Multi-objective optimisation with stochastic discrete-event simulation in retail banking: A case study

Abstract

The cash management of an autoteller machine (ATM) is a multi-objective optimisation problem which aims to maximise the service level provided to customers at minimum cost. This paper focus on improved cash management in a section of the South African retail banking industry, for which a decision support system (DSS) was developed. This DSS integrates
four Operations Research (OR) methods: the vehicle routing problem (VRP), the continuous review policy for inventory management, the knapsack problem and stochastic, discrete-event simulation. The DSS was applied to an ATM network in the Eastern Cape, South Africa, to investigate 90 dierent scenarios. Results show that the application of a formal vehicle routing method consistently yields higher service levels at lower cost when compared to two other routing approaches, in conjunction with selected ATM reorder levels and a knapsackbased notes dispensing algorithm. It is concluded that the use of vehicle routing methods is especially benecial when the bank has substantial control over transportation cost.

Key words: Retail banking, vehicle routing, knapsack, computer simulation, inventory.