Consumer habits changed in the past two years, and while people have returned to in-person shopping, many new habits have stuck. Channels and buying patterns have shifted, with consumers becoming more conscious of their spending and channel-agnostic, expecting a seamless in-store and online experience. (1) Consumer products companies need to adapt, as these new ways of buying are expected to stay.
Buying behaviors aren’t the only change—inflation, fuel prices, transportation issues, and hiring gaps are causing challenges. Companies are debating raising prices to cover costs. Transportation can’t keep up with the increased demand, and all parts of the business are dealing with personnel shortages.
The supply chain is also vulnerable and must become more resilient. Data from McKinsey shows that disruptions of a month or longer now happen every 3.7 years on average. This costs consumer goods companies four months of earnings every decade. (2) Organizations need a way to react faster to change and disruption.
The recent baby formula shortage highlights just how fragile the supply chain can be. As of mid-May 2022, out-of-stock levels hit 43% across the U.S. The Atlantic identified three causes for the shortage: a recall, supply chain issues, and regulatory policies. (3)
In February 2022, the U.S. Food and Drug Administration advised avoiding certain lots of three powdered formula brands produced in a Michigan plant after harmful bacteria was discovered. The producer issued a recall, and the plant was shut down and is not expected to reopen until July 2022.
Recalls aren’t that unusual. Closing a single plant should not have caused a nationwide shortage so quickly, but producers had a hard time planning due to the pandemic. Demand fluctuated wildly due to families stocking up in 2020 amid shortage fears and then working through their stockpiles without buying more. When sales fell in 2021, producers cut back, but now demand is back up, but production isn’t.
The final contributing issue is government restrictions on imports. The FDA does not approve most formulas produced in Europe, and those that are approved are hit with high import taxes. This means that just three producers dominate the U.S. baby formula market.
Technology cannot solve the trade restrictions, but it can help with better planning, compliance, and production efficiency. Better monitoring systems and a more resilient supply chain supported by real-time analytics may have prevented this shortage.
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Citations:
1 – The Pandemic Permanently Changed Consumer Behavior. Top 3 Retail Lessons for 2022., TotalRetail, February 2022
2 – Risk and resilience in consumer-goods supply chains, McKinsey, January 2022
3 – What’s Behind America’s Shocking Baby-Formula Shortage?, The Atlantic, May 2022