Equitable Distribution of Cars from Plants to Retailers

Toyota Motors

Overview

Toyota Motors needed to determine how to meet demands for a wide variety of car models with different combinations of options when all demands could not be met, due to limited capacity. We developed a distribution model that met retailers’ demands in an objective and equitable manner.
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Business Problem

Toyota Motors faced a challenge in meeting the demand for cars from thousands of retailers spread across the country. Each retailer specified its demands for cars with specific options (for example, a Camry with automatic transmission, A/C, power brakes, power steering and a sunroof), and manufacturing plants produced cars with those options. However, not all car demands could be met by plants due to capacity and resource constraints. Toyota needed to determine a production, transportation and distribution plan that met retailers’ demands in a realistic manner, while minimizing the total supply chain cost. The company invited several organizations, including Optym and its technology partner Syncata, to demonstrate how they could solve this decision problem within a reasonable time frame.

Our Approach

Our company partnered with an IT solution provider to develop an optimization model to solve the distribution problem. As the first step, we developed an in-depth understanding of the business problem to be solved, documenting its decision variables, constraints and objective function terms. After we performed data analysis of the input data, we used the insights that the data provided to select the right optimization approach.

We developed an iterative solution approach to solve the distribution problem, solving a sequence of mixed integer programming (MIP) problems while improving retailers’ satisfaction in each iteration. We tested this approach on multiple data sets to assess the robustness of the solution quality. The results: We demonstrated considerable improvement in the equitable distribution of cars to dealers.

Key Benefits

  1. Replaced a manual process with an automated process for manufacturers that was objective and user preference-driven.
  2. Dealers received car models that were more aligned with customer needs, which resulted in higher sales.

Results

Our solution approach outperformed those of our competitors; the quality was much better and the run times much shorter. Dealers preferred the recommendations that our solution’s objective methodology yielded. Toyota selected our team as the winner out of several competitors. After a commercial-grade software solution was developed based on this approach, Toyota Motors put it into production. Later, this solution approach was also used for other leading auto manufacturers.