Inventory Management Using a Weekly Review ( s, S ) Policy at the Bank of Canada

Antoine Legrain () and Johnathan Patrick ()
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Antoine Legrain: Polytechnique Montreal, Centre-ville, Montréal, Québec H3C 3A7, Canada
Johnathan Patrick: Telfer School of Management, Ottawa, Ontario K1N 6N5, Canada

Interfaces, 2022, vol. 52, issue 2, 210-225

Abstract: One of the roles of the Bank of Canada (BoC) is to ensure that there is sufficient inventory of each denomination of currency all across the country. To accomplish this, the BoC has established 43 regional distribution centers (RDCs) to store inventory. Each RDC has its own limit in terms of the total value of currency that can be stored without penalty. Local banks can request withdrawals from the RDCs or else can choose to deposit money into the RDCs. In addition, the BoC often has to recall currency that has become unfit for service. Thus, the BoC is faced with a two-way inventory management problem wherein demand can be both positive (withdrawals) or negative (deposits), requiring the BoC to guard against both too little inventory (leading to shortages) and too much inventory (leading to penalties for exceeding value limit). We developed an adapted weekly review ( s , S ) policy for the management of the inventory at each RDC that determines the weekly decision as to how much inventory ships both to and from each RDC. The BoC implemented the adapted policy through the first half of 2018. Comparisons with the previous two years demonstrated a drop in transportation costs of around 15% in the 12 months following implementation compared with the average of the two years prior—despite the fact that costs had been increasing prior to implementation from one year to the next.

Keywords: banks; financial institutions; inventory; production; heuristics; networks; graphs; simulation; transportation (search for similar items in EconPapers)
Date: 2022
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