In 1995, Volkswagen of America began a review of its vehicle-distribution system looking for opportunities to improve customer responsiveness and simultaneously reduce system costs. An analytical tool was required to evaluate alternative designs in terms of cost and customer service level, both of which are functions of probabilistic and dynamic elements. These elements include inventory policies, demand seasonality and volume, customer-choice patterns, and transportation delays. By using an innovative combination of simulation and discrete optimization models, we addressed the problem of analyzing a large number of alternatives efficiently. Our analysis indicated opportunities for significant savings in estimated annual transportation costs, and it provided insights on how to implement the proposed system.