Cash Supply Chain Research Articles

Dynamic lot-sizing in a two-stage supply chain with liquidity constraints and financing options

Dynamic lot-sizing has typically been studied in the context of optimizing the physical flow of goods to minimize supply chain costs, assuming that there is always enough cash to finance operations. In practice, small- and medium-sized firms are more likely to be financially constrained and find themselves making sub-optimal production and inventory decisions. We consider a supply chain with two capital-constrained firms – a supplier and a manufacturer – and present a model to jointly optimize lot-sizing, initial endowment and short-term amounts to borrow, the capital to subscribe from shareholders, and deposits to invest. The objective is to maximize the net present value of supply chain cash flows subject to operational and financial constraints. Structural properties of the optimal solution are derived, and a dynamic programming algorithm is developed to solve the supply chain problem.Through numerical experiments on available data and a case study from the literature, we compare the profitability and planning decisions of a coordinated supply chain, in which the production and financial decisions of the supplier and manufacturer are jointly optimized, with those of an uncoordinated supply chain, in which the supplier and manufacturer locally optimize their decisions. The results indicate that there is an added value of supply chain coordination for financially constrained stages, and that the traditional profit-maximizing production plan which assumes financially unconstrained stages may result in an important deterioration of the objective value. It is found that considering financial decisions and constraints with lot-sizing increases the number of setups and decreases the average inventory. This results in higher short-term loans and lower capital subscriptions and deposits. For financially constrained supply chains, coordinating production plans leads to fewer setups without increasing the supply chain’s average inventory. Furthermore, financial and operational parameters have a smaller impact on production and financial plans when the supply chain is coordinated.

Distribution with Quality of Service Considerations: The Capacitated Routing Problem with Profits and Service Level Requirements

Inspired by a problem arising in cash logistics, we propose the Capacitated Routing Problem with Profits and Service Level Requirements (CRPPSLR). The CRPPSLR extends the class of Routing Problems with Profits by considering customers requesting deliveries to their (possibly multiple) service points. Moreover, each customer imposes a service level requirement specifying a minimum-acceptable bound on the fraction of its service points being delivered. A customer-specific financial penalty is incurred by the logistics service provider when this requirement is not met. The CRPPSLR consists in finding vehicle routes maximizing the difference between the collected revenues and the incurred transportation and penalty costs in such a way that vehicle capacity and route duration constraints are met. A fleet of homogeneous vehicles is available for serving the customers. We design a branch-and-cut algorithm and evaluate the usefulness of valid inequalities that have been effectively used for the capacitated vehicle routing problem and, more recently, for other routing problems with profits. A real-life case study taken from the cash supply chain in the Netherlands highlights the relevance of the problem under consideration. Computational results illustrate the performance of the proposed solution approach under different input parameter settings for the synthetic instances. For instances of real-life problems, we distinguish between coin and banknote distribution, as vehicle capacities only matter when considering the former. Finally, we report on the effectiveness of the valid inequalities in closing the optimality gap at the root node for both the synthetic and the real-life instances and conclude with a sensitivity analysis on the most significant input parameters of our model.

OPTIMIZATION OF ATM AND BRANCH CASH OPERATIONS USING AN INTEGRATED CASH REQUIREMENT FORECASTING AND CASH OPTIMIZATION MODEL

In this study, an integrated cash requirement forecasting and cash inventory optimization model is implemented in both the branch and automated teller machine (ATM) networks of a mid-sized bank in Turkey to optimize the bank’s cash supply chain. The implemented model’s objective is to minimize the idle cash levels at both branches and ATMs without decreasing the customer service level (CSL) by providing the correct amount of cash at the correct location and time. To the best of our knowledge, the model is the first integrated model in the literature to be applied to both ATMs and branches simultaneously. The results demonstrated that the integrated model dramatically decreased the idle cash levels at both branches and ATMs without degrading the availability of cash and hence customer satisfaction. An in-depth analysis of the results also indicated that the results were more remarkable for branches. The results also demonstrated that the utilization of various seasonal indices plays a very critical role in the forecasting of cash requirements for a bank. Another unique feature of the study is that the model is the first to include the recycling feature of ATMs. The results demonstrated that as a result of the inclusion of the deliberate seasonal indices in the forecasting model, the integrated cash optimization models can be used to estimate the cash requirements of recycling ATMs.

