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CASH LOGISTICS:

By
Dhundiraj Gawade
Ketan Deshmukh
Saurabh Gadkari
Unmesh Rajhans

SCM P R O JE C T
 Introduction:
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  The world’s oldest payment technology – cash – still

thrives with more than US$4 trillion of money in
circulation globally, and is growing at 7-10% p.a. ,1
billion new bank notes printed each year.


 The number of ATMs will excess 2.5 million by 2013,

driven by the growth of BRIC economies.


 Although it seems largely invisible to the average tax

payer, cash payments comes at a social cost –
ranging 0.4-1.5% of GDP – to economies worldwide
today.
 What is cash logistics?
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 Cash logistics sits at the ‘intersection’ between

financial services and physical logistics, and so
present unique challenges.

 If you create or destroy, move, distribute, handle, or
accept large amounts of notes and coins each day to
your cashpoints, then you are in actual fact part of a
logistics supply chain.

 You incur direct costs of transportation, processing,
packaging, and storage, in addition to the interest
and opportunity cost of cash.

 However cash does not get consumed at the end of a
linear chain – it simply circulates.

 What is cash logistics?
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 Figuring out where to put the right denomination and

amount, at the right place, at the right time – to
efficiently utilize your cash inventory while
minimizing costs – is a complex enough logistics
problem.

 if you control more than one part of the chain, it can be
further complicated by needing to solve
simultaneously your cash supply to match your cash
demand.

 In a fragmented cash supply chain, there is typically no
informational coordination platform to do so –
causing a mismatch in inventory and resulting in
excess unnecessary cash movements and holdings.
 



 Cash circulation:
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 Contd…
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 the failure of Banks to take an integrated end to end

view of the cash supply chain is one of their biggest
opportunity costs.


 how can banks further improve utilization of cash as it

moves into, through, and out of their organizations ?


 Banks can benefit by having more prime retail space

available in branches, freeing up staff to focus on
customer facing activities, shorter cash lead times,
maximum ATM availability and minimum running
costs.
 Contd…
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 By the nature of their business, retail banks have to

deal with large volumes of cash.


 So despite the growth in electronic forms of payment,

customers still want to withdraw and deposit cash in-
branch and via ATMs.


 Banks are not logistics companies -yet cash often

forces them to think and behave as though they are.

 The key elements of the
cash cycle
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 Objectives:
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Reduce: Increase:
C a sh In ve n to ry Service Level Agreements
(SLAs) Management
Tra n sp o rta tio n C o st, A T M A va ila b ility
Tim e
A T M D o w n tim e S e rvice E fficie n cy
Lo st/ S to le n Ite m s V isib ility / O ve rsig h t
In vo ice O ve rp a ym e n t Pro a ctive M a n a g e m e n t
 Challenges in the Cash
Supply Chain
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 Automated Teller Machines

 Cash Deposit Machines
 Recycler Machines
 Bank Branches
 Retail Stores
 Cash Centres
 Central Banks
 Cash In Transits
 Solution:
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 Consolidate across the cash cycle for one centralised

cash management.


 the integrated cash cycle consists of:

Ø One Database
Ø One Engine
Ø One System
Ø One Interface
Ø
 One Platform for complete 360° cash management.

 Solution:
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 Connect to other players in the cash cycle for new

efficiency gains.

 Solution:
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q Provide web-based solution that automatically

reconciles cash orders and shipments for branches,
ATMs, transport providers and vaults from within the
system.


q Through rapid matching, reconciliation, research and

resolution of exceptions throughout the cash
lifecycle, the system streamlines the entire balancing
process — eliminating errors and reducing costs.


 Use web-based cash inventory management system

that allows for reductions in cash inventories and
armored carrier expenses
 Benefits:
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 Reduce Costs
 Improve Customer Service
 Increase Productivity
 Utilise Less Cash
 Forecast Cash Demand Patterns Precisely
 Optimise Your Cash Distribution Schedules
 Monitor and Proactive Alerts to Anomalous
Events
 Real Picture of Your Business Constraints
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Case study :
 UK cash logistics
 Introduction:
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 in comparison to the integrated supply chains seen in

other industries, the banking industry's cash cycle
combines high ongoing costs with low efficiency,
tying up more financial, real estate and human
resources than it needs to.


 The challenges of managing the cash cycle vary

between the two key distribution and delivery
channels to customers – in-branch and via ATMs.


 We will now look at the issues and trends in each

channel, highlighting key areas to address in each
case.

 ATM transaction
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 Figure shows, it is not just the number of transactions

in UK that is rising, but the amount of cash required
to fulfil them.


 When this is combined with cash shipped to and from

business customers such as retailers, the result is
that an estimated £500 billion in cash is being
transported around the UK each year, equating to
£1.4bn each day.

 ATM transaction values,
2002-2006
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Figure : 1
 Key Trends:
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 Banks' major objectives in managing their ATMs are-

§ to maximise their physical availability and security,
§ minimise the cost of operation, and
§ increase the utilisation of cash.


 Figure 3 shows, the overall number of ATMs in the UK

continues to expand, with the majority of this growth
now accounted for by pay-to use ATM machines



 ATM numbers in the UK
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 Key Trends contd….
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 The ongoing growth of the ATM network means

consumers feel that they can easily get hold of cash
as and when they need it.

 So, rather than carrying large amounts of cash around –
which creates personal security risk – they prefer to
leave that risk with the bank, and withdraw smaller
amounts for specific purposes.

 Clearly such a pattern of usage is highly costly to
banks, because it increases the challenges around
demand management and logistics while also
tending to boost the ‘disloyalty fees' payable when
customers go to another bank‘s ATM.

