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Baby Formula: A Supply Chain Shock in Plain Sight

The baby formula shortage gripping the U.S. has manufacturers and retailers scrambling to find a solution. The root causes of the shortage are numerous and stem from factory closures, supplier issues, and disruptions in the supply chain. After the world spent many days talking about general supply chain shortages throughout 2021 and the first half of 2022, the current baby formula shortage is a case study in real-time supply chain shocks.

Why is there a baby formula shortage in the U.S.?

In today’s globalized world, consumers are used to receiving their goods quickly and are used to items coming in from overseas. Interestingly enough, when it comes to the baby formula shortage of 2022, the root cause of the issue is actually the baby formula industry itself, and not shipping carriers. As a multi-billion dollar industry, the U.S. baby formula industry is only composed of four major players. As such, it is especially vulnerable to disruptions.

One of the big four – Abbott Nutrition – had closed down one of its key plants. Most of the issues the baby formula industry is facing today is due to the shutdown of one plant. This illustrates how vulnerable the supply chain truly is to one piece of the puzzle when an industry is so tightly run by a small group of major players.

Additionally, imports of baby formula into the U.S. are severely limited and almost nonexistent. One huge reason for this is restrictive tariffs, some as high as nearly 18%. It’s simply cheaper to produce baby formula here at home.

How is the baby formula shortage being resolved?

As the problem with baby formula shortages has gotten worse over the past few weeks, the U.S. government has got involved. The U.S. has now taken several steps to work to fix the situation.

First, the Food and Drug Administration (FDA) has allowed Abbott Nutrition to reopen the plant it shut down, with the requirement that Abbott implement new safety precautions. This alone will allow manufacturing to increase domestically.

Next, the government has already begun invoking the Defense Production Act, traditionally used during wartime to produce goods for war, to compel manufacturers to produce more baby formula. Manufacturers had previously stuck to a very-defined and regimented system to limit production while maintaining good profits. Invoking the Defense Production Act forces manufacturers to throw that process out the window.

Finally, the U.S. military began airlifting baby formula supplies into the U.S. from overseas. 35 tons of baby formula arrived over the weekend into the U.S. from Germany. There were over 130 pallets of baby formula which will be distributed throughout the nation to the hardest-hit areas.

When will the baby formula supply return to normal?

Even with the U.S. government getting involved, it will likely be several weeks before stores become more stocked on a regular basis. And, it could be a month or more before the restarted manufacturing plant leads to supplies returning to normal. Even as baby formula is imported from abroad, other issues remain, such as the fact that the European shipment that just arrived contained a specialized formula for babies with certain allergies. Given the nature of the product, there are so many specialized requirements to follow. Therefore, getting back to normal will take a little while.

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