Dive Brief:

• Incoming Clorox CEO Linda Rendle said on an earnings call Monday her No. 1 priority for the near term is to increase the company's supply chain capacity and get essential cleaning products back in stock. "We're not satisfied with our service levels right now, and we have the absolute highest urgency to improve," she said.
• To increase supply of Clorox products, especially disinfectants, the company will bring on new suppliers, 10 in the last quarter, and build up production. "We are aggressively investing to expand capacity. We are working across the entire supply chain — all the way back into raw materials, up through manufacturing, packaging and conversion," Rendle said.
• The company announced the CEO switch-up, officially taking effect Sept.14, alongside the end of a record fiscal year for sales. Rendell has been with Clorox 17 years in operations and strategy roles, most recently serving as president. Outgoing CEO Benno Dorer will stay on as executive board chair.

Dive Insight:

Even with a 22% increase in sales in the last quarter, executives admitted that during the pandemic, Clorox has left sales on the table and given up market share due to stockouts.

"While we've been able to add significant capacity, demand still far exceeds supply, leading to continued out-of-stocks for many products," said Lisah Burhan, VP of investor relations. Drorer said on the call that executives thought the company would be more caught up by now.

Clorox, like many consumer good companies facing unseasonable demand during the pandemic, reduced the number of SKUs it produces to concentrate capacity and ensure execution on the most important products. Several major CPGs are discussing making SKU cuts permanent, but Clorox has felt the loss. By prioritizing its healthcare industry customers, the company has eroded its status at retail to an extent, according to Burhan.

Clorox factories making disinfecting products have been running 24/7 during the pandemic, and more production capacity will be coming online in the medium term. By increasing internal and external manufacturing capacity, Rendle hopes to return to in-stock status at the retail shelf, but it won't be quick work. She expects incremental improvement over the next year.

Executives emphasized urgency, but also prudent long-term capacity building over quick fixes. Supply chain costs in the form of rush orders from suppliers and increased use of airfreight were up in the last two quarters. Rendell put the total cost of supply chain "up charges" at $30 million in the quarter ending June 30.

The approach Clorox is taking "is to make sure that we build the right mid to long-term that allows us to have flexibility," Rendle said, adding that a mix of co-packers and internal capacity building contributes to that flexibility.