Optimizing Cash Management for Large Scale Bank Operations

Abstract

The Federal Reserve System (Fed) provides currency services to banks, including sorting currency into fit and non-fit bills and repackaging bills for redistribution. To reduce the cost of currency management operations, many banks make Fed deposits and withdrawals of the same denomination each week. In July 2007, the Fed introduced fees for making both deposits and withdrawals during a given Monday through Friday. Recognizing an opportunity, Fiserv Corporation initiated a project to optimize bank vault inventories across time and space. This article presents the integer programming model developed to assist Fiserv clients reduce the logistics cost component of cash management. The model is implemented in software using OPL. The underlying configuration is a time-space multi-commodity network with a fixed-charge cost structure. The authors report on a successful pilot study and present an efficient heuristic procedure that can be used to reduce computational solution times from hours to a few minutes.

The Uncapacitated Time-Space Fixed-Charge Network Flow Problem: An Empirical Investigation of Procedures for Arc Capacity Assignment

“…Problems with higher-level settings for fixed costs than for variable costs resulted in substantially longer average run times. The simplicity of the procedure combined with the success of the experimentation suggests that the proposed method can be very useful in solving difficult TSFC problems and related problems such as those described by Frost et al (2008).…”

“…Storing the cash in a vault overnight incurs only a variable cost. In the time-space fixedcharge (TSFC) network representation, illustrated in Figure 1, each business day is a distinct time period and the vaults are modeled as nodes replicated across the time periods (Frost et al 2008). Deficits of cash at a given vault on a given day can be fulfilled by shipments from the nearest Federal Reserve Bank.…”