 These factors are intensifying the pressures to reduce
the cost of ATM provision and maximise availability.
 Costs of operation:
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 industry figures show that the two basic support

functions of maintenance and cash supply together
account for more than half (around 52%) of the
operating cost of an ATM – exceeding the combined
cost of IT/communications, depreciation, rent and
security.


 The high costs of these functions reflect the

fragmentation and duplication embedded in the ATM
supply chain in its current form.
 ATM ownership by a UK
bank - cost composition of
23 operation per year
 Areas to address:
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 little on-balance sheet cash in the supply chain

as possible by using effective forecasting and
stock management tools.


 supply chain is defined, integrated and managed

as a single entity.


 continuous flow through the supply chain by

eliminating wastage, storage and duplication
of activities -thereby achieving ‘lean
processes'.
 Key Trends: In-branch cash
withdrawals
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 “These withdrawals are among the most expensive

payment transactions possible, consuming high-cost
resources while also incurring significant opportunity
costs by diverting resources away from potentially
higher-margin business in-branch.“


 Rather than looking to withdraw this service, banks

need to focus on reducing the costs involved and
maximising service quality.
 Key Trends:
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 A further issue is office space.

 The administration and handling of cash in-branch
requires large, dedicated, highly-secure areas.
 Many branches are prime retail space, and devoting a
significant area to cash-handling means less space is
available for high-value, customer-facing activities.
 the demarcation of secure cash-handling areas also
creates a barrier between branch staff and
customers, reducing the overall quality of the
customer interaction.
 Also replenishing the ATMs according to need rather
than in line with a fixed timetable – creates fewer
opportunities for criminals, it reduces the security
risk for bank staff themselves.

 core objectives:
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 Provide a state-of-the-art cash dispensing

solution that frees up in-branch staff to
concentrate on generating value through the
provision of customer advice and high-value
services.


 Adhere to “Fourth Party Logistics” principles to

ensure that cash in the supply chain is
managed and utilised as efficiently as possible.


 eliminate gaps in the supply chain, especially

around the flow of data.

 A new perspective on the
supply chain
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 A world class end-to-end cash management can allow-

 more space in branches to be utilised as prime retail
space, minimising the areas devoted to administration
and secure cash handling, freeing up staff to focus on
customer facing, revenue-generating activities.


 It ensures the supply of cash to branches, ATMs and

business clients is fully optimised, with cash
delivered “just in time" – exactly when and where
needed.
 Impact:
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 It enhances the bank's ability to leverage the Bank of

England Note Circulation Scheme so that, through
effective track and trace, more cash can be placed
on deposit with the Bank of England.


 Second, it enables shortened lead times for cash to be

placed on deposit.


 And third, it maximises ATM availability and minimises

running costs through full integration with the cash
supply chain, helping to ensure ‘disloyalty fees' come
into the business rather than flow out.
Creating a world class cash
supply chain:
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 What is needed is a more cost effective solution that

combines three qualities:-
§ It needs to be secure, to protect cash and people.
§ It needs to be traceable, so the bank and other
participants can always tell what point the cash has
reached in the supply chain.
§ And it needs to be accurate, to avoid uncertainty and
leakage.


 a major retail bank in the UK is likely to have an

average of £450 million tied up in its cash supply
chain at any given time.


 the implementation of a best practice cash

management solution could reduce that amount by
Creating a world class cash
supply chain
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 Next Figure sets out the building blocks of such a

solution, by highlighting the key areas of waste in the
cash supply chain along with specific actions to
address each of them.


 A world-class cash supply chain would derive benefits

from an overall increase in cash optimisation and
utilisation, and drive a sharp reduction in the total
cost of cash.
 Areas of waste in the
traditional cash supply
32 chain
 CIT integration with the
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branch
 The new model has a major impact at branch level,
feeding directly into complete and fully-integrated
cash management and security, alongside improved
planning/forecasting and simplified cash functions.


 The monitoring and forecasting required to support

such a model requires investment in new technology
solutions, all of which are now available.
levels of CIT integration with
the branch
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 Driving greater value from
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ATMs:
 Research and experience found that integrating
the value chain into a single source model
produces a potential 20% reduction in ATM
annual operating costs.
 Hard financial benefits:
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 Alongside the operational benefits, optimising cash

inventory provides a clear financial payback.


 By minimising the cash tied up in the supply chain it

automatically maximises the amount that can be put
on deposit with the Bank of England at any time,
enabling a cash-rich bank to gain a LIBOR return on
every pound that is no longer tied up unnecessarily
in the cash supply chain.
 Hard financial benefits:
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 when one bank‘s ATM goes down it can trigger a run on

a second bank's ATM nearby - with the results that
the second ATM empties faster than expected and
causes that bank‘s customers to go elsewhere.


 Such problems by responding rapidly and dynamically

to the sudden depletion of cash in an ATM, turning
disloyalty fees into a revenue-enhancer.
 Conclusion:
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 One useful starting-point is to look again at the end-to-

end cash supply chain and use this to assess the
bank‘s performance in each area, together with its
ability to influence or directly control the costs in that
particular stage of the chain.


 the key is to ensure that access to and usage of the

cash centres is closely integrated into the rest of the
chain.


 Moving to just-in-time replenishment under a service-

level agreement will optimise the supply and level
out the peaks and troughs.


 A far more efficient approach is one-stop, single-line

maintenance integrated with the CIT provision, which
 Conclusion:
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 A bank that optimises its cash supply

chain will not just gain bottom-line
benefits in terms of costs and usage
of resources. It will also be able to
turn cash into a positive competitive
differentiator for its offering – by
focusing less on managing logistics
and more on customer satisfaction,
thereby delivering a better and more
responsive service to its customers.

 And when other banks' ATMs run out,
yours will be the ATM consumers
come to -building both your brand and
your revenues.
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 Thank you