Comprehensive Overview of Supply Chain

December 1, 2009 - Tags:

The Toyota Production System (TPS) is the benchmark used throughout the world as the foundation for “lean” thinking. At Toyota, the TPS practices and principles extend well beyond the factory walls to include the extended supply chain and require some crucial choices to ensure supply chain efficiency. This chapter explains how Toyota plans and operates its supply chains globally. But first, a brief look at the extended global automobile supply chain is in order, which will enable you to understand the processes described in the following chapters.

The automotive supply chain is very complex and consists of many processes that, when linked together, form a supply chain from the customer back to the various tiers of suppliers. The physical processes consist of the production of parts at the suppliers, transportation of these parts to the assembly plant of the original equipment manufacturer (OEM), assembly of parts into a completed vehicle, distribution of completed vehicles to dealers, and finally delivery to a customer. In addition to the physical processes, there are both preproduction and day-to-day operational support processes. To fully understand these processes, some background on the auto industry is necessary. The following questions need to be answered:

  • What is the product?
  • Who are the customers?
  • What are the distribution models?

What Is the Product?

A car or a truck can be described with its specifications. Each OEM uses a slightly different terminology to define a vehicle’s specifications. Toyota uses a hierarchical method of vehicle specifications. The typical hierarchy of the vehicle specifications. The following are some examples of vehicle specifications:

  • Make. Toyota, Lexus
  • Models. Camry, Avalon, Tundra, Sienna, etc.
  • Body style. Four-door sedan, two-door coupe, convertible, crew cab, double cab, etc.
  • Grade. XLE, LE, SE, etc. When a grade is selected, it usually includes several standard equipment items. Typically the higher-grade vehicles include many standard items. Sometimes when the grade is selected, the engine and transmission combination is included as standard equipment.
  • Engine. Six-cylinder, four-cylinder, etc.
  • Transmission. Automatic, five-speed, etc.
  • Factory options. Engine, transmission, sunroof, air-conditioning, naviga-tion, radio, power windows, etc.
  • Accessories . These items are like options, but they can be installed in the factory or added after the vehicle is built. Examples are spoiler, tow hitch, roof rack, and pinstripes.

In addition to the above specifications, exterior and interior colors must be included to complete the vehicle build specifications:

  • Exterior color. The outside color is usually one color; however, it could be two-toned.
  • Interior trim/color. The interior colors (e.g., black leather and gray cloth) are usually coordinated with exterior ones, but not all interior colors always will be available with all exterior colors.

So each vehicle is built with a unique set of specifications called a “build combination.” If all possible build combinations were produced, then the total build combinations for a model would be in the millions. This variety would make managing the supply chain an extremely complex and costly process; therefore, many automotive companies limit the number of build combinations offered in each market area. Toyota has been extremely successful in balancing the combinations that are made and sold by sales area. For example, one approach used at Toyota to reduce the build combinations is to include many standard equipment options based on the model and grade that is selected. The methodology on how to choose profitable levels of variety to be offered across market areas is explained in Mix Planning.

Who Are the Customers?

Automobile companies have several categories of customers that need to be considered. The following is a list of the types of customers and a brief description of each:

Retail consumers. The retail segment is the largest segment of customers, and it is also the one in which the automotive companies make the most profits. Although not all retail customers are the same, as yet there are not clear classifications for groups of customers. Illustrates how various customer types can be plotted along a continuum: at one end is the serious buyer and at the other is the serious shopper.

The serious buyer is a person who needs a vehicle within a short time frame. This type of buyer shops for price and value and will compromise on vehicle specifications. Some reasons that this type of buyer is in the market for a vehicle are that a vehicle needs replacement because of an accident, the current vehicle needs major repair, or the lease is expiring. This type of customer wants to walk into a dealership and drive out with a new vehicle.

The serious shopper is a person who has done homework and knows exactly what he or she wants. This type of shopper has researched several vehicle models and options prior to visiting the dealership and then proceeds to the dealer with the complete vehicle specification in hand. Because the serious shopper is very particular about the vehicle he or she wants, this customer will shop around or perhaps wait until a vehicle can be ordered “fresh from the factory.” Examples of the serious shopper are a consumer who is young, a first-time buyer, and a car enthusiast.

The area on the continuum from the serious buyer to the serious shopper is by far where most customers can be found. Indeed, most customers who walk into a dealership have not made up their minds on the exact vehicle specification or even if they are ready to buy a vehicle.


