Thesis_report-4179927-Final

Thesis_report-4179927-Final
Enhancing the efficiency of
retail cash handling processes at
Amsterdam Airport Schiphol
Maryam Hashemi Ahmadi
Master Thesis (Public version)
August 2013
I
I
Faculty of Technology, Policy and Management (TPM)
Jaffalaan 5
2628 BX Delft
The Netherlands
www.tbm.tudelft.nl
Schiphol Airport Retail B.V.
Snipweg 7
Snipweg 7
1118 DN Schiphol
The Netherlands
Kappe' International B.V.
Postbus 3065
2130 KB Hoofddorp
The Netherlands
Master:
Management of Technology
Title:
Enhancing the efficiency of retail cash handling
processes at Amsterdam Airport Schiphol
Author:
Student Number:
M. Hashemi Ahmadi
Date:
Graduation Committee:
Chair:
First Supervisor:
Second Supervisor:
Third supervisor:
External supervisor:
4179927
August 2013
Prof. dr. L. Tavasszy (TPM – TLO)
Drs. R. van Duin (TPM – TLO)
Dr. H. Warmelink (TPM-POLG)
Dr. Ir. S. Meijer (TPM-POLG)
P.J. Rozenberg (Schiphol Airport Retail)
II
III
Abstract
During the recent years, electronic payment methods have become more customary and in cases
more preferable. Nevertheless, cash remains a popular form of payment due, inter alia, to its
ubiquity. Large use of cash is associated with security issues, investment costs, logistics costs of
transport and handling cash, personnel costs, and the like. To deal with these issues, many retailers
have, to different extents, outsourced cash handling services to CiTI companies. Kappe’ and Schiphol
Airport Retail (SAR) are two retail groups functioning at a number of locations in Amsterdam Airport
Schiphol. They currently outsource part of their cash handling services to ABN-AMRO and GWKTravelex. This results in a further increase in costs incurred by Kappe’ and SAR. Consequently,
enhancing the efficiency of money flow is of significant importance to both corporations.
The aim of this research is to develop cash handling processes which can bring about a more
efficiency. This is done firstly by conducting a literature review on the reasons behind large costs of
cash handling for retailers. Then the current processes of cash handling at Kappe' and SAR are
studied to explore their deficiencies. After that, alternatives (e.g. automation, joint cash office,
clustering) which can bring about a more efficient cash handling process are proposed and assessed
on criteria of interest to the problem owners (Kappe' and SAR). The implementation chapter is done
for the selected alternative. In the next stage, the prudence of the selected processes is re-evaluated
by using a multi-criteria analysis methodology and also based on the trends in customers’ use of cash
in payments. Finally, given the findings of the research, recommendations are provided for
possibilities of further improvement in cash handling processes.
Key words: Retailers’ costs of payment, Efficient cash handling processes, Activity-Based Costing,
Cash-in-Transit Company, Cash recycling, and Multi-Criteria Decision Making
I
Cash in Transit
IV
V
Preface
The report at hand is the result of my graduation research project at Schiphol
Airport Retail (SAR) and Kappe' during the period between February 2013 and July 2013. With this
graduation thesis, I conclude my study in MSc. Management of Technology at Delft University of
Technology, the Netherlands. For the completion of this research, I am indebted to the priceless
guidance of my first supervisor Drs. Ron van Duin. I am as well grateful to Prof. Lorant Tavasszy and
Dr. Sebastiaan Meijer for their valuable feedback. I would also like to express my sincere gratitude to
Ms. Cindy Groothuizen, Mr. Casper Vos, Mr. Peter-Jan Rozenberg, and Mr. Jacques Parson from SAR
and Kappe' for their support and constructive comments.
I shall thank Baris Ozkale, my fellow intern at Schiphol, for having been notably cooperative. I would
also like to express my appreciation to Dr. Jafar Rezaei for his assistance in clarifying the non-familiar
aspects of the methodologies, and Mr. Yashar Araghi for his help with the complications of the
project.
Last but not least, I would like to take this opportunity to express my eternal gratitude to my mother,
father, uncle and brother for their unconditional love and support throughout the years. I am also
greatly thankful to my aunt, Zohreh, her lovely family, and my friends, Houriyeh, Nazpar, Shadi and
Mahtab for all their help and kindness.
