Babies and disadvantaged adults with special needs around the world are suffering because of
the worst shortage in baby formula since the invention of formula. The reasons driving this crisis is a modern-day business case study that can be best understood through the lens of business acumen. This blog explores the baby formula crisis based on the skills of effective business acumen and offers the opportunity to develop some key learnings that can be applied back to other similar situations. I have tried my best to make this discussion apolitical, and present insights without jumping into the negative and divisive partisan politics many are trying to make this issue about.
As the baby formula shortage drags on, and as the data becomes more available, it becomes more obvious that there are a lot of things that went wrong to reach this point of crisis. And yet again, the US health system is both a victim and aggressor. But, at the end of the day, it is humanity that is suffering and will pay the ultimate price.
How this started
Like most things that fail in the business world, this issue can be traced to something I call “Gibi.” Gibi stands for Great Ideas, Bad Implementation. The shortage started when it was discovered that there was a serious contamination problem at an Abbott factory that produces Similac and other formula brands. Abbott voluntarily shut down the plant in response to the deaths of two infants. It is now mid-May and the plant is still not operational. In addition to the infant formula, this plant was also responsible for making other types of nutritional products for the elderly and others who can not ingest whole foods. It is completely unknown when it will be back as according to the news reports I read the FDA and Abbott can’t agree on rules and regulations to prevent further safety issues.
In addition to the prolonged shutdown, there are the continuing general supply chain issues that have contributed to the problems of a global and nationwide crisis. According to an article in the Wall Street Journal, about 40% of the best-selling formula brands were out of stock on April 24, 2022, which is significantly higher than the norm. As a result of the initial shortages, a wave of panic buying further reduced inventories and further exacerbated the situation.
One of the most basic rules of business acumen is that when you have a supply shortage there will be increased prices and there have been many reports of price gouging which is both unethical and illegal. Unfortunately, the reality of the situation is that people with lower incomes and at the poverty level will suffer the most as will the elderly who have special dietary requirements.
The Business Acumen
For many readers of this blog who have participated in an Advantexe digital business simulation, you should be thinking about the core elements of business acumen: Was there a strategy? How did the commercial function execute the strategy? Was there true operational excellence to deliver on the strategy?
Those questions will unlock the lessons here. The world knows that Abbott is a good company. They have been leaders in healthcare for decades and their people are good and their intentions positive.
Strategy – “In everything we do, we’re dedicated to helping people live more fully. We’re creating the future of healthcare and making it affordable and accessible to billions by 2030, making greater total health possible at lower total cost for the greatest number of people, those who can benefit the most.
We want to help you be healthier and stronger, quickly identify medical needs and treat conditions to help you get back with those you love, doing what you love.
This has always been our ambition, and it’s only gotten stronger through the more than 130 years of helping people live their fullest lives with greater health and dignity.” Source: Abbott Website
That is a fine value proposition and delivers a strong message.
Commercial (Marketing and Sales) – Abbott has a strong commercial team. They invest in Marketing and Sales and they are good at what they do as evidenced by being #1 in the baby formula market. That takes years of hard work, effort, and customer care.
Operations – This is where we get to Gibi. The strategy is strong, the commercial organization is strong, but there is a fatal flaw in the execution of the operational imperatives. Lean thinking and operational excellence are only as good as your planning and aggressive preparation. Along with operational excellence comes risk analysis and contingency planning. Knowing that so much of the operations relied on one manufacturing facility (a big risk), there should have been multiple contingency plans for continued operations if there was an event or shutdown. In most of Advantexe’s simulations, there are opportunities to do contingency contracting deals if the need arises. Not many take us up on the option (it’s like an insurance policy) but the Abbott baby formula situation is a perfect example of why you need to mitigate the risk. In this situation, which is compounded by supply chain issues and shortages, additional steps should have been taken to maintain inventories and other contingencies for continued operations.
In summary, there will be a lot of critics and so-called experts calling for government intervention through regulations, minimum levels of inventory, penalties, etc. All of that goes against the common frameworks of basic business acumen which is the real failure here.
