MikeAZ
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I have been researching automobile distribution schemes while waiting for my 2015 Mustang order to be scheduled for production. Questions and observations on what I have found follow and hopefully will give some insight on current industry practices. Please excuse the length of this post.
It appears as if all or not most domestic manufacturers currently use a pull system where dealers place orders (in an order bank) for vehicles configured to their specifications. There may be manufacturer based research and recommendations on a regional or local level that they can lean on to help make the decisions or they can rely on historical sales data. Access to material hold data may also impact configuration choices. But ultimately the configurations available on the lot are the responsibility of the dealerships. In this scheme, the number of vehicle allotments are earned primarily through sales volumes. There appears to be about a 30-day to 45-day target for supply of vehicles on the lot using the pull strategy. The industry as a whole would like to reduce the on hand inventory numbers even further.
In the not to distant past, the domestic manufacturers used a push system where they determined through research and historical sales data what configurations to build and the number of vehicles to send to each dealership. This scheme could and did in many years lead to excessive dealer inventory which required huge discounts and incentives to deplete the inventory. Vehicle supply under the push environment was much longer, typically over 90 days of inventory.
Foreign manufactures appear to use primarily a push based system where a given model has a few fixed configurations that can be customized with a limited number of options installed at the port of entry or at the dealership. Inventory is controlled by sales volumes. A sold customer order of a foreign manufactured vehicle is in reality a final configuration of a desired trim level of either a vehicle already at the dealership, or one destined for the dealership at the port of entry.
At the start of a model year, especially if a tooling change is involved, dealer allocations are built and shipped first to populate dealer lots with the new model. After that, orders for customers that put down deposits are intermixed with dealer allocations. The prioritization scheme uses previous sales, regional research data, material availability, and other undisclosed factors as input to the selection of placed (banked) orders. It is unknown if Ford counts a sold customer order against a dealer’s allocation numbers.
Dealers determine build sequence priority for their orders when they place them and at Ford it is independent between sold customer orders and dealer allocations. In other words, a dealer can decide which sold order is to be scheduled first and which dealer allocation he would like to receive first but he cannot specify the build sequence between a sold unit and a dealer allocation unit without gaming the system (such as temporarily canceling all sold orders to insure the dealer allocations are scheduled). Material shortages can and do sometimes rearrange the dealer set priorities. Manufacturing goals can also affect scheduling – for example a particular model may have overall manufacturer determined mileage targets and low mileage variants of the model may be suspended until enough units of the higher mileage versions are produced.
There appear to be several ways a dealer can circumvent the “fairness” of the distribution scheme, know as “falsely reported transactions” (a violation of their dealer agreements). One method is placing dealer allocation orders as sold customer orders. Some manufacturers pull (or did in the past) sold customer orders before dealer allocations. In 2012, GM determined that about 30% of its supposedly sold orders ended up on dealer lots. Another strategy is for a dealer to temporarily relocate vehicles from one store to another of his stores (or a fellow dealer) to inflate sales numbers when the monthly inventory survey is taken by the manufacturer. This will lead to additional allocations based on sales or inventory levels.
There are several forum members with dealer and manufacturer contacts on this forum. Could any of you answer or comment on the following questions?
Have I captured the current state of automobile allocation and distribution accurately, especially at Ford?
At Ford, do sold customer orders have priority over dealer allocations at any time during a model year's scheduling and if so, under what conditions?
Do dealer allocation numbers affect the scheduling of sold customer orders for a particular dealership (for an extreme example, if a small dealership sold no units of a model the previous year and has one or no allocations, under what conditions will the sold order get scheduled in relation to other dealership orders)?
Does Ford have any processes in place to discover dealers gaming the allocation system and if so what are the penalties?
It appears as if all or not most domestic manufacturers currently use a pull system where dealers place orders (in an order bank) for vehicles configured to their specifications. There may be manufacturer based research and recommendations on a regional or local level that they can lean on to help make the decisions or they can rely on historical sales data. Access to material hold data may also impact configuration choices. But ultimately the configurations available on the lot are the responsibility of the dealerships. In this scheme, the number of vehicle allotments are earned primarily through sales volumes. There appears to be about a 30-day to 45-day target for supply of vehicles on the lot using the pull strategy. The industry as a whole would like to reduce the on hand inventory numbers even further.
In the not to distant past, the domestic manufacturers used a push system where they determined through research and historical sales data what configurations to build and the number of vehicles to send to each dealership. This scheme could and did in many years lead to excessive dealer inventory which required huge discounts and incentives to deplete the inventory. Vehicle supply under the push environment was much longer, typically over 90 days of inventory.
Foreign manufactures appear to use primarily a push based system where a given model has a few fixed configurations that can be customized with a limited number of options installed at the port of entry or at the dealership. Inventory is controlled by sales volumes. A sold customer order of a foreign manufactured vehicle is in reality a final configuration of a desired trim level of either a vehicle already at the dealership, or one destined for the dealership at the port of entry.
At the start of a model year, especially if a tooling change is involved, dealer allocations are built and shipped first to populate dealer lots with the new model. After that, orders for customers that put down deposits are intermixed with dealer allocations. The prioritization scheme uses previous sales, regional research data, material availability, and other undisclosed factors as input to the selection of placed (banked) orders. It is unknown if Ford counts a sold customer order against a dealer’s allocation numbers.
Dealers determine build sequence priority for their orders when they place them and at Ford it is independent between sold customer orders and dealer allocations. In other words, a dealer can decide which sold order is to be scheduled first and which dealer allocation he would like to receive first but he cannot specify the build sequence between a sold unit and a dealer allocation unit without gaming the system (such as temporarily canceling all sold orders to insure the dealer allocations are scheduled). Material shortages can and do sometimes rearrange the dealer set priorities. Manufacturing goals can also affect scheduling – for example a particular model may have overall manufacturer determined mileage targets and low mileage variants of the model may be suspended until enough units of the higher mileage versions are produced.
There appear to be several ways a dealer can circumvent the “fairness” of the distribution scheme, know as “falsely reported transactions” (a violation of their dealer agreements). One method is placing dealer allocation orders as sold customer orders. Some manufacturers pull (or did in the past) sold customer orders before dealer allocations. In 2012, GM determined that about 30% of its supposedly sold orders ended up on dealer lots. Another strategy is for a dealer to temporarily relocate vehicles from one store to another of his stores (or a fellow dealer) to inflate sales numbers when the monthly inventory survey is taken by the manufacturer. This will lead to additional allocations based on sales or inventory levels.
There are several forum members with dealer and manufacturer contacts on this forum. Could any of you answer or comment on the following questions?
Have I captured the current state of automobile allocation and distribution accurately, especially at Ford?
At Ford, do sold customer orders have priority over dealer allocations at any time during a model year's scheduling and if so, under what conditions?
Do dealer allocation numbers affect the scheduling of sold customer orders for a particular dealership (for an extreme example, if a small dealership sold no units of a model the previous year and has one or no allocations, under what conditions will the sold order get scheduled in relation to other dealership orders)?
Does Ford have any processes in place to discover dealers gaming the allocation system and if so what are the penalties?
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