Baby formula shortage highlights the need for resilient supply chains

When Abbott Nutrition recalled several brands of baby formula In February, it sent shockwaves through the baby formula market that are still clearly evident on the (empty) shelves now in June. But while the recall certainly served as the tipping point for the shortage we’re now seeing, the industry was already experiencing a shortage of the raw materials used in the production of baby formula as a result of the pandemic. As a result, production had been slowing down for months, and the recall pushed them over the edge.

And today? Retailers countrywide are now reporting that about 40% of baby formula is out of stock.

Even with President Biden having invoked the Defense Production Act to address the shortage by speeding production and authorizing ‘Operation Fly Formula’ to airlift infant formula from abroad, experts are predicting that it will be between 6 and 8 weeks before we see supply levels recover from this degree of shortage in supply.

As with many products, baby formula has seen a shortage of the key ingredient — cow’s milk — which has seen a surge in demand both in the US and globally during the pandemic. There have also been shortages in packaging material, as well as labor to manufacture and distribute the product. And with the US estimated to produce 98% of the formula sold in the country domestically — and Abbott Nutrition producing about 50% of that supply — these challenges have come together to create an issue that can’t be easily solved through shifting manufacturing capacity or switching to imports. 

“Looking at the larger picture, supply chains have been running at full capacity. When you’re running at capacity and things take a turn for the worse such as surges in demand and/or shortages in labor, production or transportation capacity or raw materials, you get a backlog and everything jams up.” Explains John Saldanha, Sears Chair in global supply chain management and Associate Professor at the John Chambers College of Business and Economics. “Today’s supply chains are very brittle. Slight shocks can break supply chains. So when the (Abbott) Michigan plant had to shut down, you saw a large spigot get turned off. But the demand for formula didn’t go away.”

So how can supply chains improve their resilience?

1. Enhance visibility — In order to be able to track and trace the provenance of a batch of products or to predict changes in supply and demand of the raw materials used to produce them, you need true end-to-end visibility. This means extending visibility across the entire supply chain from the source of raw materials through to customer delivery.
2. Understand risks — Every supply chain comes with risks, and understanding them is key to keeping them running. Steps to better understand your own could include leveraging advanced analytics with built-in artificial intelligence and machine learning for improved predictive abilities. By pairing these tools with a digital twin of your supply chain, leaders can explore various “what-if” scenarios to determine risks and potential impact in order to develop solutions well in advance of any disruption.
3. Improve flexibility — By extending your capacity network to include more options from multiple modes and carriers, you can avoid or at least severely limit disruptions caused by carrier capacity shortages. Pairing this with end-to-end visibility and advanced analytics brings additional load optimization opportunities to increase efficiency through automated guidance on consolidation, efficient routing and more, reducing the number of both trucks and road miles needed to move shipments to their destination.

For more information on how Shipwell can help you to increase the resilience of your supply chain and prevent disruption, schedule a demo today.