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Inventory Management for Mobile Money Agents in the Developing World

35 Pages Posted: 16 Jun 2017  

Karthik Balasubramanian

Harvard Business School

David Drake

Harvard Business School - Technology & Operations Management

Douglas Fearing

Los Angeles Dodgers

Date Written: June 15, 2017

Abstract

Mobile money systems, platforms built and managed by mobile network operators to allow money to be stored as digital currency, have burgeoned in the developing world as a mechanism to transfer money electronically. Mobile money agents exchange cash for electronic value and vice versa, forming the backbone of an emerging electronic currency ecosystem that has potential to connect millions of poor and “unbanked” people to the formal financial system. Unfortunately, low service levels due to agent inventory management are a major impediment to the further development of these ecosystems. This paper describes models for the agent’s inventory problem, unique in that sales of electronic value (cash) correspond to an equivalent increase in inventory of cash (electronic value). This paper presents a base inventory model and an analytical heuristic that are used to determine optimal stocking levels for cash and electronic value given an agent’s historical demand. When tested with a large sample of transaction-level data provided by an East African mobile operator, both the base model and the heuristic improved agent profitability by reducing inventory costs (defined here as the sum of stockout losses and cost of capital associated with holding inventory). The heuristic increased estimated agent profits by 15% relative to profits realized through agents actual decisions, while also offering substantial computational advantages relative to the base model.

Suggested Citation

Balasubramanian, Karthik and Drake, David and Fearing, Douglas, Inventory Management for Mobile Money Agents in the Developing World (June 15, 2017). Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 17-109. Available at SSRN: https://ssrn.com/abstract=2987591

Karthik Balasubramanian

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

David Drake (Contact Author)

Harvard Business School - Technology & Operations Management ( email )

Boston, MA 02163
United States

Douglas Fearing

Los Angeles Dodgers

Los Angeles, CA
United States

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