If you have been following the news recently, you will probably be aware of the infant formula supply shortage affecting the United States. The world has certainly not been a stranger to supply chain issues, whether arising from the COVID-19 pandemic, the Russian invasion of Ukraine, or other global events.
In the case of infant formula, the supply challenges started on February 17, 2022, when the U.S. Food and Drug Administration (FDA) issued a warning not to use certain infant formulas produced by the Abbott Nutrition plant in Sturgis, Michigan. Abbott initiated a voluntary recall of products produced at Sturgis, with the plant remaining closed while Abbott worked with the FDA for approval to recommence operations.
This plant outage has led to the current supply chain issues and even an unprecedented intervention from the Biden administration. Operation Fly Formula started on May 19, 2022, as an initiative to import infant formula from outside of the U.S. in an attempt to increase supplies. At the time of writing, the seventh operation of its kind has taken place.
Strategies to Refill the Shelves
After Abbott issued its product recall in February, which included its Similac, Alimentum, and EleCare brands, it then looked to mitigate its supply challenges. By prioritizing production at its Columbus, Ohio facility and increasing imports from its FDA-registered plant in Cootehill, Republic of Ireland, it was hoped that the supply challenges could be averted.
But despite Abbott’s efforts, which is one of four companies responsible for producing around 90 percent of infant formula in the U.S., nationwide supply levels have continued to be problematic. To curtail demand, many retailers including Walgreens, CVS, Kroger, and Target have introduced purchase limits to avoid panic buying and product stockpiling.
Even with such initiatives, Bloomberg reported that national “out-of-stock” rates in stores had climbed to 74 percent for the week ending May 28. Ten states had out-of-stock rates in excess of 90 percent, with Georgia being the worst affected state with a rate of 94.4 percent. Some panic-stricken parents have even resorted to “formula exchange” groups on social media platforms like Facebook to swap information on shops that have availability.
After months of disruption and empty shelves, Abbott then announced on June 4 that it was restarting production at its Sturgis facility, and informed consumers of product availability from June 20.
However, on June 13, in a cascade of misfortune, severe thunderstorms and heavy rains resulted in high winds, hail, power outages, and flood damage throughout the area – overwhelming the city’s stormwater drainage system. The flooding including parts of the same Abbott plant in Sturgis, and the effect of these weather events have yet again paused production.
Examining Natural Catastrophe Risk
While some of the events responsible for prolonging these supply challenges are difficult to control, others, including a location’s resilience to natural catastrophe, can be assessed, mitigated, and managed.
This management starts with a better understanding of the risk itself. RMS® has led catastrophic risk modeling for over 30 years, assessing the impact of both natural perils like floods, wildfires, convective storms, earthquakes, and hurricanes as well as man-made perils like terrorism.
Figure 1: Analysis of the Abbott Nutrition plant in Sturgis, Michigan using the RMS SiteIQ application
Assessing the risk of natural catastrophes at the Abbott plant in Sturgis, Michigan using RMS data solutions provides quick and intuitive risk metrics that highlight moderate risk against both floods and convective storms in close proximity to the plant – the two perils that further delayed production.
This raises the question: Could a better knowledge of the risk enable mitigation to avoid the impacts of the weather events on June 13, that closed the plant for sanitation reasons?
Shaking Up Supply Chain Strategies
A survey conducted by EY including more than 200 senior supply chain executives at U.S. companies with revenues in excess of US$1 billion, found that enterprises “... plan to shake up their supply chain strategies to become more resilient, collaborative, and networked with customers, suppliers, and other stakeholders.”
Developing a better understanding of risk and effective mitigation strategies can be critical to establishing greater resilience. Improved awareness of the hazards that affect a location, and subsequent efforts to alleviate those risks could go some way toward limiting supply chain challenges such as those at Abbott Nutrition for longer than necessary.
It is often a reactive response to a catastrophe that spurs a conversation about what could be done better, not a proactive one that investigates the future. While there is still a way to go to fully appreciate the nuances of supply chain challenges, tools do exist to help companies better understand the implications of catastrophe risk on their organization and improve resilience in the face of natural disasters.
RMS offers a vast array of hazard metrics that can be used to better understand the catastrophe risk landscape and make more informed risk decisions. The data is accessible via a fast and performant API, RMS Location Intelligence, or within an intuitive application experience, RMS SiteIQ.
To learn more about these risk metrics solutions and how they can help your organization, please get in touch.
Based in London, Oliver is an Associate Director within the data product management team, responsible for overseeing the development and release of Moody's RMS data offerings across multiple peril regions and delivery vehicles. Oliver joined Moody's in 2013 and has held roles in the Global Knowledge Center and Model Product Strategy teams prior to joining Product Management in 2016. Oliver is a Certified Catastrophe Risk Analyst and holds a bachelor's degree in Economics and Finance from Keele University.
