Managing Logistics in Regional Banknote Supply Chain Under Security Concerns

Abstract

We study the logistics problem faced by Regional Branches (RBs) of a central bank in managing the currency supply under security concerns. While making banknote supply decisions to Sub‐Branches (SBs), the management of RB must achieve two goals simultaneously: (i) guarantee that each SB has sufficient inventories of all denominations of banknotes to satisfy the demands from all commercial banks within its service area, and (ii) control the annual spending on this banknote supply operation. Due to security concerns, the following methods are implemented in the process of transporting banknotes: (i) the capacity of a cash truck is limited by the total face value (instead of the physical space) of banknotes, and (ii) empty decoy trucks are deployed along with the trucks filled with banknotes. After deriving a polynomial‐time strategy to guarantee an optimal solution for the special Bin‐Packing Problem faced in this study, we provide an exact formulation for the RB's supply planning problem. We also propose several polynomial‐time algorithms for deriving either optimal or near‐optimal solutions for the problem under different settings. Using the weekly demand data obtained from the central bank, we verify the performance of our algorithms, and analyze the impacts of changes in these features and in the fleet capacity on the total cost incurred by an RB under various scenarios.

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