As store shelves remain largely barren of baby formula, a West Virginia University researcher said he believes the domestic shortage could have been prevented with proper supply chain planning.
John Saldanha, Sears chair in global supply chain management and associate professor at the John Chambers College of Business and Economics, cites a variety of factors as contributors to the shortage including the COVID-19 pandemic, federal regulations on the baby formula industry and one company, Abbott, controlling a large chunk of the market.
Quotes and Comments:
“If we would have modeled a supply chain situation and asked, ‘What is the worst thing that can happen to baby formula in the United States?’ even a freshman business student could look at the market structure and say, ‘Abbott holds close to half the market share. Regulations makes it hard to find substitutes from outside the country. We have so many millions of children who rely on formula to survive. So that’s a supply chain problem waiting to happen right there.’”
“The baby formula market in the United States is very protected. You have a lot of regulations. Recently, there was emergency legislation to reduce the amount of regulatory oversight for importing baby formula from overseas. Most of the formula consumed in the U.S. is made in the U.S. Most formula is based off cows’ milk, and that has to be fresh. So, generally I would expect, formula is produced very close to sources of cows’ milk. For infants allergic to cows’ milk or with other sensitivities, soy is typically the base, which is also produced in large quantities in the U.S.”
“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. 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. That’s why we all need to map our supply chains and understand their vulnerabilities and focus on those that have critical or even catastrophic consequences for downstream customers and end consumers.”
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