James Moffatt on Why Data, Economics and Short-Termism Hold Supply Chains Back

In a recent discussion with James Moffatt, Partner at Baringa Partners, we explored why many supply chains remain stuck with fragile data foundations, how outsourcing economics slow down automation and why bounded rationality in the boardroom makes long-term transformation harder than ever. James also shared his vision for what logistics could look like by 2035 and why the journey there needs to be thought of as a step-by-step maturity path.

Data foundations that still don’t work

JP Doggett: Supply chain leaders often tell me data is their biggest barrier. Do you see the same?

James Moffatt: Absolutely. Despite years of investment in upgrading systems, data remains the Achilles heel for many organisations. It is still common for organisations to be dumping extracts from ERPs into Excel, with quality that’s not good enough to drive decision making or that requires significant manual intervention before it can be used by leaders.  

Until data quality is treated as a capability in its own right – with governance, stewardship and accountability – business decision making within supply chain will not be made real-time. The data quality matters even more when we start talking about the implementation of AI solutions as they will only be able to deliver quality business results if the inputs are robust and accurate. 

The rapid growth, and surrounding hype, with AI solutions presents a fantastic, fresh opportunity for organisations to improve their data quality and prepare themselves for the next wave of benefits that will come through the adoption of AI solutions.

The economics of outsourcing

JP: You’ve also spoken about how outsourcing changes the dynamics of innovation. Can you explain?

James: When organisations outsource their logistics operations, the intention is to capitalise on 3rd party logistics service providers expertise to optimise their operations and improve service to customers, reduce operating cost, increase business resilience or improve the sustainability of their operation. When this is done well, with robust contracts and built on the foundations of strategic partnership, it is incredibly powerful. Logistics service providers often provide unparalleled access to 
the latest market innovations and enable organisations to access the resulting benefits of those innovations (e.g., cost reduction, improved service etc.) quicker than if they were trying to implement them in an in-house environment. 

If organisations outsource their logistics operations tactically rather than strategically then they run the risk of suffering from chronic operational stagnation, whereby the logistics service providers costs escalate, and the contract and relationship lack the maturity to drive transformative value. We usually help clients avoid this by encouraging them to contract for the long-term, with robust commercial 
mechanics that incentivise shared investment, and prioritise a win-win or lose-lose dynamic. The organisations that fail end up in contractual dynamics whereby there is a win-lose or lose-win dynamic which creates tension rather than collaboration. 

Short-termism and bounded rationality

JP: What about the role of leadership incentives in all this?

James: It’s a huge factor. Decision makers are often in post for less years than the benefit of any major CAPEX investments in logistics automation. Their incentives are often tied to short-term performance, not to long-term transformation which makes it very hard to justify big capital projects, especially around things like decarbonisation and automation to de-risk against future labour scarcity.

Leaders are not irrational. They are making decisions that are perfectly rational within the constraints of tenure, incentives and market pressure. The problem is that sometimes those decisions, multiplied across an industry, stop the kind of long-term innovation supply chains really need. If you look at investment in warehouse or transport automation as an example, some of those business cases 
require investment that will not return any benefit for 10-15 years. Those business cases may not typically make it through many CAPEX hurdle rates, however, they could be absolutely crucial in securing long-term business continuity in a future whereby decarbonisation, industry labour scarcity and continued cost pressure become more pressing challenges. 

Why Amazon and Ocado are different

JP: People often point to Amazon or Ocado as proof that automation can transform logistics. Do you agree?

James: Amazon and Ocado are important case studies, but they’re potentially outliers for two reasons. The first reason is that designing logistics automation from scratch is very different from retrofitting it to existing infrastructure and operations – many organisations exploring automation opportunities are doing so from a legacy, manual environment. The second reason is that both of these organisations have other sizeable income streams that sit alongside their logistics operations, 
that they can use to support fund their investments into logistics infrastructure.

When other businesses try to emulate them, they hit a wall. The economics simply don’t stack up in the same way because the hurdle rate on business case payback is too high. That’s why organisations can’t just copy Amazon and expect the same results. They need to find a model that fits their economics, their risk appetite and their maturity.

A vision for 2035

JP: If we look further ahead, what do you think logistics could look like by 2035?

James: By 2035 we’ll see more and more logistics operations that are autonomous, digitised and decarbonised. That’s the direction of travel. But we need to be clear-eyed about the journey. We can’t jump from today’s manual processes straight into that future in one leap.

It has to be thought of as a maturity path. Start with the basics - good data, clear processes, aligned long-term incentives. Then build automation and modularity step by step. One of the most powerful exercises I work through with organisations is to build the blue-sky, end-state solution which is often a logistics operation that is fully automated and decarbonised and then work backwards from that end-state to today. We often find that it’s impossible to do one giant leap from today to the future, however, it is possible to take a series of targeted steps with clear jumping off points along the way that allow time to pause, reflect, and if required to pivot.

Potential labour scarcity and the pressure to decarbonise are huge burning platforms that require urgent intervention across the logistics ecosystem, including government. Whilst it isn’t possible for most organisations to immediately mitigate against these risks, it absolutely is possible to build the transformation roadmap to do so.

Closing thoughts

For James Moffatt, the lesson is that supply chains don’t fail at innovation because the technology isn’t ready. They fail because the data is fragile, the economics of outsourcing are misaligned and leadership incentives push decisions into the short term.

The challenge is to overcome those constraints and build maturity step by step. As James put it: “You can’t jump to 2035 in one leap. You get there by building the foundations, then adding layers of capability that stick.”