The latest in a long series of supply chain disruptions has impacted the baby formula industry. 40-50% of the shelves across the U.S. are out of stock for this critical item!
Availability started to be limited late last year and in January due to “supply chain disruptions”. Shelves were over 20% out of stock. However, supply chain disruptions is also the latest excuse for every issue, and so as we dug into the issue, there were no widespread outages that would impact the industry. Transportation and packaging came up; however, the item that seems the most likely cause of such a significant number is labor shortages. Every client has an issue meeting customer demand due to labor shortages currently.
Unfortunately, the problem worsened when the FDA shut down the Abbott plant that produces over 40% of the baby formula for the U.S. That facility has been shut down for 3 months. As anyone in manufacturing and supply chain circles know, it is not surprising we now have a 40-50% out of stock situation. Listen to my discussion on Good Morning San Diego.
The Complexities of the Baby Formula Arena
As is the case with highly regulated products, the complexities of managing through regulatory complications will impact what solutions will work and which will not work. Similarly, the costs and requirements might prove cost prohibitive in this lower margin industry. Unfortunately, the resolution will have to involve more than just industry players. It will have to involve the government and FDA. Red tape will need to be navigated to get this issue corrected near-term.
Global Supply Chain to the Rescue
The global supply chain is coming to the rescue. Of course, in addition to U.S. baby formula manufacturers increasing production, Abbott’s Ireland facility is shipping formula to supplement what can be produced in the U.S. Additionally, Nestle’s Gerber is flying formula from Germany with Operation Fly Formula. And, the FDA has ramped up its efforts in working with the Abbott facility to reopen, and so it is expected to start production in the next few weeks.
How Long Will these Out of Stocks Last?
Unfortunately, this crisis started around 5 months ago with the major production shutdown occurring 3 months ago. You don’t make up that kind of production quickly, and so extended lead times and empty shelves will be around for quite some time. Of course, now that it has gained significant media attention, there will undoubtedly be many actions occurring in the days ahead.
What Should We Learn?
The supply chain is only as strong as its weakest link. Even small disruptions (let alone a big one such as the shutdown of the largest producing plant in any industry) lead to supply chain implications and further disruptions. Supply chains are stretched thin with little to no strategic inventory of the “right” items in the “right” place at the “right” time and little to no available capacity especially when considering the labor shortages. Since we are globally connected, it is time to take control of your supply chain and be proactive. It is also time to take control of your supply chain and realign demand and supply with S&OP. Most importantly, do not wait for someone to resolve your issues for you. Take action now!
On a similar note, don’t become a victim and be “surprised” by the implications of the multiple month shutdown of the Shanghai ports…………
Please keep us in the loop of your situation and how we can help your organization thrive during these times of volatility and disruption. There will be more winners created than at any other time than since emerging from the Great Depression. To gain additional ideas and insights on how to best navigate these volatile times and thrive, read our new eBook Thriving in 2022. Learning from Supply Chain Chaos. Download your complimentary copy.