Ten Rules of Effective ATM Cash Management - Brendan Doyle, CEO Cash Management Solutions
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Ten Rules of Effective
ATM Cash Management
www.cms-cashmanagement.com Brendan Doyle, CEO
@CashManage Cash Management Solutions
OVERVIEW
ATM demand forecasting in most ATM cash management ATM cash management requires
situations is relatively easy is complicated dynamic modeling & analysis
Too much focus is given to demand forecasting at An ever changing operational and supply chain High quality analytical work is the real
the expense of other factors environment is difficult to deal with key to success
1 RULE
2 3
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The cost of cash among Cash management is not a labor Develop an accurate
deployers should be very similar intensive business micro-prioritization model
But of course they aren’t. In practice, there is only It’s surprising to see just how much time gets There will be many factors influencing a
a material difference in costs at the extreme diverted to administration and poor supply chain prioritization model and every customer will
performance be different
6 7 8
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Residuals. Ignore everything else and concentrate
Does size matter? on the cost of cash ratio
There is often an obsession with residuals. The cost of cash ratio is calculated by adding up all
However, residuals are a consequence the annual costs of putting cash into your machines
of cash management efficiency, not a driver and dividing this by annual cash withdrawals
4 5
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The CMS Difference
Ensure that macro factors are When outsourcing, avoid conflicts
also optimized of interest 22 years of specialist experience in cash management has
given CMS a unique perspective, producing exceptional
To get to the optimum amored transport pricing Cash management needs to be conducted in your results worldwide. Here, we discuss the key rules governing
available for your business you need to benchmark best interests by a provider that is not conflicted
how we control ATM cash.
your specific requirements
9 10
By following these rules, the cost of keeping ATMs
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adequately stocked can be dramatically reduced while
improving the end user experience. These rules impact on all
strategic aspects relevant to an ATM deployer and will also
direct day-to-day operational processes. In other words, they
form the core philosophy of ATM cash management.
ATM demand forecasting in most
situations is relatively easy
Unlike many other areas of cash management, ATM demand forecasting is
relatively simple.
Forecasting demand for a standard ATM (using one currency, perhaps only
two denominations, a limited capacity and regular customer withdrawals)
should be relatively straight forward.
By contrast, a financial institution using up to 140 currencies, multiplied by
numerous denominations, in a highly volatile environment is much more
complex.
Forecasting is only one element of ATM supply chain management.
1
RULE
2 3
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ATM cash management ATM cash management requires
is complicated dynamic modeling & analysis
ATM cash management is far from easy, an array of Given the array of logistical factors impacting ATM cash management,
logistical factors affect ATMs. we are often suprised when we hear talk about the use of sophisticated
mathematics in expensive ‘off the shelf’ forecasting technology.
For example, the most effective way to operate an extensive fleet of ATMs As discussed in Rule 1, ATM demand profiles are relatively stable and easy
is often to outsource functions to third parties. Hence, Armored Transport to model.
companies can have a huge influence on the performance of an ATM fleet.
The real complication is logistical.
There is often little competition in most Armored Transport markets and the
replenishment process can be very manual – this combination means that
lots of things can go wrong and when they do, costs can be high. Hence, some old-fashioned arithmetical tools are essential, but we
have proven that it is the painstaking task of modeling and simulating
Furthermore, ATM fleets can operate over extensive geographical areas variables - ATM by ATM - that matters. This requires skilled human insight and
resulting in a wide variety of issues and different operating processes. comprehensive computing power.
Other complicating factors can include the quality of ATM performance, the
banking relationship and a plethora of other practical issues. This is When too much reliance is placed on forecasting software to solve all cash
often related to the physical operations of the supply chain or ATM, rather management issues, attention is diverted from the real problems and cash
than related to cash demand. Hence, modeling and then operating each management is downgraded into a commoditized clerical role.
ATM efficiently - from ordering, to withdrawal from the bank, packing,
transporting, loading, unloading residuals, transporting back to the bank,
depositing - leaves plenty of room for error.
Often, these inefficiencies are regarded as being “out of scope” by
suppliers for cash management purposes. However, the effects on
deployers are very much in scope and it is the planning, modeling and High quality analytical work
managing of such factors that brings significant efficiency to cash
management and can produce huge benefits if successful. is the real key to successResiduals.
Does size matter?
There is often an obsession with residuals. However, residuals
are a consequence of cash management efficiency, not a driver.
Just because one ATM fleet is running at lower residuals than
another, doesn’t mean that it is being run more efficiently.
For example, a high volume ATM network with limited cash
capacity in each ATM, high demand volatility and a need for
regular replenishment may have higher residuals than a network
with a low volume & low volatility fleet of ATMs that requires less
replenishments. In this case, all things equal, the network with the
higher residuals will be more profitable.
There are also problems with the way we see the statistics for
residuals presented. The biggest example is removing all residuals
that can be blamed on something else - machine fault, Armored
Transport failure etc.
4
This is done so often and in so many different ways that it is
difficult to verify the validity of statistics presented.
