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The IUP Journal of Supply Chain Management :
Outsourcing of Operations in the Banking Industry: A Case Study from China
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In this paper, the question of whether or not to outsource cash operations to third-party companies is addressed. We present a mixed integer linear programming model of this issue that aims to provide guidance concerning the possible outsourcing strategy of the cash transport and sorting in cash closed-loop supply chains of China’s banking industry. We report a study that applies our model and solution approach to simulated data in a region and the study implies that partial outsourcing leads to an overall cost reduction of 9.48%. We conclude that it may often be beneficial for commercial banks to at least partially outsource their cash operational businesses.

 
 
 

Despite the growth in financial entities such as cheques, credit cards and other electronic payments systems, it is evident that cash (i.e., banknotes and coins) is still the main medium of exchange in the increasingly digital global economy. A survey shows that over 50% of all financial transactions all over the world still involve cash (Zhang, 2007). Even in the US, from 2000 to 2017, the total value of cash in circulation increased by 77% (Trading Economics, 2017). In addition to convenience, cash, unlike most electronic transactions, affords privacy, which includes information about the purchaser.

In almost every nation’s cash service network, physical banknotes and coins are minted, printed, supplied and backed by a central bank (also called ‘the bank of banks’) in cooperation with the Commercial Banks (CBs) and public across the country. In Currency Management (CM), the central bank takes on responsibilities including: issuing currency (market access), destroying unfit cash (market exit) and anti-counterfeiting. In close relationships with the central bank, the CBs manage their core businesses in the markets, including deposit, loan and intermediary business.

 
 
 

Supply Chain Management Journal,Outsourcing of Operations ,Banking Industry, Supply Chain and Current Studies