OPTIMIZATION OF ATM AND BRANCH CASH OPERATIONS USING AN INTEGRATED CASH REQUIREMENT FORECASTING AND CASH OPTIMIZATION MODEL

In this study, an integrated cash requirement forecasting and cash inventory optimization model is implemented in both the branch and automated teller machine (ATM) networks of a mid-sized bank in Turkey to optimize the bank’s cash supply chain. The implemented model’s objective is to minimize the idle cash levels at both branches and ATMs without decreasing the customer service level (CSL) by providing the correct amount of cash at the correct location and time. To the best of our knowledge, the model is the first integrated model in the literature to be applied to both ATMs and branches simultaneously. The results demonstrated that the integrated model dramatically decreased the idle cash levels at both branches and ATMs without degrading the availability of cash and hence customer satisfaction. An in-depth analysis of the results also indicated that the results were more remarkable for branches. The results also demonstrated that the utilization of various seasonal indices plays a very critical role in the forecasting of cash requirements for a bank. Another unique feature of the study is that the model is the first to include the recycling feature of ATMs. The results demonstrated that as a result of the inclusion of the deliberate seasonal indices in the forecasting model, the integrated cash optimization models can be used to estimate the cash requirements of recycling ATMs.

The impact of cost structure on supply chain cash flow risk

Managing supply chain cash flow risk has become a crucial task for many cash-stressed businesses. Cash flows usually lag behind operating earnings and exhibit higher volatility than earnings, making them less predictable. Through the three components of the cash conversion cycle – days in inventory, receivables, and payables, this study investigates the impact of cost structure – cost ratios and cost compositions – on cash flow risk (standard deviation) and explains why and how management philosophies, such as Just-In-Time, and new production technologies, such as 3D printing, can lower cash flow risk by shortening days in inventory and shifting cost structure. An analytical model built on a simple demand process examines the basic relationship between cost structure and cash flow risk while a simulation approach studies the same relationship under a more general demand process with additional modelling considerations and a benchmark test. The simulation approach is applied on a publicly traded company’s financial data to demonstrate how supply chain process improvement can reduce the cash flow risk.

A Framework to Analyze Cash Supply Chains

The Federal Reserve System of the United States is making changes to its cash recirculation policy to reduce depository institutions’ (banks’) overuse of its cash processing services. These changes will affect operating policies and costs at many institutions having large cash businesses and, in turn, impact cash transportation and logistics providers. This study provides the framework to study the cash supply chain structure and analyzes it as a closed-loop supply chain. Additionally, it describes the cash flow management system used by banks in the U.S.

Pricing and Logistics Decisions for a Private‐Sector Provider in the Cash Supply Chain

We study a problem faced by a secure‐logistics provider (SLP) of maximizing profit by jointly pricing the services of fit‐sorting and transporting cash along with the design of the supporting logistics network, in a market consisting of a population of Depository Institutions (DIs). The need to jointly price the services assumes significance because they are partial substitutes of one another. Our study finds that the influence of the logistics network on prices is especially strong when there are non‐linearities in the cost of provisioning the logistics services. Furthermore, the impact of logistics decisions on different types of pricing schemes (e.g., volume discount, bundled pricing) is different, both in its structure and extent. In present times, when the market for the fit‐sorting service is relatively immature, our findings have major implications to the way an SLP's business is managed.

Empirical behavioral analysis of project contractors' supply‐chain payment terms

PurposeResearchers in supply chain (SC) payment management have long sought to understand how project contractors, project owners, specialist contractors, and suppliers behave in the context of negotiating payment terms that improve contractors' SC cash flow.Design/methodology/approachUsing a single case study approach, semi‐structured interviews with contract and project managers identify behavioral patterns. An analysis of categorical experiments and Spearman's correlation tests on 118 surveys from Taiwanese project contracting corporations generalizes the case findings.FindingsThe findings suggest that payment terms of project owners, specialists, and suppliers have an important impact on contractors' working capital. The findings also reveal that contractors pass project owners' payment terms down to specialists and suppliers, suggesting that contractors' behavior depends on that of the project owners.Research limitations/implicationsThis paper generalizes the case findings via surveys, but does not assume that the reported behavior patterns apply to all business enterprises. Future research could triangulate the findings.Originality/valueThis study combines qualitative and quantitative methods to understand how the project owner‐contractor‐supplier (or owner‐contractor‐specialist) triad behaves. Particularly, it focuses on an economic sector – real estate and construction – that receives less research interest than processing or manufacturing.

