Revamping the Flawed Vehicle Ordering and Allocation System

Table of Contents

1. Introduction
2. The Broken Vehicle Ordering and Allocation System
   • 2.1 Car Allocation
   • 2.2 Car Ordering
3. Pros and Cons of the Allocation System
   • 3.1 Pros
   • 3.2 Cons
4. Pros and Cons of the Ordering System
   • 4.1 Pros
   • 4.2 Cons
5. The Tesla Method: Consumer to Manufacturer Ordering
6. The Best Approach for Manufacturers
   • 6.1 Standardized Manufacturers
   • 6.2 Manufacturers with Optional Equipment
7. The Success of Stellantis
8. Striking the Right Balance
9. Conclusion

The Broken Vehicle Ordering and Allocation System

In today's article, we will dive into the flaws of the current vehicle ordering and allocation system for dealerships in the United States. This system has often been criticized for being broken and in need of a major overhaul. Let's explore the two main ways dealerships acquire cars: car allocation and car ordering.

Car Allocation

Car allocation is a process where manufacturers dictate to dealerships the number of specific models they will receive over a set time period. Dealers have little say in this allocation and can only make minor adjustments, such as changing colors or options. However, they cannot alter the models themselves or exchange one model for another. For example, Toyota might inform a dealership that they will receive a hundred 4Runners, with a certain percentage allocated to different trims. While this system allows manufacturers to keep in-demand vehicles in continuous production, it creates a significant gap between customer demand and actual production.

Car Ordering

In contrast, car ordering involves dealerships directly communicating with manufacturers to request the specific models, trims, colors, and options they desire. This process grants dealerships more control over their inventory and enables them to cater to customer preferences. By gathering feedback from customers, dealerships gain valuable insights into the vehicles that are in-demand, which they can then relay to the manufacturer. This two-way communication stream allows manufacturers to streamline their production process and build cars that customers actually want.

Now that we have briefly outlined the two main systems, let's take a closer look at their pros and cons.

Pros and Cons of the Allocation System

Pros

• Keeps in-demand vehicles in high demand over an extended period.
• Allows manufacturers to streamline production.
• Provides a pre-determined allocation that dealerships can plan around.

Cons

• Creates a gap between customer demand and actual production.
• In-demand vehicles may have higher prices due to limited supply.
• Discounts may be necessary to sell excess inventory.

Pros and Cons of the Ordering System

Pros

• Dealerships have more control over their inventory.
• Enables customization and personalization options for customers.
• Higher customer satisfaction due to customized purchasing experience.

Cons

• Risk of watered-down product value if demand decreases over time.
• Requires effective communication between dealerships and manufacturers.
• May result in longer wait times for customers.

The Tesla Method: Consumer to Manufacturer Ordering

Tesla employs a unique approach where customers can directly order vehicles from the manufacturer's website. This consumer-to-manufacturer ordering process eliminates the need for dealerships and allows customers to receive the exact car they desire. Tesla only builds cars that have been ordered, avoiding the issue of excess inventory. While this approach may seem ideal from a customer standpoint, it is not suitable for most manufacturers due to financial constraints and the complexities of the automotive market.

The Best Approach for Manufacturers

The optimal approach for manufacturers largely depends on their product and market. Standardized manufacturers like Toyota may find the allocation method viable since they produce vehicles with minimal variations over time. This method allows them to continue building in-demand vehicles while minimizing excess inventory. On the other hand, manufacturers with a wide range of optional equipment, such as American automakers, should consider the ordering method. Stellantis, for instance, has seen success by implementing a more customer-centric approach to production, resulting in increased sales.

Striking the Right Balance

While neither the allocation nor the ordering method is perfect, manufacturers must find a balance that satisfies both customers and their own production demands. Allocating a certain percentage of production to in-demand vehicles ensures continued availability but also leads to higher prices. Ordering vehicles based on customer preferences allows for customization but requires effective communication and coordination between manufacturers and dealerships. Striving for this equilibrium is crucial to maximize customer satisfaction and sales.

Conclusion

In conclusion, the current vehicle ordering and allocation system for dealerships is flawed, but it is essential to strike a balance that meets the needs of both manufacturers and customers. While the Tesla method may be appealing, it is not feasible for most manufacturers due to financial limitations and market complexities. By leveraging the strengths of the allocation and ordering systems, manufacturers can streamline production, cater to customer preferences, and ultimately deliver a better car-buying experience for consumers.

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