What Suppliers Can Learn From the Baby Formula Crisis

The baby formula crisis isn’t over. For the last six weeks, more than 20% of infant formulas have been out of stock—a slow but notable departure from the peak of the crisis, when the national shortage rate hit a staggering 70%. During the peak, some cities and states experienced especially drastic circumstances: near the end of May, Utah’s and Houston’s out-of-stock rates skyrocketed to 89% and 90%, respectively.

The baby formula crisis didn’t materialize overnight. Pandemic-related supply chain challenges—which disrupted the flow of cow’s milk and other key ingredients—culminated in the perfect storm, triggered by the February recall of a formula that killed two infants.

Within the U.S., 98% of available formulas are produced domestically. Given the dire situation at home, businesses must adopt new, dynamic strategies to thrive—especially as the crisis continues to surge. 

Supply chain crises start at the top

Baby formula is one of the nation’s most self-sufficient industries. Once a source of pride, that quality has precipitated one of the worst supply shortages in U.S. history. Let’s dive into a few industry-wide challenges. 

Supplier consolidation

Currently, four suppliers drive 90% of the country’s formula production. Abbott Nutrition—the brand behind the industry-shattering recall—once led a significant  portion of the market. Its contamination scandal, which shuttered the company’s Michigan plant for months, highlights the risks of relying on a heavily concentrated market: supply disruptions don’t just involve supply; they also result in price gouging, expensive emergency imports, and other repercussions. These consequences have spelled disaster for families nationwide—especially those with fewer resources. 

Baby formula regulation gaps

The baby formula industry is highly regulated—a perk for top formula producers looking to maintain market share. Even so, these regulations lack critical preventive measures, such as standardized testing and tracing processes that detect deadly bacteria. Abbott illustrates this problem firsthand: less than 1% of its output is required to be tested. 

With these existing safeguards, the industry faces a crucial obstacle: lack of enforcement. During the onset of the pandemic in 2020, regulators failed to inspect the nation’s largest formula manufacturing facilities. Two years later, upon discovering several violations at Abbott’s Michigan plant, regulators flouted protocol once again: they issued no formal warning.  

The right tools can help navigate the crisis

Companies can keep pace with the evolving shortage—if they turn to the right tools and strategies. Here are a few essential tactics: 

  • Diversify supplier networks. Supplier diversification remains a tried-and-true risk management strategy. By cultivating reliable partnerships with suppliers in different areas, businesses can minimize unexpected disruptions.
  • Embrace technology. In today’s increasingly digital world, the best technology sets businesses apart. By adopting a transportation management system (TMS)—which offers real-time tracking, comprehensive data on each product batch, and other critical insights—businesses can gain the visibility they need to navigate modern supply chain challenges. 
  • Improve reverse logistics strategies. Few businesses have the knowledge and resources necessary to respond to recalls in a cost-efficient and organized manner. Even ordinary, non-urgent situations—such as customer returns and product refurbishments—require an effective reverse logistics approach. With advanced technology and calculated tactics, businesses can easily manage return facilities, handling and disposal, recycling protocol, and more.

Don’t let the baby formula crisis hold you back

Despite recent improvements, the baby formula crisis shows no signs of ending. In the face of industry-wide challenges, businesses can emerge victorious—with the right game plan, of course.

CTSI-Global’s advanced software—such as Honeybee TMS™, our proprietary TMS—gives companies the data-driven insights they need to navigate today’s supply chain hurdles. Amid unprecedented challenges, businesses must reimagine their resources to close critical gaps.