A Framework for Analyzing the U.S. Coin Supply Chain

Abstract

We study a coin supply chain problem in the context of improving efficiency. While most consumer products are distributed in one direction, coins are recirculated and reused through the economy. The Federal Reserve System (FRS), the central banking system of the United States, plays a crucial role in managing the U.S. coin supply chain (CSC). It spends a significant fraction of its annual budget on operating the U.S. CSC in order to provide banking services to depository institutions (DIs) and the public. The objective of this study is to provide a near‐optimal or an optimal operating policy that minimizes the total cost of producing, supplying, and managing coin inventory in the U.S. CSC. The study demonstrates a modeling approach that not only can be applied for effectively and efficiently managing the coin supply in the United States, but also for managing similar coin supply chains around the world. The extensive tools and insights developed in this study may prove to be beneficial to the Federal Reserve’s Cash Product Office (CPO) that manages the distribution of the nation’s coin inventory. Managing demand uncertainty and streamlining its processes to be more adaptable to changes in demand are critical for the CPO to reduce supply chain costs. The robust optimization framework and the resulting insights presented in this study could potentially help the CPO to manage shifts in coin demand and achieve its cost reduction goals.