Beach Republic Bank operates a network of automated teller machines (ATMs). Cash withdrawals at a particular ATM average approximately $80 per transaction. The average number of withdrawals per ATM is 120 per week. The bank estimates that it costs about $100 to fill the ATM each time regardless of the amount of cash that is added to the machine. Assume that the cost of capital for the bank is 10%, and there are 52 weeks in a year. What is the optimal cash filling policy and the associated total inventory ordering and holding cost? Suppose that the standard deviation of weekly number of withdrawals is 20 and the lead time to fill an ATM is half a week (3.5 days), how much cash should the bank allocate to an ATM to be 99% confident of not running out of money between deliveries? Given the information from parts a and b, what would the cost savings be for reducing the number of ATMs from 100 to 20? Discuss the pros and cons of pooling the cash inventory in this context. What are the implications of pooling inventory for the bank overall? Is this something that should be considered?

Introduction: The term Business refers to an exchange of goods and services between the buyer and…

Answered: What is the optimal cash filling policy…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Beach Republic Bank operates a network of automated teller machines (ATMs). Cash withdrawals at a particular ATM average approximately $80 per transaction. The average number of withdrawals per ATM is 120 per week. The bank estimates that it costs about $100 to fill the ATM each time regardless of the amount of cash that is added to the machine. Assume that the cost of capital for the bank is 10%, and there are 52 weeks in a year.

What is the optimal cash filling policy and the associated total inventory ordering and holding cost?

Suppose that the standard deviation of weekly number of withdrawals is 20 and the lead time to fill an ATM is half a week (3.5 days), how much cash should the bank allocate to an ATM to be 99% confident of not running out of money between deliveries?

Given the information from parts a and b, what would the cost savings be for reducing the number of ATMs from 100 to 20? Discuss the pros and cons of pooling the cash inventory in this context. What are the implications of pooling inventory for the bank overall? Is this something that should be considered?

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