In plain English: What does supply chain optimization mean?

By Chris Miller – client partner, MiQ

A blog series explaining some of the concepts, processes and technologies we need to do our jobs – in plain English. 

It’s no secret that Facebook and Instagram advertising plays a massive role in helping emerging brands scale quickly. But what happens when the well runs dry?

While new DTC (direct-to-consumer) brands seem to pop up every day, social media advertising keeps getting more and more expensive. Increasing the number of ad buyers spells trouble for all brands, but particularly for these challenger brands which have relied so heavily on social for their early growth.

So where does a DTC marketer turn to keep the growth going? Podcasts? Display? Connected TV? Linear TV? Each channel has its inherent benefits and challenges. But the most important question a marketer must ask is: “Where can I maximize new customer acquisition for the least amount of money, while also building my brand?”

As advertising increasingly becomes programmatic, marketers have new opportunities to attribute purchases to paid media across all their channels. And one of the important ways to achieve efficient customer acquisition cost, incremental lift, or simply high value cost-per-purchase is the ability to optimize buying all of your digital ad channels via the most optimal supply routes.

This is what we call supply path optimization (SPO).

What is supply path optimization?

Let’s expand on the concept a bit more. While standard programmatic advertising optimization focuses on finding inventory that drives the best performance, supply path optimization is more about how you buy a specific piece of ad inventory – and who you buy it through.

If you haven’t worked in the space, or are just getting started, here are a few things you may not know:

  • One domain, like CNN.com can be bought from hundreds of sources/sellers. Likewise, one inventory source/seller can be bought from numerous buying platforms. This means that a single site/app can be bought via thousands of different supply routes.
  • And that means some routes are better than others. Some supply chains are shorter and more direct whereas some involve hidden fees. Some could even contain fraudulent site traffic or spoofed domains.

If you want to buy your programmatic inventory efficiently (and you do), it means you need both sophisticated analytics on the supply feature combinations that matter most, as well as the ability to activate your buying with machine learning algorithms to combat the dynamic nature of cost and media performance.

How to construct an effective SPO approach

So which supply features matter most? This may well depend on your KPIs, but at a basic level, the ability to select which ad exchanges are the most efficient for your DSP makes a world of difference.

Because we’re DSP-agnostic, we trade in numerous DSPs, so for us this exercise means running cost analysis for the exchanges available in each. Since DSPs tend to provide better access to premium inventory on their own exchanges (for example, AdX on DV360), this is a very basic way of buying ad space more efficiently.

Beyond DSP-exchange combinations, we also look at other features such as domain, browser, device type, operating system, ad slot, and creative size. Any biddable feature needs to be included in your analysis and, ultimately, your activation. The key is making sure that activation reflects not only cost efficiency, but delivers performance as defined by your unique media KPIs.

In today’s programmatic ecosystem, algorithmic bidding capabilities are table stakes, but this is of increased importance when it comes to SPO. Because publisher-side yield optimization managers are constantly updating inventory prices, last month’s supply path insights may be completely out of date by next month. That means in order to experience a sustained reduction in your media costs while maintaining performance expectations, your programmatic partner should be using machine learning algorithms to power your SPO.

Want to learn more?

As you can see, behind every ad impression is a more complex world than meets the eye. This ultimately pits two competing sides against one another: a buy-side trying to minimize media costs versus a sell-side trying to maximize their own revenue.

Supply path optimization is a vital tool for marketers to gain the upper hand against their competition, buying inventory that delivers on the goals they set out to achieve at the lowest possible cost to them.