Agencies' survival depends on grasp of Supply Chain

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The gap between advertising's dreams and marketing's reality grows wider every day. The real culprit? Call it the Supply Chain View of Life.

The Supply Chain View of Life is the daily operating reality of senior executives in just about any industry you might care to name. It is best represented by such companies as Wal-Mart, whose fabled "just-in-time" inventory-management system is able to anticipate which goods will be needed at what stores and to get them there so efficiently that the company accounts for some 20% of all retail transactions in the U.S. and for more than 10% of global GDP.

Then there's Dell Computer, whose ability to customize PCs for consumers and subsequently for enterprise customers became so refined that in the five years after 1996 it grew from Internet newbie to world's largest personal-computer maker.

But the granddaddy of "lean production," as it's come to be called, is Toyota. As chronicled in the path-breaking book "The Machine That Changed the World," by 1984 the Toyota Production System had bled so much waste from the manufacture of cars that the Japanese automaker was able to launch new products three years faster and for $2,000-per-unit less than America's Big Three.

The Supply Chain View of Life governs business competition today. Wal-Mart's dominance is the single-most important influence on consumer-products companies, whose strategies focus largely on getting their own costs and prices low enough to meet the retailer's needs. IBM's inability to match Dell helped persuade it to leave the PC business and concentrate its strategy on services. Toyota's growing superiority helped prompt Chrysler's sale to Daimler, and has the remaining two domestic automakers desperately trying to match its cost advantages.

What's the impact on marketing? It's the changed perspective of the chief executives competing in the new world forged by these superior players. They are making demands that curdle the blood of the heartiest of advertising's great presenters. What they are asking is this: "If I know where all my parts are hour by hour, and I can get reports at 9 a.m. and 5 p.m. of where my finished inventory sits, and I know where my cash is at the end of each day, why don't I know where my customers are, or what they want, or what drives their preferences?"

This cognitive dissonance-between manufacturing and financial-management processes so sophisticated that they provide near-complete knowledge of a firm's complex operations, and marketing processes suffused with artistry and opinion and irrationality-is wreaking havoc on marketing-services suppliers and their methods of doing business.

It's the real reason ROI demands have risen: Other functional investments can be analyzed according to their returns, so why not marketing? Which in turn provides the explanation for the increasing influence of procurement offices in the purchase of marketing services: We can benchmark best price for best-in-class in other service areas, so why not marketing? And that, in turn, is why the "edgy creative" act is growing thin: "Breakthrough" is no longer an empty claim, but an increasingly measurable fact.

Understanding the Supply Chain View of Life under which their clients are laboring will be central to the survival of agencies and media companies.

So will implementing it.

Randall Rothenberg, an author and longtime journalist, is director of intellectual capital at consultancy Booz Allen Hamilton

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