• by Michael Katz , May 19, 2009

Manufacturers are measured by the efficacy of transforming raw materials into consumable products. How well they manage an intricate network of suppliers in order to meet demand -- and their ability to infuse value and efficiency along the supply chain -- is what sets the successful companies apart from the rest of the industry. How ad networks operate shouldn't be any different.

By definition, supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion and logistics management activities. It also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply with demand management across the organization.

Widely applied to traditional brick-and-mortar business, the basic tenets of effective supply chain management focus on the procurement and optimization of raw materials, thus improving inventory visibility and velocity. Applying these fundamental business practices to the world of online advertising helps put into perspective the role that next-generation ad networks can play in the ecosystem.

By effectively aligning publisher inventory supply (raw materials) with advertiser demand, and infusing behavior-based targeting, analysis and reporting, ad networks can contribute significantly to the online advertising value chain. It's their contribution to the value chain that can separate certain ad networks from publishers and other competitors. Consider internal factors such as sales force effectiveness, customer relationships and platform maturity that can impact supply chain effectiveness.

Then consider external factors such as restricted ad budgets and fluctuating predictions for the future of the online advertising market that increase pressure on the supply chain. This pressure puts ad networks' business models to the test and ultimately exposes supply chain inefficiencies. For many, survival will hinge upon the ability to properly control inventory -- raising quality and reducing waste -- while delivering relevant audiences to advertisers and improving campaign performance.

How can networks truly differentiate themselves through effective supply chain management? Take these 6 steps:

1. CRM Implementation -- Utilizing a CRM tool such as salesforce.com allows networks to better align with customer needs, enhance productivity of the sales team, and identify trends that can fuel product development -- and related revenues. Without visibility into the demand chain, or the ability to understand specific advertiser requirements, ad networks can risk market share and the potential for future buys.

2. Inventory Procurement -- The ability to effectively predict demand based on historical trends combined with insight into current market conditions play a significant role in inventory procurement and related pricing strategies. Supply chain visibility helps networks make the right pricing decisions that don't degrade inventory quality or reduce margin.

3. Performance Monitoring -- Inventory and data transparency are critical to accurate and timely campaign performance monitoring. Ongoing monitoring and analysis help networks quickly determine whether a campaign is lagging, and to make timely adjustments to audience segments to ensure optimal ROI for advertisers.

4. Client Service -- Established supply-chain principles emphasize the importance of integrating the customer into the management of the supply chain. For ad networks, this means understanding the goals of any given campaign, such as encouraging new car configurations, airline ticket purchases or new cell phone plan subscriptions, and matching publisher inventory and audiences accordingly. With in-depth knowledge of consumer behavior and campaign goals, effective ad networks can eliminate uncertainty and ensure that ads hit the right targets at the right time.

5. Product Development -- To positively impact the value chain, ad networks must tighten the link between customer requirements and product development. This means investing in building out proprietary technology that allows for advanced campaign reporting, enhanced targeting capabilities, or increased pricing flexibility.

6. Marketing -- Many ad networks have been able to survive on brand recognition alone. However, when you peel back the layers, campaign performance, accountability and the overall customer experience are ultimately what drive customer loyalty and repeat business. In order for ad networks to rise above the fray, it is important to promote what's important to their core audience -- value, transparency and results.

Conclusion Ad networks with advanced inventory platforms will be able to clearly differentiate themselves among commodity players over the long term. Ultimately, the networks that will survive are those that consistently deliver measurable added value to the transaction versus short-term arbitrage players.