The infant-formula shortage took me back to an illuminating incident during a fire-safety training session I attended decades ago. The trainer was showing us how to save a person engulfed by flames. One of the participants objected to using a fire extinguisher on a human being: “Aren’t those chemicals dangerous?”
“You’re on fire,” the instructor replied.
Today, while there are shortages of a vital source of infant nutrition because of a “voluntary” recall, regulators won’t permit imports of baby formula from Europe until the Food and Drug Administration deems it safe. As the fire-safety instructor might have said, “Your baby is going hungry.”
We should never have had to make a choice between product availability and safety assurances. If there were FDA preapproved alternative suppliers, such as European producers, as part of a supply-chain risk-management strategy, companies would have been able to ship formula immediately, bolstering supplies more quickly and with all needed safety authorizations. Risk-management strategies such as this contribute to flexible, responsive supply chains that can better survive supply shocks.
More broadly, any risk-management plan starts with risk assessment. Vital raw materials and supplies, like infant formula, should be identified. Then locate alternative suppliers and materials. Plans should be in place before emergencies so that changes can be made promptly as needed. I learned this as manager of a mushroom farm’s composting facility. There were irreplaceable raw materials used in compost production. One was our carbohydrate source—corncobs. A drought caused shortages, and the price increased from $35 a ton to nearly $200. Our costs exploded and I vowed it would never happen again. I sought out alternative carbohydrate sources and we developed a list of approved replacement materials. Over the next 30 years we controlled costs and never again shut down operations because of shortages.
Risk management works in services, too. As an instructor, I use risk assessment to reduce class disruptions. In anticipation of challenges such as weather events, as a Plan B I added a Zoom link to my course-management page, and for a Plan C I added recorded lectures. I couldn’t have predicted the pandemic, but at its onset, when my students and I couldn’t return to campus, teaching continued seamlessly.
Disruptions of products requiring regulatory approval are more challenging than other logistics problems because the government signoff adds another step—and more time—to the process. Thus, it’s important that regulatory agencies act as partners with manufacturers on risk assessments that reveal critical ingredients, foods and medications requiring regulatory authorization. Then preapproval of alternative goods, labels and suppliers should be facilitated before they are needed, so suppliers can respond quickly to scarcities. This would help alleviate future shortages such as we are experiencing with infant formula.
No one can anticipate every disaster, but risk management goes a long way in reducing supply chain vulnerabilities. Every organization should implement it.
Mr. Coles is a professor of practice in supply-chain management at Lehigh University.
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