Managing Coins for Depository Institutions in Coin Supply Chains for Improved Circulation

Abstract

We investigate the U.S. Coin Supply Chain (USCSC) from the perspectives of the Depository Institutions (DIs) within the context of improving efficiency of coin circulation in the economy. The USCSC consists of the supply side members (Mint, Federal Reserve System) and the demand side members (DIs, Customers). On the supply side, the Federal Reserve System (FRS) supplies coins to the DIs whereas on the demand side, the DIs meet the coin demands of their customers. Thus, the DIs in the USCSC play a crucial intermediary role of connecting the FRS and customers by ordering coins from the FRS, managing their respective coin logistics network, and interacting with the customers to fulfill their coin needs. Our objective is to study the USCSC’s demand side problem of maintaining an inventory of coins at the DIs to meet their customers’ demand at a minimum operating cost. We provide an optimal or a near-optimal operating policy for the DIs to improve their efficiency and effectiveness in packaging, distributing, coordinating, and managing inventory of coins. We further propose a new policy (via a Rewards Program) to increase the coin circulation in the economy. We optimally determine a reward price which, if implemented by the FRS, can incentivize the DIs to more frequently deposit their excess coins at the FRS. We identify the structures of DIs’ best response to the reward price and FRS’s optimal pricing policy. The models, results, and insights developed in this study can be beneficial to both the DIs and FRS in increasing the nation’s coin circulation and thereby potentially averting another coin shortage. Managing the coin ordering process to be more adaptable to the changes in the demand is critical for reducing the overall supply chain costs. The robust optimization framework and the resulting insights presented in this study can aid the DIs for efficiently managing their coin inventories and attaining their cost reduction goals under uncertain demand.

Keywords: Coin Supply Chain, Network Optimization, Coin Coordination, Coin Inventory Management