The Single Point of Failure in Supply Chain – Baby Formula!

Baby Formula

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There are over 3.5 million births in the United States every year. That is a lot of babies who need baby formula.

With such a large number of births you would expect that there would be a steady, well established industry supporting the supply of all needs for new mothers, babies and their families.

Yet in mid 2022 there is a shortage of baby formula. This certainly is completely unacceptable. So how is that possible?

Apparently there is a single point of failure in the baby formula Supply Chain!

The Baby Formula Shortage

The global pandemic has wreaked havoc on innumerable Supply Chains in every industry around the world. Very early in 2020 this first became apparent to me as store shelves were emptied of toilet paper and other basic household goods.

Like many others we stockpiled on toilet paper, not knowing when store shelves would be restocked, which obviously only further exacerbated the problem as other people did the same thing.

In 2022 the shortage and stockpiling has now reached the realm of baby formula. According to The Atlantic, there are 3 factors driving this shortage:

  1. Bacteria. After 2 infant deaths an FDA investigation of Abbott resulted in the closure of their Michigan production facility and recalls of product made in that building.
  2. Pandemic. Like my toilet paper example, families stockpiled baby formula leading to short term spiked demand, followed by a lack of demand leading to production cuts, followed by a rebound in demand for which production capacity has not been restored. This is a recurring story across many commodities.
  3. U.S. Trade Policy. Given lack of strict adherence to FDA guidelines, imports from Europe and elsewhere have been curtailed, further restricting necessary supply lines.

The collective global experience with pandemic induced supply line impacts is now second nature to all of us. So it should have been no surprise that this would happen in this highly sensitive market supplying babies with food and other essentials.

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And U.S. Trade Policy, whether it is, or is not, too restrictive, is also not something that just happened overnight. Theoretically the people who manage such regulatory requirements would have first done the supply-demand analysis to forecast the ramifications of any policy decisions. And based on this analysis any pending continuity of supply issues could have been anticipated and proactively addressed and curtailed.

But the most alarming issue in my mind is that with over 3.5 million babies born in the U.S. every year, the entire baby formula supply line can be impacted with the shut down of a single factory.

This is clearly an unacceptable single point of failure.

Good and Bad Solutions to the Single Point of Failure

During the pandemic we heard calls from everywhere that too much business had been outsourced to low cost countries, particularly China from which the pandemic originated. People were stating that by bringing back more of this business onshore and domesticating this production then they would somehow solve the supply problems caused by the pandemic.

The fallacy of this type of myopic thinking is that the Coronavirus pandemic does not recognize, nor respect, geographic or political borders. Onshoring and domestic production is not the answer. This has been proven over and over.

Any point of single sourcing, or sole sourcing, whether it be materials, parts, resources, systems, processes, suppliers, production or facilities is a single point of failure. Supply Chains will always be more susceptible to failures in direct proportion to the number of single points of failure.

The short and long term solution to this kind of problem is to mitigate, if not eliminate, single points of failure, and create more robust and resilient Supply Chains.

What’s Next

In the case of the Baby formula shortage any short term steps should involve ramping up production wherever possible and looking for alternative sources of supply, whether that is domestic or international is irrelevant (assuming compliance with FDA guidelines, of course).

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In the long term the U.S. needs to establish at least one other facility, separate and apart from the one in Michigan, to also be a source of these products. These facilities must be able to produce the same products to the same quality standards. They must have the capability to ramp up, or ramp down, production on short notice.

Finally, there must be an improvement in the supply-demand planning in this industry, with more real time visibility to demand patterns and more real time reactivity to market dynamics. This needs to be coupled with a view to market dynamics outside of this industry. Just looking at what happened in other industries should have provided an early indicator as to what was also likely to happen in this space.

While no one could have predicted the implications of the pandemic, we do know that there are always disasters of some kind. Tornadoes, disease, man-made catastrophes, and other events can all conspire to disrupt the lives and supplies of any area, all without notice.

The fundamental key is to understand and address all single points of failure in Supply Chain. This is the only true way to create more robust and resilient Supply Chains which will be better able to contain and weather any of the inevitable disasters that are lurking around the corner.

Single points of failure are rampant, from KFC running out of chicken to McDonald’s struggling to cover to fresh hamburgers and cold and flu medication shortages.

Failure to provide nutrition to a single infant is completely unacceptable, and this should be reason enough to create stronger Supply Chain robustness in the supply of baby formula, so that we never have to worry about this area ever again.

Originally published on May 31, 2022.

One thought on “The Single Point of Failure in Supply Chain – Baby Formula!”

  1. Your point about an analysis by the FDA on the impact of the shutdown is spot on. There was also a recall, which made things worse. It is my understanding the various welfare programs only pay for a specific brand of formula, based on contracts. If this is true, that is probably why some areas were in worse shape than others. Isn’t it amazing that all of a sudden, existing sources were all of a sudden OK. I hope they are really safe alternatives

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