Employees. Automotive companies allow employees, relatives, and (in some cases) friends to purchase a limited number of vehicles per year at a substantial discount. The employees must receive prior approval before proceeding to a dealer to make a purchase or place an order. The purchase price is calculated automatically based on the discount allowed. The dealer may also receive some rebate to ensure that the dealer margin is maintained.

Suppliers. Automotive companies may offer selected employees of suppliers a vehicle purchase program. This arrangement is similar to the employee purchase program in that the purchaser must get prior approval before proceeding to a dealer to purchase a vehicle. The purchase price is calculated automatically based on the discount allowed. The dealer may also receive some rebate to guarantee that the dealer margin is maintained.


Rental companies. The rental companies (Hertz, Avis, Enterprise, etc.) negotiate a contract with each automobile company for annual volume of each model. The detailed specifications of each monthly vehicle order are submitted in advance, and the vehicles are scheduled for production based on the delivery schedule requested by the rental companies. Because space at most rental facilities is limited, the rental companies need to minimize the overlap of new vehicles arriving and the used vehicles being shipped out for auction or resale.

Commercial fleet. These are private companies that provide a company car for selected employees who require a vehicle to perform their job or for certain executives as a perk. Examples are senior management, sales representatives, taxi drivers, and delivery persons. These smaller fleet customers may negotiate a deal with the automotive company or a dealer. In some cases there may be a long-term contract with multiple automotive companies to provide specific models for a company vehicle program. The company may offer employees an option to select from a list of vehicles with specified options from multiple automotive companies. Then, either based on a lease period or on mileage, the employee will order a replacement vehicle.
Government entities. All levels of government—federal, state, and local—purchase vehicles from the automotive companies. Contracts are usually negotiated with the automotive companies to provide vehicles over a period of time. In many cases, special orders may need to be placed for vehicles with unique equipment such as police cars and fire trucks.

Clearly, streamlining the supply chain requires an understanding of the customer types and relative size and profitability of each segment. The following are some examples that show how the customer types affect the supply chain:

  • At Toyota plants in Japan, a large percentage of the production orders are exported to countries all around the world. So these order requirements are fixed and scheduled at least one month in advance for production. Toyota’s advantage is that it can allow its domestic dealers in Japan to change a greater percentage of orders closer to production because the export orders do not change. The export orders create a buffer to absorb the domestic changes in orders.
  • At Dell, about 85 percent of the orders are for corporate customers. Corporate orders are forecast in advance and can be scheduled based on the lead time for each corporate customer. The retail orders coming through the Internet can be fulfilled quickly even if demand is highly volatile, because the corporate orders can be shifted slightly to absorb the variability in retail customer demand.
  • At Ford, when Hertz was a wholly owned subsidiary, at least 40 percent of some models were sold to Hertz. This arrangement enabled Ford to use the Hertz volume to fill in the valleys in demand during the year when retail sales were slow.

Thus, customer types and order characteristics can be used to build a more flexible supply chain.

What Are the Distribution Models?

The term “distribution model” defines the method used to distribute vehicles from the assembly plant to the dealers. There are many variations in the distribution model within the automotive industry. At Toyota, the distribution model is different for various regions around the world. For example, the United States, Europe, and Japan all have different models, and in some cases the models vary within a regional area. Lee, Peleg, and Whang explain that just as Toyota has a set of central core values but allows individual divisions to customize to local conditions, when it comes to supplying to different geographies, different products, or at different times in the product life cycle, “the company adapts the design and control of its demand chain so that it has the right demand chain for the right product, in the right place, and at the right time.”1 In the United

States, there are three distribution models:

North American production. In this model, vehicles are produced at the North American assembly plants and shipped to North American dealers. Once vehicles are released from the plant, they are moved to a marshaling yard. The function of the marshaling yard is to prepare the vehicles for shipment. Vehicles are shipped via train and truck to the dealerships. If vehicles are shipped by train, then they must be transferred to trucks at a railhead near the dealership. If vehicles are shipped by truck, then they will be delivered directly to the dealership. While the vehicles are in the marshaling yard, some accessories can be added, a final quality assurance check performed, prep performed on selected vehicles, and the price label affixed to the side window. “Prep” is a term that describes the tasks that are normally performed at the dealer just prior to customer delivery. The total time it takes to distribute a vehicle once it leaves the assembly plant can range from two days to three weeks, depending on how far the dealer is located from the factory. In this distribution model, vehicles are typically allocated and assigned to dealers two to four weeks prior to production. The vehicle inventory is stored at the dealerships.

