Case 4: Pacific National Bank

Case Background

Pacific National Bank is a medium-sized bank with 21 branches. It did not operate its
own automated teller machines (ATM) and contracted an outsource for such operation until
recently. However, ninety percent (90%) of the ATM customers are non-Pacific credit cards
which do not improve the banks business. To address the issue, the Operations Vice-President
Maria Perez thought of broadening the mix of banking services with its own machines into its
own data-processing network.

Pacific National Bank aims for the 24-hour ATM service to cater to customers banking
needs beyond the banks operating hours, thereby resulting to an increase in their market share.
Aside from expanding the market, ATM operations should also yield substantial cost advantages.
An example of which is the reduction on labor costs. Fewer human tellers would be required and
cost per transaction would therefore be reduced.

A test was conducted at their Greenhills branch wherein customers were recruited to sign
up for a Pacific ATM card. Residents within the area were also given an incentive to open for
free a checking account as they signed up for the card. Results of customers arrival times were
recorded, and it shows the following data:

Customer Arrivals at Greenhills Office
(Before ATM I nstallation)

Period
Daily Average
Number of Arrivals

(1) Monday Friday 10 A.M. 12 P.M. 155
(2) Monday Friday 12 1 P.M. 242
(3) Monday Friday 1 3 P.M. 290
(4) Friday 3 6 P.M. 554


The bank opens at 10 A.M. and closes at 3 P.M., except on Fridays, when it closes at 6
P.M. Past study shows that, over each period, customers arrive randomly at a stable mean rate,
so the assumption of a Poisson process is valid. The mean time required to complete customer
transactions is two minutes, and the individual service times have a frequency distribution with a
pronounced positive skew, so an exponential distribution is a reasonable approximation to
reality.

All tellers work part-time and paid P50 per bank hour. Experience shows that soon after
customers suffer delays from teller access, there would be a significant drop-off in clientele. The
supplier of the ATM equipment claims that other banks of comparable size have experienced a
30% diversion of clients to the ATM, which produced a further 2% expansion of overall client
transactions all absorbed by the ATM, half of it transacted outside regular banking hours. The
supplier also maintains that the ATM traffic is fairly uniform, except between 11 P.M. and 6
A.M., when it is negligible. Ms. Perez believes that the ATM busy-period arrivals will constitute
a single Poisson process.

Industry experience is that the mean service time at an ATM is one-half minute, with an
exponential distribution serving as an adequate approximation to the unknown positively skewed
unimodal distribution that actually applies. Ms. Perez believes that, once the ATM is installed,
the Greenhills human tellers will be left with a greater proportion of the more involved and
lengthy transactions, raising their mean service time to 2.5 minutes.