An MIP model to optimize a Colombian cash supply chain

AbstractFinancial institutions operate a supply chain where only one product is moved across the network. Although the cash is kept in several nodes to service the demand of final customers, availability causes opportunity cost related with its investment options. When planning the inventory of cash that should be maintained across the network, transportation decisions are also expected to be made. Cash transportation has a high cost, associated with the high risk of theft. Increasing the inventory can reduce the need for transportation, but the opportunity cost can be very high. Moreover, the inventory is also related with the service level perceived for final customers; therefore because of low inventory some people are not able to make some transactions. The aim of this work is to find optimal decisions related with cash inventory and transportation across the network, trying to balance the cost of the service and the quality perceived for final users.

ASSESSMENT OF THE BRAZILIAN CASH OPERATION THROUGH THE APPROACH OF SUSTAINABLE SUPPLY CHAINS

The Brazilian cash logistics operation is sustained by one of the country's major supply chains and involves the flow of notes and coins between banks, various players of the economy and the population as a whole. Due to its dimension and geographic range, this chain produces a significant carbon footprint. The present study seeks to further explore the cash logistics operation using the sustainable supply chain approach, thus analyzing the chain framework and its management and suggesting improvements to be implemented as a means of reducing the equivalent carbon emission of this chain. As a final conclusion, it is observed that the use of environmental measures to monitor and assess the global impact of the cash supply chain management framework is still very limited.

Redesigning a closed-loop supply chain exposed to risks

Supply chain management includes coordination and motivation of independently operating partners. Therefore, it is important to align logistics structures, processes and incentives, especially when making major changes involving those components. Traditionally, cost, quality, and service have served as prioritized performance indicators for supply chains, but lately risk is also taken into consideration (Tang, 2006), especially when studying risk-exposed supply chains. This paper presents a case study of a cash supply chain (CSC). A CSC provides society with notes and coins (Rajamani et al., 2006), which typically involves two parties working together: a central bank and a group of private actors (private banks and logistics service/security providers). Together, they form a closed-loop supply chain (see Guide and Van Wassenhove, 2006), which through their storage facilities and transport means supply cash to their customers (ATMs, bank branches, and retailers), whom in turn enables society's cash consumption. The CSC studied in this paper has during the last couple of years gone through several design changes in network structure (e.g. reducing number of storage facilities), processes (outsourcing), and incentive mechanisms (payment schemes and policies). Most design changes were carried out in order to decrease number of transports from and to central bank storage facilities, nevertheless some of them led to unintended effects (so-called misalignments). Therefore, the purpose of this paper is to present a model that determines effects caused by design changes in a CSC. (C) 2011 Elsevier B.V. All rights reserved.

On delineating supply chain cash flow under collectionrisk

The credit terms for accounts receivable (AR) offered by sellers to buyers not only create a time lag between supply chain physical flow and cash flow, but also increase the collection risk contributed by late collection and default. Previous studies describing the relationship between the two major supply chain flows did not consider the collection risk, which poses a serious challenge to companies with limited cash resources when seeking growth opportunities in sales. This study first delineates the relationship between the two flows during a growth period without imposing any constraints. A stochastic optimization model is then developed to observe the managerial implications of cash flow risk under tight cash constraints.

The misalignment cycle: is the management of your supply chain aligned?

PurposeThe purpose of this paper is to propose a framework for describing and analyzing misalignments in supply chain management related to changes in supply chain structures, processes and management components.Design/methodology/approachBased on the systems approach, a single‐case study including several embedded cases from the same supply chain was deployed. This was done according to the abductive research approach, which is favourable when extending existing and developing new theory. Data were collected through observations, interviews and workshops, and later analyzed through pattern matching. The case studied was the Swedish cash supply chain, which was appropriate since it has gone through several changes in its supply chain structure and management.FindingsA framework to describe and analyze misalignments in the supply chain was developed. The framework consists of three steps: first, identify changes in the supply chain, second, Identify Misalignments, and third, identify symptoms. For each step, a specific and more detailed framework was developed in order to facilitate the identification processes.Originality/valueUsing the framework described in this paper a researcher or practitioner acquires a structured approach to mapping the management of a supply chain so that its current misalignments can be identified.

An empirical examination of project contractors' supply-chain cash flow performance and owners' payment patterns

Supply-chain (SC) cash flow performance is an essential component of SC performance management. Despite the panoply of approaches to SC cash flow modeling, relatively few published studies assess the effect of SC cash flow performance on a project contractor's financial performance. Little research thus explores the behavioral patterns in the project owner–contractor dyad in the context of payment-term negotiation for improving the SC cash flow performance of a project contractor. Using data from 42 Taiwanese construction project contracting corporations, this paper systematically quantifies the effects of SC cash flow performance on the financial performance of construction project contractors. Further analysis using data from 118 returned, usable surveys reveals important behavioral patterns of project owners regarding payment terms with project contractors during the contracting phase of construction projects. These behavioral patterns provide project contractors with a base for supporting implementation efforts for improving SC cash flow performance.