Overseas production distributed in North America. With this distribution model, vehicles produced in Japan are shipped via large vessels to ports in North America and then transported to dealerships. The port provides functions similar to the marshaling yards’; however, typically there are several accessories that are installed at the port to enable the dealers to customize the vehicles closer to delivery. It takes three to five weeks to ship the vehicles from Japan to North American ports. It can take another two days to one week to transport to dealers via truck. The reason why this delivery time is shorter than the time it takes to transport vehicles from the North American factories is that vehicles arriving from Japan are shipped to a port that is located geographically close to dealers. The ports are located in cities such as Portland, Oregon; Long Beach, California; Houston, Texas; Jacksonville, Florida; and Newark, New Jersey. The vehicles are normally allocated and assigned to dealers while they are in transit from Japan to the port; however, they must be allocated to a regional area prior to being loaded onto the ships. That step is necessary because vehicles destined for the East Coast will be loaded onto different ships than ones destined for the West Coast. As with the North American model, vehicle inventory in this production model is stored at the dealerships.

Scion model. Scion cars are produced in Japan and distributed in North America in a manner similar to the distribution model described previously; however, there are some significant differences that provide the dealers with much greater flexibility to customize the Scion cars for customers. The first difference is that Scion cars are shipped to the ports with only basic equipment installed at the factory and in limited colors. The second difference is that Scions are allocated but not shipped to the dealers until the dealer makes a request. That arrangement allows the dealer to select a base model and color, and then add accessories to customize it to meet the customer requirements. Most vehicle inventory is held at the port, which allows flexibility for customization. That adaptability is consistent with the key strategy behind Toyota’s introduction of the Scion, namely, to keep a customer for life.2 As stated previously, the vehicle inventory is stored at the port with the exception of a limited number of vehicles located at dealers for display.

European distribution model. In Europe, the distribution model is very different from North America, because most dealers are located in urban areas and do not have room for vehicle stock. Therefore, once vehicles are released from the plant, they move to a marshaling yard. The function of the marshaling yard is only to stage the vehicles for shipment. Vehicles are shipped primarily by truck to a consolidation point called a “hub.” Generally there is at least one hub for each country; however, smaller countries may share a hub, and large countries may have multiple hubs. The hub serves to hold the vehicle inventory until a dealer signs a contract with a customer. At that time, an order is sent to the hub for a specific vehicle. Also, the dealer can request additional accessories to be installed at the hub prior to shipment. The transit time from a hub to the dealer averages one week. In Europe, most vehicle inventory is stored at the hub, not at the dealerships.

Japanese distribution model . In Japan, the distribution model is similar to that for Europe because most dealer retail outlets have very small storage lots. The difference is that in Japan each dealer has a consolidation center where the vehicle inventory is stored until one of the dealer retail outlets sells a vehicle. At that time an order is sent to the consolidation center and the vehicle is shipped to the dealer retail outlet. Again, as in Europe, most vehicle inventory is kept at the consolidation center, not at the dealerships.

Supply Chain Overview

The supply chain has both physical components as well as operational and planning processes.

Physical Flows

The physical flow of the supply chain is shown in Figure. Parts are produced by suppliers and transported by inbound logistics to the assembly plant. At the assembly plant, the vehicle begins in the body shop, moves to the paint shop, then to assembly, and finally to inspection. Once the vehicle is produced, it is transported to the dealerships via outbound logistics. On paper this process looks very simple; however, it is complex because a vehicle is very large and bulky, it is assembled from thousands of parts that are produced by hundreds of suppliers, and there are thousands of vehicle combinations that could be produced.

Suppliers Suppliers provide thousands of parts and components that go into the vehicle. These parts and components are received via the inbound logistics network from hundreds of tier 1 suppliers. Tier 1 consists of the first-level suppliers that make parts and ship directly to the assembly plants. Because suppliers also have suppliers, and those suppliers have suppliers, the supply chain contains several levels that are referred to as tier 1, tier 2, tier 3, and so on. So you can imagine how complex the inbound supply chain is for an automobile assembly plant. In addition, because suppliers are located in various geographic areas, the time for parts to arrive from each supplier to the assembly plant can vary greatly. Local suppliers may be only one or two days away from the assembly plant, whereas suppliers located overseas may require several weeks of transportation time.

Inbound Logistics After parts are produced by the suppliers, they are shipped to the assembly plants. The process to ship these parts from the many suppliers to each assembly plant is referred to as “inbound logistics.” At Toyota, parts are delivered in two ways. Overseas parts coming from Japan are shipped via vessel and then by railcar to the assembly plant. Once the railcar arrives at the assembly plant rail yard, the container is offloaded onto a truck and driven to the assembly dock.

