Multi-objective optimisation with stochastic discrete-event simulation in retail banking: a case study

E Scholtz,J Bekker,D Du Toit

doi:10.5784/28-2-116

Abstract

The cash management of an autoteller machine (ATM) is a multi-objective optimisation problem which aims to maximise the service level provided to customers at minimum cost. This paper focus on improved cash management in a section of the South African retail banking industry, for which a decision support system (DSS) was developed. This DSS integrates four Operations Research (OR) methods: the vehicle routing problem (VRP), the continuous review policy for inventory management, the knapsack problem and stochastic, discrete-event simulation. The DSS was applied to an ATM network in the Eastern Cape, South Africa, to investigate 90 different scenarios. Results show that the application of a formal vehicle routing method consistently yields higher service levels at lower cost when compared to two other routing approaches, in conjunction with selected ATM reorder levels and a knapsack-based notes dispensing algorithm. It is concluded that the use of vehicle routing methods is especially beneficial when the bank has substantial control over transportation cost.

Highlights

Retail banks provide one or more services to a large proportion of South Africans and affect the lives of many citizens
We propose a decision support system (DSS) for cash management and distribution in an autoteller machine (ATM) network that can be used by a retail bank
For the remaining 18 experiments, vehicles were routed according to the direct replenishment approach

Summary

Introduction

Retail banks provide one or more services to a large proportion of South Africans and affect the lives of many citizens. ATMs form a key part in cash provision. It is important, from the perspective of retail banks and clients alike, to ensure that cash levels in ATMs are sufficient for as long a period as possible. Providing a 100% service level for one ATM is possible, but as no bank has only one ATM, providing a high level of service to an entire network of ATMs is challenging, for. Cash must be distributed from the CH to the individual ATMs, which involves distribution cost, delivery delay cost and the cost of carrying inventory. Cash in an ATM is not earning interest and is adding to existing inventory costs

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