Intelligent Business Operations

Executive Summary

The purpose of any supply chain is to meet customer needs and grow business prof-its. The cash supply chain is no exception. Banks manage their cash point networks (e.g., ATMs, bank branches, cash centers, retailers) by providing cash withdrawal services where and when customers need them. To make a profit, banks must man-age these activities efficiently.

Managing cash supply operations is a complex process that involves independent stakeholders including banks, cash in transit companies (CITs), and independent service operators (ISOs). The process also involves decision-makers at strategic, tac-tical, and operational levels—each performing certain tasks by managing and con-trolling the operations and processes.

Every decision-maker needs timely, quality information. The main question is how to quickly provide decision-makers with the right insights to help them make win-ning decisions.

This white paper explains the best practices in cash supply chain management and outlines the benefits of the intelligent business operations (IBO) working style.

IBO and Company Performance

IBO is a work style that integrates near-real-time analytic and decision manage-ment technologies into the transaction-executing and bookkeeping operational activities that run the business.1

According to Gartner, by 2016 around 70 percent of companies reporting high performance will be implementing extreme collaboration or real-time pre-dictive analytics to manage their busi-ness processes.

IBO tools (Figure 1) can help improve

Intelligent Business

Operations

Best Practices in Cash Supply Chain Management

Why Efficiency Matters

Despite the popularity of credit cards, cash is still the most common payment method. Globally, more than half of pay-ments are made in cash. The increasing demand for easily accessible cash drives banks to expand their cash point net-works. However, as the network grows, it becomes more difficult to supervise— and operating costs rise.

Effective cash management is a crucial success factor for banks and outsourc-ing companies. It can give banks more prime retail space in branches and free

IBO connects internal and external busi-ness information systems into a common environment where data is analyzed and made available in real time for operation managers and strategic decision-makers. IBO performs a different function than busi-ness intelligence (BI) but is complementary. The goal of BI systems is to gather and ana-lyze the historical data during a certain pe-riod. The IBO platform compares historical data with real-time data, determines trends and links between actions, and makes pro-jections for the future.

Another important IBO function is au-tomating optimal decision-making, where the forecasted demand, existing and planned limitations, and results are used in real-time to automatically choose the most cost-efficient combina-tion of cash quantity, denominacombina-tion, de-livery time, route, etc.

With IBO, decision-makers have full visi-bility to rapidly and flexibly respond to real-time changes through:

• Graphical presentations of information

• Customization of user interface in

accor-dance with the performed functions • Contingency notifications

• Decision simulation tools

Managers can perform real-time monitor-ing and evaluations of key performance in-dicators (KPI), monitor implementation of strategic goals in the company, and stay informed on the system suggested tacti-cal actions.

Artificial Intelligence-Based Analytics

The IBO platform performs the complex cash demand forecasting and optimiza-tion tasks using its integrated artificial intelligence algorithms, capable of real-time processing of large amounts of in-formation, evaluation of historical data, relations between them, trends, and pro-jection. It chooses the optimum decisions out of millions of possible combinations— something the human brain and stan-dard analytical tools cannot do. It is important to mention that without underestimating the human input, the expert knowledge of staff is especially important in the process of algorithm training. The system does not answer the question “Why?" Instead, it evaluates causes based on insights entered by ex-pert staff.

For example, while analyzing the error of system forecasting, an employee notices it could have been influenced by an event that took place in the region. The

Contents

Executive Summary . . . .1

Why Efficiency Matters . . . .1

IBO and Company Performance . . . .1

Artificial Intelligence-Based Analytics . . . .2

Business Benefits of IBO . . . .3

Intelligent Cash Management . . . .3

Scalability . . . .4

IBO in Action . . . .4

Recommendations . . . .4

Figure 1. Intelligent business operations (IBO) tools

from having responsibility for the full cycle vested in a single entity.

Intelligent Cash Management

The FOBISS CM* IBO solution is the first complete and integrated product for deliv-ering cash management services within any type of cash point networks:

• ATMs (cash in/out, recyclers)

• Bank branches,

• Cash centers

• Retailers

Figure 2. Business benefits of the IBO approach

• It is self-learning

• It assumes

• It adapts

• It predicts

• It finds typical and untypical behavior of each cash point

• It analyzes and suggests the

IBO Platform

• Connects and integrates all

kinds of information systems • Automates processes

end-to-end across systems • Provides visibility into what

is happening real time • Supports evidence-based

and timely decision-making • Delivers efficient

manage-ment and optimization

algorithm gets this information and re-evaluates the relations, thus learning to make even more precise projections. This work method eliminates the risk of losing know-how due to staff changes. It also eliminates the information gap when, for example, a bank employee fills in for a colleague from a branch in an-other region who is on sick leave. Studies and pilot projects evaluated the precision of these complex algorithms. For example, in a network of 6,000 cash points, in measuring the efficiency of ac-tivities, revealed that using the IBO plat-form saves:

• 22 percent in logistics costs

• 17 percent of costs related to

preparation of money

• 55 percent of costs related to interest

In monetary terms, a bank operating a cash point network of such size saves 11 million Euros (USD 13.6 million) per year. Risk management takes place simultane-ously and the quality of client service is ensured, so profitability grows.