Local parts produced in North America are shipped by truck using a dedicated logistics partner. Toyota takes complete responsibility for pickup and transportation of parts from the suppliers to the plants, because Toyota’s just-intime parts inventory practice requires extreme reliability of inbound logistics. Toyota organizes the suppliers into clusters based on geographic proximity. The truck routes are designed for parts to be picked up from multiple suppliers and delivered to a regional cross-dock. To improve efficiency, the same truck will pick up parts not only from multiple suppliers but also from each supplier destined for different Toyota plants.

Once trucks arrive at the cross-dock, the parts are unloaded and staged for each assembly plant. They are then loaded onto trucks that take parts directly to each plant. Trucks are unloaded at the plant based on the progress of production. If the plant is operating on schedule, the trucks will wait only a few hours in the plant yard. After the parts are unloaded, the truck is reloaded with the corresponding empty returnable containers. These returnable containers flow in reverse through the cross-dock and back to the supplier to be reused for a future shipment.

Production Vehicles are produced at the final assembly plant from the parts provided by hundreds of suppliers. A typical assembly plant will have one or more separate lines on which vehicles are assembled. The plant is subdivided into shops. The vehicle is born in the body shop where the frame and body are formed. The body parts are stamped in the stamping shop by presses. The body shop is where numerous robots are used to weld the body parts together. Once the body is assembled, then the vehicle moves to the paint shop and its exterior is painted.

After the vehicle is painted, it moves down the line into final assembly. At that point most of the supplier-provided parts are installed to make a finished vehicle. Each part is assigned a line location so that parts can be delivered from the dock to a line address based on a bar code label affixed to the parts container by the supplier. After the vehicle is assembled, fuel is added and the vehicle is driven off the assembly line. But at that point the process is not yet complete because the vehicle still needs to go through several quality control steps along with final inspection. Once the vehicle completes the final inspection, it is released from the factory for shipment to the dealer.

Outbound Logistics Vehicles that are produced at an assembly plant must be transported to each dealer. This process is commonly referred to as “outbound logistics.” In the United States, vehicles are transported by two modes: railcar and truck. Because of the long distances that vehicles must travel, about 75 percent of the vehicles travel via railcar and are then loaded onto trucks for delivery to the dealers. The remaining 25 percent are delivered by truck to dealers that are located within two to three days’ drive from the factory. In Europe, most vehicles are shipped by truck; however, sometimes ships must be used when there is a large waterway that must be crossed.

Just outside the assembly plant, there is a large yard that is used to stage the vehicles prior to shipment. At Toyota, these yards are referred to as “marshaling yards.” In the United States, these yards perform three functions. Team members install accessories, perform final quality assurance, and stage vehicles for shipment. Once the vehicle is ready for shipment, it is driven to either the railcar staging area or the truck staging area.

For railcar shipments, there are two types of railcars: bi-level and tri-level. “Bi-level” means vehicles are loaded onto two levels within the railcar, and “trilevel” means vehicles are loaded onto three levels. The capacity of a bi-level railcar is 9 to 10 vehicles; a tri-level, 14 to 15 vehicles. Therefore, vehicles are staged in lanes according to the capacity of the railcar and the destination.

Vehicles shipped by truck are identified by the dealer and parked in a truck staging area. The trucking company is responsible for selecting the vehicles to be loaded onto each truck based on the route plan for that truck. The trucking companies have a delivery performance objective to deliver all vehicles within two days. To ensure that both the trucking and rail companies have adequate capacity to ship vehicles, the assembly plant needs to provide a day-to-day forecast of volume by destination.

Dealers Dealers play a key role in the supply chain because they are the face of Toyota to the customer. They are responsible for selling the vehicles produced by the manufacturer to the retail customers. In addition to selling vehicles, dealers have an extremely important influence on customer satisfaction. Independent customer surveys such as the “J.D. Power survey”3 measure customer satisfaction in various categories. The two prime categories are (1) initial vehicle quality and (2) customer satisfaction regarding the selling process. Customers that score the selling process low also tend to give lower scores on the initial quality survey. A high J.D. Power score can be a valuable marketing tool for an automobile manufacturer. Therefore, it is critical not only that the vehicle quality itself be high but also that the customer buying experience be positive—or at least not negative. Two reasons that the Lexus vehicles always score high in the J.D. Power survey are that the vehicles are assembled with extreme attention to detail and that the customer is also pampered by the dealer.

