MINNEAPOLIS — Supply chain issues at General Mills, Inc. have been layering one atop another over the past two-plus years, said Jonathon J. Nudi, group vice president, North American Retail.
Mr. Nudi participated in a question-and-answer discussion about the General Mills business June 1 as part of the RBC Capital Markets Consumer and Retail Conference. Conducting the Q&A was Sunil Modi, RBC’s lead consumer analyst.
“We’re seeing 10 times the number of disruptions in our supply chain from an ingredient standpoint coming into our plans than we ever experienced before,” Mr. Nudi said. “And this gets really challenging because we can’t see them coming in many cases. So a truck is supposed to show up with oil at our refrigerated dough plant in Tennessee and doesn’t show up. So we have to shut the line down. Obviously, that creates lots of issues in terms of having the right amount of product and supply to our customers. And at the same time, it drives a lot of incremental costs as well. So we have thousands of these material disruptions every single month now, and it’s something that we haven’t seen before.”
A tight labor market has been a longstanding issue, compounded by COVID, which precipitated global supply chain problems, Mr. Nudi said. The subsequent war in Ukraine and resultant material disruptions have created unprecedented challenges, he said.
The difficulty isn’t completely around availability General Mills’ principal ingredient – grain. He said 90% of the company’s grain supply is sourced in North America.
“So availability is really not the issue for us,” he said. “We have the ingredients that we need. It’s really price, and it’s a global grain market. So we’ve been impacted by that... Starch, frankly, it’s something I didn’t realize what we use in so many different products. It’s really used as a processing aid and starch has been constrained for over a year now, and that’s been a real challenge for us. Oil, a little bit of knock-on impact of what’s happening in Ukraine has become a challenge from a supply standpoint. Even beyond that, again, I’m learning all kinds of things I didn’t know, but oil has to ship in specific trucks that are built for shipping oil and have drivers that are specifically trained to drive this truck. There’s a shortage of those truckers right now.”
General Mills has disclosed its supply chain difficulties and how they have affected the company’s baked foods, Totino’s hot snacks business and refrigerated dough. Conditions have improved, Mr. Nudi said.
“If you look at our on-shelf availability, we’re back to where we need to be,” he said. “But then other things pop up. The oil issue that I talked about is a real challenge for us right now.”
The challenges have management’s full attention, Mr. Nudi said.
“I have a weekly control tower meeting where I meet with our team on the biggest issues that we’re facing and really help try to break down barriers and do things differently than we’ve done before,” he said. “So trying to build resiliency back in the supply chain will help us from a sales standpoint as well actually being better in stock levels, and, at the same time, hopefully take out some costs over time as all these disruptions are very costly as well.”
While General Mills has experienced challenges associated with COVID and the tight labor market, the difficulties have not been principally at facilities the company operates, Mr. Nudi said.
“(Our frontline workers showed up at work every day and kept cranking out products for our consumers that needed food and our products more than ever before,” he said. “And we didn’t lose many of them throughout the pandemic, obviously, as people had family issues or health issues, they would take care of those, but they would come back. And part of it is we have a long history with these employees, and we treat them well and they treat us well. So that’s been great.
“The bigger knock-on effect has really been at many of our suppliers have had real issues with labor. And I think that drove a lot of these ingredient issues that I talked about as well.”He added that the company’s distribution centers have experienced labor issues but that those have been improving recently.