Forecasting Daily Demand in Cash Supply Chains

Problem statement: Previous studies focused on explaining the long ru n determinants of currency demand offering limited insight into the s hort-run determinants and co-variability of daily demand in cash supply chains. Approach: This study contrasted competing techniques of fore casting daily demand in cash supply chains in order to dete rmine the overall performance and the potential of joint forecasting for integrated planning. A joint forecasting approach was compared with well- established causal forecasting techniques, namely, a vector time series model and a seasonal ARIMA model using simple methods as benchmarks. Evaluation was based on multiple time series obtained from mid-size European bank with forecasting horizons of up to 28 days. Forecasting accuracy was measured using the mean absolute percentage error. Results: The seasonal ARIMA model resulted in a higher forecasting accuracy compared to the vector time series model. Variability in demand was mainly attributed to the day-of-the-week effect. Co -variability is captured by seasonality and calenda r effects limiting the potential of joint forecasting . Cumulative forecasts for periods of 14 days are v ery robust with mean percentage errors of approximately two percent. Conclusion: The results confirmed the benefit of advanced forecasting techniques for daily forecasts. However, the study suggested that the role of information sharing is limited to coord ination of replenishments across the cash supply chain and does not yield more accurate forecasts ba sed on joint forecasting.

An Analysis of Coordination Mechanisms for the U.S. Cash Supply Chain

The overuse of its currency processing facilities by depository institutions (DIs) has motivated the Federal Reserve (Fed) to impose its new cash recirculation policy. This overuse is characterized by the practice of cross-shipping, where a DI both deposits and withdraws cash of the same denomination in the same business week in the same geographical area. Under the new policy, which came into effect July 2007, the Fed has imposed a recirculation fee on cross-shipped cash. The Fed intends to use this fee to induce DIs to effectively recirculate cash so that the societal cost of providing cash to the public is lowered. To examine the efficacy of this mechanism, we first characterize the social optimum and then analyze the response of DIs under a recirculation fee levied on cross-shipped cash. We show that neither a linear recirculation fee, which is the Fed's current practice, nor a more sophisticated nonlinear fee is sufficient to guarantee a socially optimal response from DIs. We then derive a fundamentally different mechanism that induces DIs to self-select the social optimum. Our mechanism incorporates a fairness adjustment that avoids penalizing DIs that recirculate their fair share of cash and rewards DIs that recirculate more than this amount. We demonstrate that the mechanism is easy to implement and tolerates a reasonable amount of imprecision in the problem parameters. We also discuss a concept of welfare-preserving redistribution wherein the Fed allows a group of DIs to reallocate (amongst themselves) their deposits and demand if such a possibility does not increase societal cost. Finally, we analyze the impact of incorporating the custodial inventory program, another component of the Fed's new policy.

On supply chain cash flow risks

This study models the supply chain related cash flow risks for a business entity measured by the standard deviations of cash inflows, outflows, and netflows of each period in a planning horizon. The goal is to provide an insightful look on how common practices that intend to improve the Cash Conversion Cycle (CCC), e.g., offering early payment discounts, may contribute to cash flow risks. We show the benefits and recommend the best policy of using Asset-Backed Securities (ABS) to finance accounts receivable as a means to shorten the CCC and lower the cash inflow risk. It is particularly helpful to small vendors having tight cash reserves and high financing costs.

A Framework to Analyze Cash Supply Chains

The Federal Reserve System of the United States is making changes to its cash recirculation policy to reduce depository institutions' (banks') overuse of its cash processing services. These changes will affect operating policies and costs at many institutions having large cash businesses and, in turn, impact cash transportation and logistics providers. This study provides the framework to study the cash supply chain structure and analyzes it as a closed‐loop supply chain. Additionally, it describes the cash flow management system used by banks in the U.S.

Integriertes Controlling für Aufbau, Betrieb und Anpassung von Supply Chains

Supply chain management (SCM) stands for the integrated coordination of inter-organizational value chains. Current approaches focus on the integration of material flows based on the positive effects of integrated information systems. The effects of an integrated cash flow management are not considered so far. The paper shows that the integration of material and cash flow management is the next logical step towards the integrated management of supply chain processes. A controlling approach for supply chain cash flows is developed and based on an IS architecture it is shown how the integration of material and cash flow management can be realized.