The United States is under a massive infant formula shortage, causing duress to families with babies under one year of age. Anyone who has provided care to an infant knows that baby formula is as much an essential as toilet paper.
What's behind the infant formula supply chain crisis?
Remember the toilet paper crisis at the beginning of COVID? Except baby-formula shortage is perhaps only more dire for those families inflicted by it. In a crunch, the brand of toilet paper hardly matters to most, but the same cannot be said of baby formula which is meant to substitute a mother’s milk and has a unique composition that is significantly difficult to substitute and risky to replicate at home. This shortage is causing a frenzy among parents of babies in the US, some driving for hours only to find empty baby formula shelves just like it is in their neighborhoods.
What’s behind this crisis is three-fold. FDA closed down a manufacturing facility in Feb 2022 due to bacteria-related infant deaths and recalled product. This, in turn, added to the already lingering short-supply of baby formula that started at the beginning of the pandemic when parents of infants hoarded cans of formula, just like others did with toilet paper. Finally, US trade policies, including high import tariffs and stringent labeling requirements, are prohibitive towards increasing the imports of baby formula to the US in the short horizon. Even imports from neighboring Canada are subject to tariffs as high as 17.5% under the Rock-A-Bye trade restrictions.
What can supply chain and planning professionals learn from this situation?
Through the pandemic, much has been said about over-reliance on global supply chains and the need to build more self-reliant localized supply sources. But the current baby formula crisis in the US builds a strong case to build flexible supply chains, especially for essential goods. Over-reliance on local supply can wreck significant havoc if not built to sustain under stress. This is a moment of truth where we see that historical forecasting models built upon past data do not work under rapidly changing global factors. Planners need AI based tools that can overlay ground realities on to historic data. In hind-sight, the baby-formula crisis was brewing for a while. Smart use of POS sales data would have shown parents’ hoarding behaviors for baby formula at the beginning of the pandemic and helped eliminate false peaks and toughs in demand over the pandemic period. Ability to segment demand by source of supply would have immediately caught the impact of a plant closure. Planner’s visibility to trade policies may have helped with alternate sourcing plans ahead of plant closure. In today’s uber-connected world where data is omni-present, we need to build outside-in forecasting tools to prevent organizations from being caught off-guard when supply-chain interruptions are staring them in the face.
In summary, some key learnings from the baby-formula shortage are:
- Planners need visibility into critical supply decisions and policies and AI based tools that can help them build scenarios that impact category level demand of these essentials. Baby Formula is clearly an essential, just like COVID vaccine is. If FDA could partner with corporations making COVID vaccines for reliable delivery of vaccines across the country, this is absolutely possible for essentials such as baby formula.
- Planners need scalable and standardized mechanisms to overlay ground realities with history in order to hedge against supply disruptions at the network level. Several data sources continue to report over 40% nationwide stock-outs across for baby formula. That is a VERY high number for an essential good. One plant closure alone should not have pushed the network to such high level of outages. We need a resilient and transparent supply chain for these types of essentials.
- Organizations need to push for more liberal trade policies for essential goods such as baby formula, or at a minimum, exception clauses that loosen tariffs and label requirements at times of crisis.
The ecosystem in which US families with young children live is already under duress due to rising costs, unavailability of childcare, unaffordable healthcare. About half the baby formula consumption in the United States is by low-income families. This can surely be one less worry for struggling parents with more deliberate forecasting and policy measures which can be elastic between local and global supply chains.
Chief Product Marketing