General Mills battles through backlogs to keep cereal on shelves

Paul Gallagher is not expecting a slow week at work anytime soon.

Like logistics managers everywhere, the General Mills supply chain boss is dealing with missed shipments, unfilled jobs and increased costs — all while trying to make sure consumers don't notice a thing.

"In my 30 years in supply chain, I've never experienced anything like this before," Gallagher said. "The perpetual motion of the global supply chain has been disrupted significantly."

The pandemic exposed all the vulnerabilities of the supply chain — a business term that often seems far removed from people's everyday lives. But this web of suppliers, manufacturers, transporters and retailers are needed to turn farmers' oats into a box of readily available Cheerios.

When any step of that process is disrupted, it often means prices go up or products disappear — and consumers notice.

Ingredient shortages and labor scarcity — including a lack of truckers on highways and forklift drivers in warehouses — have left companies scrambling to keep up with historic demand for consumer goods.

Large companies like General Mills have been able to use their leverage to secure backup suppliers and bring in new manufacturing partners to keep products on shelves and keep prices competitive. But with the cost of labor and energy on the rise, the price of food nationwide jumped more than 5% in the past year.

"Across the vast majority of our product lines, we've got great on-shelf availability, and that's our goal," said Jon Nudi, General Mills' president of North American retail, which reported nearly $11 billion in sales in its latest fiscal year. "That comes with increased costs and complexity."

General Mills was already reshaping its supply chain before the pandemic hit and that, Gallagher said, made the company nimbler in its response. Improving variables within its control, like communication, supplier variety, manufacturing capacity and corporate structure, allowed the company to adapt to the new normal in supply chain management: high-speed decision-making.

"What was historically impossible we are now delivering on a daily basis," Gallagher said. "We need to focus on rapid progress rather than slow perfection."

Control towers

Gallagher and Nudi recently toured the country's oldest cereal plant in Buffalo, N.Y., to get a sense of how the company's operations were faring.

"Our front-line workers were really heroes from the start," Nudi said. "They work tirelessly."

Recruiting and retaining its own employees — and keeping them safe amid the pandemic — is one area of the supply chain General Mills has the most control. Getting commodities to the factory, or finished products into stores, is where it gets trickier.

Before the pandemic, a shipment of ingredients would get missed across the company's vast network of manufacturers about 20 times every month. Now, Nudi said, that happens about 500 times a month.

"Then, once things are made, our distribution centers run by third parties in many cases are struggling to hire," he said. "Then, on the customer side, there's no one to unload at their warehouse."

Since becoming the chief supply chain officer for General Mills in June, Gallagher has been conducting an improvised symphony, keeping a global network of players in sync. But the ending remains unwritten. And there may be some sour notes played along the way.

"That's the reality of the world we're in now," Gallagher said. "We're not going to find opportunities in the way we've done things historically."

Gallagher and other executives have set up "control towers" to talk over these supply chain issues more frequently and quickly pivot the company's purchasing and production decisions. These task forces have resulted in more transparency with suppliers and customers as data is shared broadly and in real time.

"Historically, it would have taken us longer to get that data," Gallagher said. "Even working remotely I've never felt more connected than I do today."

That could have lasting impacts on the supply chain beyond the current disruption. Nudi said producers and retailers have been talking about "joint opportunities to become more efficient" as consumers continue to eat more at home than they did pre-pandemic.

"One thing that's undeniable is we're moving faster than ever before, and it's never going back."

Demand stays high

Demand for consumer packaged goods — items in the center of the grocery store — grew nearly 10% in September over the previous year, according to the Consumer Brands Association. The advocacy group expects that even when the pandemic winds down, buying habits will hang on and boost sales for companies like General Mills.

But last month General Mills CEO Jeff Harmening told investors the "challenges we are facing on labor and inflation are going to persist for quite some time."

The Golden Valley-based food giant is not alone.

"Like so many others, we are currently facing increased cost inflation and supply hurdles," Kellogg Co. CEO Steven Cahillane said in an earnings call in August.

"We continue to navigate through very challenging macro factors, such as shortages in labor, transportation and packaging, as well as the timing of cost inflation versus pricing recovery," Post Holdings CEO Robert Vitale told investors the next day.

For consumers, the bottom line of all these "macro factors" boils down to cost and availability. That leaves food producers with an existential question: Who gets left out of shopping carts as grocery bills continue to rise?

"How do we minimize inflation, first of all. That definitely keeps me up at night," Nudi said. "Our products feed families across the country. Our goal is to keep prices as affordable as possible."