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Rather than residuals, the two figures that are important to
monitor are:
• Cash availability
• Overall cost of cash5 6
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Ignore everything else and The cost of cash between
concentrate on the cost of cash ratio deployers should be very similar
The cost of cash ratio is calculated by adding up all the annual costs of Within a single economy the cost of cash between deployers should
putting cash into your machines (including banking, Armored Transport, theoretically be very similar, but in reality it isn’t.
interest, insurance, cash management etc.) and then dividing this by the
annual volume of cash withdrawn. This will give you a percentage rate. Thinking logically, it can be seen that one deployer can operate on far less
cost than another if they are prepared to accept lower cash availability. In
There is a natural trade-off between cash availability, the cost of cash and practice however, there is only a material difference in costs at the extreme.
the marginal increase in cost rises with the level of availability required. In other words, a 99.9% cash availability should produce far higher costs
Hence, you need to set a standard at which you do not want to see cash than 99.0%, but perhaps surprisingly 99.0% will be very similar to 95% and
availability fall below. We usually work on the benchmark of 99.5% below.
availability.This means that, at any one time, no fewer than 5 ATMs in 1000
can be out of cash. This being the case, we still see that nearly all deployers exceed 95% cash
availability, yet we also still see huge differences in costs. This suggests
With this constraint, the cost of cash can then be significant variations in efficiency levels.
easily measured against best practice by using simulation
techniques, taking into account other constraints such as Case Study: Cost vs. Availabilty
machine capacity.
Excess costs can then be calculated for your network and the reasons for
this analysed; reasons can include; too much Armored Transport, supplier
pricing too high, banking costs too high, too much cash in the supply chain
and interest costs too high to name but a few. Pinpointing where these
excesses are can form the basis of a cost reduction strategy.
Variations in efficiency levels
present opportunities to reduce
Company 1 Company 2
costsCash management is not a labor
intensive business
Our first question when we visit clients’ offices to see how they
manage cash internally is usually...
“what are all these people doing?”
It’s surprising to see just how much staff time gets diverted to
adminstration and poor supply chain performance. Little effort is
put into prioritizing ATMs and when it is, the prioritization process
is too clumsy and often plain wrong. So, huge amounts of time is
devoted to the wrong tasks at significant opportunity cost.
Cash management requires highly skilled, highly numerically
competent individuals overseeing complex computing models.
They should focus on adjusting those models to changes in the
operating environment, such as demand changes or supply chain
7
changes and the key objective should be to improve productivity
and availability.
RULE8 9
RULE
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Develop an accurate Ensure that macro factors are also
micro-prioritization model optimized
While there will be many factors influencing a prioritization model and every Rule 5 touched on some of the macro factors that impact cash
customer will be different, the process should remain the same. management.
By developing a simulated model for each ATM, we can calculate the For example “How much do you pay for your Armored Transport?” is a
optimum operational model taking into account the two factors: familiar refrain between deployers. But this is almost like comparing apples
and oranges.
• Availability
• Cost Armored Transport prices are dependent on factors such as the amount of
cash delivered each time, insurance, number of services, trunking costs,
From there, we can measure the efficiency gap between current operation the number of banking vaults, days of the week your ATMs are serviced,
and optimal in order to establish a ranking of ATMs. This enables us to capacity and market conditions at the time, etc. To get to the
develop an ATM by ATM cost-benefit analysis to underpin our prioritization optimum Armored Transport pricing available for your business you need to
and produce the best results from our optimization strategy. benchmark your specific requirements to the marketplace and that requires
expert analysis.
Other macro factors include contracts for banking & cash provision and
interest costs. We find that putting real effort into fully understanding
the competitive advantage that can be gained from seemingly marginal
differences, can deliver fundamental results.
The beauty of ATM cash management is that continuous,
incremental improvement can be achieved and easily
measured10 X
RULE
When outsourcing, avoid
conflicts of interest
Cash management needs to be conducted in your best
interests by a provider that is not conflicted.
For example, outsourcing to a bank could be problematic if the bank
generates more revenue the more cash you order and return. Furthermore,
if the bank is responsible for funding there may be a beneficial interest
for them in maintaining high cash balances across your network. Similarly,
Armored Transport is a capital intensive business which benefits from high
volume trading. By charging per visit, the Armored Transport company will
benefit if you order cash more often than you should.
In addition, outsourcing cash management to any business with an interest
in your supply chain can often lead to a commoditization of the process as
the suppliers lack the expertise or interests in what they might regard as
a non-core activity. Therefore, when outsourcing cash management you
should choose an independent partner who has no conflicts of interest.
Cash management should sit
independent from the supply
chainAnd finally... About the Author
This white paper was written by
Taken together, the rules presented here provide the Brendan Doyle, CEO
framework for sophisticated management of ATM cash. Cash Management Solutions (CMS)
This framework provides optimal results across the varied constraints that Brendan Doyle founded CMS in 1991 following his MBA at
ATMs are subject to. Manchester Business School. Since then, Brendan has gained over 20
years’ experience operating within the cash industry and has developed
Through optimization of cash management, considerable competitive solutions for industry leading clients in 25 countries worldwide.
advantage can be gleaned. As deployers across the world see their
competitors move toward this optimum, the relative risks of poor cash Brendan is also a regular guest speaker at numerous conferences related
management performance grow. to cash, most recently speaking at industry events in Dubai and London.
If you have any questions regarding this white paper or any questions
By understanding and implementing these rules, CMS has become relating to cash management please contact:
recognized as a leading outsourced provider of cash management services.
Our expertise has given our clients vast cost savings and greatly
improved performance, allowing quicker growth and improved profitability. Brendan Doyle, CEO @ CMS
+1 312-288-8431
bdoyle@cms-cashmanagement.com
www.cms-cashmanagement.com
@CashManageWhite paper written and produced in house by the team at Cash Management Solutions
111 West Jackson, Chicago, Illinois 60604
+1 312-288-8431
info@cms-cashmanagement.com
www.cms-cashmanagement.com
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