Impact of Distribution Channel Dynamics on Automotive Assortment Planning

Automotive original equipment manufacturers (OEMs) are dedicating significant efforts to maintaining an efficient order catalog in order to provide superior products to customers in make-to-stock (MTS) markets. Although research on product “assortment planning” is expanding to effectively identify optimal assortments for OEMs, the existing literature on configurable assortment planning overlooks a crucial aspect: the influence of distribution channels, particularly dealer franchise networks. Dealers encounter unique challenges in their pursuit to best meet the choice preferences of local consumers while balancing limited product configuration inventory with profitability. In many predominantly MTS automotive markets like the U.S., the reality is that most dealers can only afford to stock a minute fraction of the numerous buildable configurations available from the OEM, even when accounting for potential vehicle trades among dealers. To the best of our knowledge, this study is the first to investigate the impact of franchise dealer network dynamics on the assortment planning of an automotive OEM. We develop an analytical model to comprehend and optimize the inventory management policy of the dealer network considering the OEM’s product assortment. Our study thoroughly analyzes the critical factors influencing the dealer network response, such as dealer density, heterogeneity of the dealer network, and complexity of customer choice