and distribution of its footwear in SAP Apparel and Footwear. With business processes streamlined, sales are now outstanding for fewer days, and the fill, or demand satisfaction rate—percent of orders satisfied from inventory on hand—has significantly improved. Freight costs, nonproduction selling expenses, and SG&A (selling, general, and administrative) expenditures, which combine salaries, commissions, and travel expenses for executives and salespeople, advertising costs, and payroll expenses, have all been substantially reduced.
Perhaps even more noteworthy, whereas data were formerly regarded with a dubious eye, managers now have confidence in the numbers and can immediately proceed to data analysis. Order location, order status, and inventory availability are readily discernible, making order fulfillment both easier and faster.
In the year following implementation, Crocs kept a close eye on its users to make sure that they did not slip back into old habits, maintaining a strict prohibition on regionally based spreadsheets and insisting on meticulous conformance with revamped business processes. Analytics solutions working with SAP Apparel and Footwear are providing greater visibility into the business at the enterprise level. Operational efficiencies have provided improved control over Crocs’s global supply chain from raw materials purchase to product delivery around the world. Its numerous design and style variations, seasonal offerings, and customer value–added services such as Jibbitz personalization generate very large quantities of data that can now be efficiently managed.
Though Crocs experienced a company shakeup in 2014 that included 70 jobs lost, 100 store closings, scaling back some of its newer, fashion-seeking styles to concentrate on its casual styles, and reducing investment in some smaller markets to concentrate on just six countries—the United States, the United Kingdom, Germany, South Korea, Japan, and China—its financial difficulties were not attributed to its IT investment. Rather, the slowdown was ascribed to changing customer tastes for a brand that has perennially suffered slings and arrows for its unattractive form.
Refocusing on its footwear’s five key attributes—colorful, relaxed, comfortable, distinctive, and fun—Crocs was able to revive business back up to $9.7 million in 2015 (a 3.7 percent increase from the previous year) after Crocs had become a billion-dollar company in 2012.
Though some dissatisfaction with supply chain efficiency that resulted in poor customer service was noted by President and Principal Executive Officer Andrew Rees at the end of the third quarter of 2015, SAP Footwear and Apparel had only been up and running for those three quarters, and full functionality of the integrated analytics software had likely not yet been reached.
It is unlikely that without Crocs’s forward-thinking commitment to revamping and streamlining its business processes, reducing costs, and improving order fulfillment efficiency the downturn of 2014 would have been navigated so seamlessly. The company was able to reduce its SKU count to simplify product development, forecasting, and inventory management. Crocs had identified reducing its direct-ship model as crucial. It had always permitted very low minimum order quantities and direct order placement with factories, but this was becoming unwieldy, creating needless complexity in the factory order management process. With its new systems, the company could now easily increase the minimum order quantity to industry standards enterprise-wide.
Crocs also decided to bring its value-added services more in line with industry standards to make it easier to package orders and move them through distribution centers. Once again, without an integrated global system, achieving this goal would have been significantly more problematic. Order location, order status, and inventory availability are all now easily obtainable, making global supply chain management easier. Finally, Crocs developed its management team, adding leaders from several key areas to ensure that its IT investment was used to its fullest potential. Project Sunlight should continue to reap benefits in 2016 and beyond.
Sources: www.company.crocs.com, accessed February 3, 2016; Ken Murphy, “Crocs Climbs New Business Heights,” SAP Insider Profiles, July 6, 2015; Natalie Rinn, “Finding My Fun: A Thorough Examination of Crocs, the Most-Hated Shoe in America,” racked.com, May 14, 2015; Jamie Grill-Goodman, “Crocs’ E-commerce Business Grows Despite Inventory, Supply Chain Issues,” Consumer Goods Technology, November 6, 2015; and “Crocs Discovers Multichannel Growth, Rolls Out ERP,” Retail Info Systems News, February 26, 2013.
What management problems typical of global systems was Crocs experiencing? What management, organization, and technology factors were responsible for those problems?
How did Crocs’s new systems and use of SAP Apparel and Footwear support its business strategy? How effective was the solution chosen by the company?
How did Crocs’s new systems improve operations and management decision making?