Development of an improvement ATM service level model

Abstract

This report investigates ATM performance at a leading financial institution in South Africa, which for the purpose of this report is referred to as ABC Bank. The objective of any bank is to provide customers with good ATM service at the lowest possible cost. However, in the financial services industry, good customer service is especially difficult to define and any form of cash handling and distribution is extremely costly. Therefore finding the balance between cost and service is a difficult task. ABC Bank places more emphasis on maintaining good customer service than reducing costs. It is company policy to stock all ATMs at a 98% service level. This means that each ATM is stocked with enough cash to be 98% confident that all customer demand will be satisfied. This report first provides the results of research conducted into the ATM service industry, with respect to the cost components and risk factors associated with the ATM Cash Cycle, how ATM holdings are calculated using demand forecasts and finally, customer service in the ATM usage environment. Thereafter, the reasons why ABC Bank implements the 98% service level policy are discussed. Based on all of these aspects, the 98% service level is investigated and assessed in order to determine whether it is a good policy or not. The investigation into the policy firstly proves that servicing all ATMs at a 98% service level is not in fact always necessary from a customer’s perspective. This is because the results of the research conducted show that a customer’s reaction in the event of a missed transaction at an ATM is directly related to the unique characteristics and location of the ATM itself. In other words, the willingness of a customer to accept a cash-shortage situation or the likelihood of the customer being highly annoyed varies from ATM to ATM. This implies that all ATMs are not the same and therefore should be treated differently from a service level perspective. The next step of the investigation into the 98% service level policy proves that the policy significantly increases cost as well as risk. Since stocking all ATMs at a 98% service level is not always necessary, the high costs and risks incurred as a result of the policy are not justified. This report therefore concludes that the 98% service level policy should be reviewed as it not a cost-efficient approach to satisfy customer demand. It is therefore proposed that ABC Bank utilises the ATM Service Level Model developed and discussed in this report and which has been built for the purpose of this project. The ATM Service Level Model is able to calculate an optimal service level for each of the ATMs belonging to ABC Bank. The optimal service level is one which will provide the service level actually required by customers at each specific ATM while simultaneously minimising the costs and risks incurred. This is done by differentiating between ATMs based on their individual characteristics and location. Each ATM is assigned an “Importance Factor” and an optimal service level is calculated using historical holdings-withdrawals data pertaining to that specific ATM. Implementing the optimal service levels calculated by the ATM Service Level Model, will result in substantial savings for ABC Bank , while simultaneously maintaining the level of ATM Performance required for ABC Bank to be competitive in the financial services industry (exact figures have not been included in the report for confidentiality purposes).