Reducing Distribution Costs in a Two-Level Inventory System at Ciba-Geigy

Ciba-Geigy constructed a simulation model of a two-level inventory and distribution system to develop and analyze strategies for reducing overall distribution costs. The model covers all stages of distribution, beginning with production planning and ending with delivery of goods to customers in different countries. Besides considerable expected reductions in distribution costs, the model led to insight as to where to concentrate future efforts to reduce the capital tied up in the distribution chain. It also showed that a planned, highly automated inventory and distribution center removes the incentives for using a distribution strategy that “pushes” finished goods to the group companies immediately after production.