Impact of distribution channel dynamics on automotive assortment planning

Abstract

Automotive original equipment manufacturers (OEMs) devote considerable effort to maintaining efficient order catalogs in order to provide superior products in make-to-stock (MTS) markets. Despite expanding research on product “assortment planning”, one crucial aspect often overlooked is the influence of distribution channels, notably dealer franchise networks. Dealers face unique challenges in meeting local consumers’ choice preferences while balancing limited product configuration inventory with profitability. In MTS markets like the U.S., most dealers can only afford to stock a fraction of the numerous buildable configurations available from the OEM, even with potential vehicle trades among dealers. This study pioneers the investigation into the influence of franchise dealer network dynamics on automotive OEM’s product-level configuration assortment planning, employing a detailed numerical study using simulated data. We also develop an analytical model to characterize the optimal joint product configuration assortment and inventory levels at dealers, considering the OEM’s product assortment. Our study rigorously examines key factors influencing the dealer network, including dealer density, network heterogeneity, and customer choice complexity, yielding several significant insights.