Business Benefits of IBO

IBO benefits financial institutions in a number of ways (Figure 2). This enables them to shorten cash lead times, maxi-mize cash point availability, reduce

net-work operating costs, and maximize profitability. Additionally, the technology enables its users to:

• Be aware of network performance

including real-time profitability • Reduce cash-related operating

costs by up to 40 percent

• Automatically support set KPIs and

service level agreements (SLAs) for the entire logistical chain

• Ensure minimization of on-balance

sheet cash in the supply chain by using effective forecasting and stock management tools

• Use latest-generation IBO

technol-ogy in cash points to streamline cash transactions

• Ensure the supply chain is

defined, integrated, and managed as a single entity

• Reduce physical space and

resources devoted to the adminis-tration and handling of cash • Examine the potential for the full

cash cycle to be outsourced with the benefits of full accountability, ownership, and efficiency that flow

The FOBISS CM* IBO solution can: • Save significant time and HR and

money resources for users of appli-cations by optimizing decisions and processes

• Eliminate dormant cash all over the

network and maximize efficiency, meeting SLAs with minimum resources

• Provide complete transparency into

processes for significant savings and evidence-based and timely decision-making

Scalability

Effective cash management requires the ability to aggregate and decide upon large volumes of data from different sources such as ATMs, bank branches, or vaults (Figure 3), while organizations need fast computation and flexible ac-cess to this data in real-time. Large numbers of cash storage devices, multi-plied by provided currencies, decision spaces, and hourly or daily solution de-mands, create huge computational workloads that can be managed by the parallel processors of modern servers.

Figure 5 documents the results of a test at a bank with 185 branches, which was able to decrease its dormant cash level by 41 percent.

Figure 6 shows the results of testing at a bank with 1,100 ATMs. Once FOBISS CM was deployed, the bank started planning CIT visits more accurately, reducing both planned and emergency visits by 16 percent and 64 percent, respectively.

Recommendations

The days of limited, unintegrated solutions with only basic forecasting and optimiza-tion are over. Users in today’s volatile world expect high performance and total flexibil-ity and situation awareness to deal with day-to-day cash supply chain management. When choosing a cash supply chain man-agement solution, it is important to look for technologies that are highly responsive and able to increase performance efficiency. Such technologies should include demand management tools, optimization engines, complex event processing tools, role-based dashboards, decision management tech-nologies, and performance measurement analytics. Most importantly, they should be based on near- or real-time data.

FOBISS worked closely with engineers from Intel, using the advanced Intel fasterLab environment to undertake a number of benchmarks of the FOBISS CM product to ensure it can scale out to significant volumes and still provide fast and flexible results. The collaboration resulted in improved crucial daily calcu-lation performance of 6,000 cash points (CPs) per hour per standard server.2

Adding more standard server nodes to the calculation cluster and/or dedicating more hours daily calculations allows FOBISS to meet the exacting demands of scale and timeliness present in today’s and tomorrow’s banking enterprises. Built on the Microsoft .NET* platform run-ning on Intel® Xeon® processors, FOBISS CM delivers effective data analysis and cash management with the scalability to manage tens of thousands cash points.

IBO in Action

FOBISS CM is showing strong results for banks that have tested it.

Figure 4 shows a case study where FO-BISS CM was tested at a bank with 6,000 ATMs. The tests resulted in total annual savings of 11.5 million Euros.

Independent

Service Operators

CIT

Companies

Currency

Chests

Central

Bank

Commercial

Banks

Outsourcing Cash

Management

Companies

Replenishment Cost (CIT)

Cash Custody

Cash Processing Cost

Cash Interest Rate

724,098 EUR

Figure 4. Testing the platform in a bank with 6,000 ATMs showed total annual savings of 11.5 mil-lion Euros.

Replenishment Cost (CIT)

Cash Custody

Cash Processing Cost

Cash Interest Rate

Dormant Cash Level Down 24 Percent

Cash Replenishment Down 15 Percent

Figure 5. A bank with 185 branches decreased its dormant cash level by 41 percent.

Figure 6. After using IBO tech-niques, a bank with 1,100 ATMs reducing both planned and emergency visits by 16 percent and 64 percent, respectively.

Annual CIT Stops

70,000 60,000 50,000 40,000 30,000 20,000 10,000 0

Planned Stops Emergency Stops

1_{“Hype Cycle for Business Process Management,2014,” Gartner, July 30, 2014 (https://www.gartner.com/doc/2812117/hype-cycle-business-process-management).}

2_{One standard cash point (CP) represents an ATM holding five denominations of a single currency. Daily calculations are performed at night and can take multiple hours for large CP counts. The test}

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