It is imperative that a dealer invest sufficiently in a facility so that it can operate efficiently and at the same time meet or exceed its sales objectives. A key factor in a lean supply chain is the optimum level of dealer stock. It is also critical that a dealer have an adequate mix of stock so that most of the customers can be persuaded to buy from stock and the dealer does not end up with too many aged stock units. (Mix planning is discussed.)

Vehicles are shipped to dealers from the assembly plants or from the port of entry. They are delivered by truck. The delivery time window will vary by dealer depending on dealer location and operating hours. Most dealers will accept vehicles only during business hours; however, a dealer may not want to be interrupted during very busy times. Therefore, the trucking company must understand the dealer’s delivery time windows and schedule its deliveries accordingly. Most trucks will deliver a load of vehicles to multiple dealers, so the loading sequence must be planned based on the delivery route.

One of the key responsibilities of the salesperson is to guide customer demand. Toyota’s sales model is designed so that a high percentage of vehicles is sold from a relatively low level of dealer stock. The objective is to stock 20 percent of build combinations that represent 80 percent of the sales for each market area. Some of the techniques that a dealer uses to achieve this end are to advertise and promote only the popular models and display these models in the showroom or in an area that is easy for the customer to see.

Once a vehicle is sold, the dealer must “prep” the vehicle for customer delivery. That usually means the dealer has to install wheel covers, wash and clean the vehicle, fill the tank with fuel, and inspect the vehicle to ensure that there are no defects. In addition, the dealer needs to prepare appropriate documents. At the time of delivery, the dealer will instruct the customer on how to operate various features of the vehicle, complete the paperwork, accept payment or arrange financing, and in some cases take possession of the trade-in vehicle.

After the vehicle is delivered, the dealer submits a sales transaction to the manufacturer, which will relieve the stock, provide the dealer with credit for the sale, and start the customer warranty date.

Various operational processes are necessary to operate the supply chain; Provides another view of the transformation process that takes place from parts produced by suppliers to vehicles ready for sale at dealers.

What is the difference between the supply chain of most car manufacturers and of Toyota? Visualize the Toyota supply chain operation as a giant Swiss clock. The plant is the main mechanism of the clock. When a clock is opened to expose all of its working mechanisms, there are various-sized movements that are all moving at different speeds but are integrated precisely to ensure that the correct date and time are displayed on the face. This continuous motion repeats itself at numerous intervals: seconds, minutes, hours, days, months, and so on.

Similarly, inside the Toyota plants, vehicles move down the main assembly line at a constant speed—or “takt time.” Feeder lines are also moving key subassemblies to various stations along the main line, where the correct engine or other subassembly arrives just-in-time to be installed in the exact vehicle that requires that subassembly. In another area of the plant, for example, seats are arriving by truck from a sequenced supplier to be installed in the vehicles, again based on the exact match. In the staging yard just outside the plant, trucks loaded with parts produced by hundreds of suppliers are arriving and are unloaded based on the vehicle sequence and progress of the vehicles moving down the main line. Looking back through the supply chain, the cross-docks and truck milk routes are all operating on repeatable cycles to support the main line’s need for parts. Also, all tier 1 suppliers and their suppliers are operating on a schedule to produce parts based on the scheduled pick-up time.

Thus, Toyota’s supply chain functions like a finely tuned Swiss clock. It is synchronized and integrated to perform as a lean supply chain. Nevertheless, it produces sufficient variety and at a sufficient velocity to satisfy demanding customers.

Operational Processes

Several operational processes must be performed on a periodic basis to guarantee that the physical supply chain is operating efficiently and effectively. These processes integrate and synchronize the operational processes with the physical processes to ensure a lean supply chain. The key processes are as follows:

  • Mix planning
  • Sales ordering/forecasting
  • Production scheduling
  • Dealer allocation
  • Parts ordering/forecasting
  • Inbound logistics planning

For some perspective of what these processes entail, a thorough explanation of Toyota’s practices and principles follows. The detailed processes and the logic used to execute these processes will be described .

