- General Mills is reformulating products to keep them on the shelves amid challenges sourcing certain ingredients, according to a Q3 earnings call last month.
- The food company had to adjust formulations due to a lack of packaging and certain ingredients. Some products have been "reformulated over 20 times year-to-date," said Jon Nudi, group president of North American retail.
- Materials including starch, fats and oils, and packaging were "particularly challenging" to find, Nudi said. Supply constraints had the largest impact on General Mills' pizza, hot snacks and refrigerated baked goods (RBG).
General Mills had taken steps to staff up distribution centers after labor challenges contributed to lower service levels last quarter. Now, problems sourcing ingredients are disrupting the company's ability to run production lines.
"At the beginning of the year, it was really about our distribution centers and logistics bottlenecks," said Nudi. "The biggest issue we’re seeing is really around materials selection. So, ingredients coming into our plants to run our products."
Service levels, which measures the expected probability of not experiencing stock-outs, were "in the 70s overall for Q3," according to Nudi, down from historic levels of 98% to 99%. The company expects to improve service levels to somewhere "in the 80s as we go into Q4."
"[A]t the end of the day, we had — particularly on RBG, pizza and hot snacks — more demand than supply," said Nudi.
The supply of oils and starch, which is usually made of wheat, has been under pressure by Russia's invasion of Ukraine. The producer price index, which measures inflation on the supplier level, rose 46.2% year over year for fats and oils in March, and 70.1% for wheat.
General Mills has created multiple working teams to help bypass hurdles in sourcing certain products. Nudi said the company is speaking with suppliers to ensure it's prioritized for ingredients. It's also added capacity on other products including fruit, potatoes and cereal.
Despite the adjustments, the company doesn't expect to rebuild inventory levels in the next quarter.
"If we can do a bit better and service levels improve, we might be able to rebuild a bit, but likely will push into fiscal '23, where hopefully, we can get back to more historical inventory levels," said Nudi.