Cash Replenishment and ATM Planning

 

Accurately controlling the cash replenishment process in ATMs bears significant importance in economies with higher interest rates, compared to more stabilized economies, due to opportunity costs. There are two main conflicting goals that require an analytical approach to sustain a smooth process: due to the high interest rates, banks do not want to keep cash in ATM machines, but they also do not like to have stock outs in ATMs.

While planning ATM replenishment processes, we encountered two significant issues: when to visit the ATMs, and how much of each banknote denomination to replenish. Because of the interest costs, it is not desirable to keep cash above a certain level in ATMs, whilst frequent replenishment visits to ATM machines are also costly. To address this decision problem, we devised an approach using operations research methods.

In ATM cash planning, a mixed-integer programming formulation is used to model the replenishment processes in the ATM networks. Depending on the configuration of the ATM, i.e. whether it contains a recycle unit or not, the modelling approach slightly differs. The model has a set of binary variables for each time horizon and cassette type. Cassette types are characterized by banknote denomination. The binary variables determine whether there is a visit to a dispense cassette, a BNA (banknote acceptor) unit, or a recycle unit at a time.

The mathematical model optimally solves the ATM cash planning problem by simultaneously determining the visiting schedule for each ATM, the amount of cash to take from BNA and recycle units, and the amount to replenish into dispense units. The model tries to reduce the amount of cash left in ATMs at the end of each day to minimize interest cost, while satisfying the cash requirements for withdrawal until next replenishment.

While other banks prefer increasing ATMs and keeping the same amount of cash in their ATM networks, the banks in Turkey could dramatically decrease the amount of idle cash in ATMs by utilizing our ATM cash replenishment approach. Both decisions would have the effect of increasing customer satisfaction, but at macro level, our approach would result in making idle cash available for investments in the Turkish economy.

Ahmet ÇINAR

Senior OR Analyst