Mix Planning

Mix planning is the process of limiting the number of build combinations that are ordered for stock in each market area. As mentioned earlier, “build combination” is a term that defines the unique set of specifications for a vehicle. For mix planning purposes, vehicle specifications are divided into three categories: factory-installed options, color, and accessories that can be installed after a vehicle is built. Mix planning is initially performed on an annual basis prior to new model launch and can be adjusted monthly to reflect changes in demand and/or seasonal trends. For the United States market, the mix planning is done at the region level to ensure that the vehicles ordered for stock closely meet the needs of the geographic area. For example, sport utility vehicles (SUVs) ordered for dealers located in the northern states would almost always be equipped with four-wheel drive, whereas SUVs ordered for southern states would be ordered with two-wheel drive. Another example is vehicles ordered for Arizona being painted with light colors (certainly not black!) because of the heat.

In Europe, the mix planning is done country by country because many of the countries have unique requirements. For example, the United Kingdom requires right-hand-drive vehicles whereas the countries on the Continent require left-hand-drive. Also, there are various regulations in different countries, significant climate differences from Norway to Spain, and substantial economic differences between Western and Eastern Europe.

Sales Ordering/Forecasting One of the functions of the sales division is to provide a monthly production order and forecast. That is in the form of a rolling three-month plan with the first production month categorized as a firm order and the next two months as a forecast. The firm order requires the sales division to commit to the total volume of units for the month, whereas for the forecast months the volume can change. The content of the order month, however, can change in terms of number of vehicles up to one to two weeks prior to production. The process starts with the sales and production divisions first agreeing to a planned volume of units or vehicles that are going to be produced each month. Sales divisions determine their request by analyzing recent sales and stock levels. Sales divisions will also consider marketing promotions and seasonality changes. Both sales and production divisions collaborate to agree on the total planned vehicle volume for each of the next three months. The total vehicle volume is further broken down by vehicle model and by plant. Next, sales divisions allocate the total volume by model to each region based on sales performance. Then each region uses the mix plan along with the recent sales trends to create the quantity of each build combination for each month for each vehicle model. The mix plan or target is compared to the actual mix of sales and the actual mix of stock to determine which build combinations need to be ordered to maintain the target level of mix for stock. In addition, the regions may need to make adjustments for any special dealer requests and also need to consider any special promotions or seasonal trends; for example, sunroofs and convertibles sell better in spring and summer.

Once the forecast is made and the order is completed by each regional office, it is sent to the sales divisional headquarters. There it is checked before it is forwarded to the production divisional headquarters to create a production schedule.

Production Scheduling Production scheduling is the process of taking the monthly order and forecast from sales and assigning a production date and sequence to each vehicle. The objective is to create a production schedule that is leveled across each day of each production month using the heijunka principle.

Heijunka is a Japanese term that is defined as “smoothing.” The concept is to assign each vehicle option a smoothing weight based on its importance to manufacturing. For example, engines will get a higher weight than color, because if they were not evenly scheduled over the month and there were a change in production of engines, that would have a greater negative impact on manufacturing.

The term “production month” is different from “calendar month.” For each calendar year, a production calendar is created. There will always be 52 or 53 production weeks in a year. A week is assigned to a month, based on Monday’s date. For example, if January 31 falls on Monday, then that complete week is considered January production. February production would start with the February 7 week and end with the February 28 week. The only exception to this rule is the week that includes January 1. The week that contains the January 1 production day will always be week 1, even if January 1 does not begin on a Monday, which means it may contain some December days. Each production month will contain an even four or five weeks.

After the production plan is complete, it is sent back to sales with a scheduled build date for each vehicle. A copy is also sent to the parts ordering group at each assembly plant.

Dealer Allocation Dealer allocation is the responsibility of the sales regions. The dealer allocation process is usually performed twice each month for two weeks of production at a time. That occurs four to five weeks prior to the scheduled build dates for the vehicles that are being allocated.

Prior to the allocation process, dealers can update their profile with specific guidelines on the type of vehicles they either want—or in some cases do not want—to be allocated. For example, dealers in northern cities may want a cold weather kit, and dealers in Arizona may not want dark-colored cars. This dealer profile is important because each region covers a large geographic area of several states that may have different climates and demographics.

The allocation process is executed by each region for its dealers. The allocation quantity for each vehicle model is based on a “fair-share method” (sometimes referred to as “turn and earn”) to guarantee that each dealer is treated fairly. The concept involves basing the allocation on how well each dealer is selling its previous allocation compared to all other dealers. Another benefit of this method is that it ensures that the inventory is rebalanced across all dealers.

After the vehicles are allocated, they are assigned to the dealer and will be visible to the dealer as pipeline orders. A pipeline order is a vehicle that is in the scheduled pipeline and will be built during the week identified with each vehicle. Each vehicle has a full set of specifications