Maryam Hashemi Ahmadi
August 2013
VI
VII
Table of contents
ABSTRACT
IV
PREFACE
VI
Table of contents
VIII
List of tables
XII
List of charts
XIV
List of figures
XV
Glossary
XVI
CHAPTER 1: INTRODUCTION
1.1.Research problem
1.1.1.Current procedure of cash handling
1.1.2.Problem formulation
2
2
3
1.2.Research objectives
4
1.3.Research scope
5
1.4.Research questions
5
1.5.Research methodology
7
1.6.Data collection
8
1.7.Research structure
8
Summation
10
CHAPTER 2:CASH PAYMENTS AND COSTS COMPONENTS IN CASH HANDLING PROCESSES
2.1. Popularity of cash
2.1.1. Popularity of cash among consumers
2.1.2. Acceptance of cash by retailers
11
13
13
2.2. Costs of cash payments
2.2.1. Consumers' costs of cash
2.2.2. Retailers' costs of cash
13
14
15
Summation
18
VIII
CHAPTER 3:CURRENT CASH HANDLING PROCEDURES AT KAPPE’ AND SAR
1.1.Payment methods at Schiphol
21
1.2.Financial institutes at Schiphol
21
1.3.Map
21
1.4.Cash handling processes
1.4.1.Cash handling at Kappe's stores
1.4.1.1.Kappe's
23
1.4.1.2.Kappe's
26
1.4.2.Cash handling at SAR’s stores
old
22
22
system
new
system
Summation
29
33
CHAPTER 4:SOURCES OF COSTS IN CURRENT CASH HANDLING PROCEDURES AT KAPPE'
AND SAR
4.1. Activity-Based Costing
4.1.1. Definition
4.1.2. Applications of ABC: motivation for choice of methodology
4.1.3. Stages of ABC
4.1.4. ABC for Kappe'
4.1.5. ABC for current system of SAR
35
35
35
36
41
41
4.2. Analysis of sources of costs
4.2.1. Sources of cost in Kappe's old system
4.2.2. Sources of cost in Kappe's new system
4.2.3. Sources of cost in SAR's current system
4.2.4. Comparison of current systems at Kappe' and SAR
43
43
44
45
46
4.3. Sensitivity analysis
46
Summation
48
CHAPTER 5:ASSESSMENT CRITERIA, AND BENCHMARKS
5.1. Stakeholder analysis
50
5.2. Assessment criteria
5.2.1. Criteria from the perspective of Kappe' and SAR
5.2.2. Employee requirements
5.2.3. Customer requirements
51
51
53
54
IX
5.3. Success criteria
55
5.4. Benchmarks
56
Summation
60
CHAPTER 6:ALTERNATIVE SOLUTIONS FOR IMPROVING THE EFFICIENCY OF CASH
HANDLING
6.1. Constraints and requirements
62
6.2. Separate alternatives for Kappe'
63
6.2.Separate alternatives for SAR
6.2.1.Using cash recycling machines (S1)
6.2.2.Working with ABN-AMRO (S2)
6.2.3.Using cash recycling machines and working with ABN-AMRO (S3)
6.2.4. Using drop-in safes (S4)
64
64
65
66
67
6.3.Joint alternatives for Kappe' and SAR
69
6.3.1.Shared use of cash recycling machines by Kappe’ and SAR (J1A)
70
6.3.2.Shared use of cash recycling machines by Kappe’, SAR and other retailers at Amsterdam
Airport
Schiphol(J2)
70
6.4.Sensitivity analysis for alternatives
6.4.1.Sensitivity analysis for Kappe's alternatives
6.4.2.Sensitivity analysis for SAR's alternatives
74
74
77
Summation
81
CHAPTER 7:SELECTION AND IMPLEMENTATION
1.1.Selection
82
1.Joint use of cash recycling machines in lounge 1 and separate use of cash recycling machines
in
the
other
lounges
84
1.1.1.Joint use of cash recycling machines in lounge 1 and separate use of cash recycling machines
in the other lounges (J1B)
84
1.1.2.Comparison between J1B, and K1 and S3
86
1.2.Implementation
87
Summation
90
CHAPTER 8:REASSESSMENT OF CHOICES
X
8.1. Multi-Criteria Decision Making: an AHP methodology
8.1.1. Applications of AHP
8.1.2. AHP methodology: calculation steps
8.1.3. Reassessment of Kappe's choice based on AHP results
8.1.4. Reassessment of SAR's choice based on AHP results
92
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93
95
96
8.2. Cash trends and their effect on selection of the proper alternative
8.2.1. Reassessment of Kappe's choice based on cash trends
8.2.2. Reassessment of SAR's choice based on cash trends
97
97
100
Summation
102
CHAPTER 9: CONCLUSIONS, RECOMMENDATIONS, AND REFLECTION
103
9.1. Conclusion
103
9.2. Recommendation
104
9.3. Reflection
105
REFERENCES
106
APPENDICES
111
Appendix 1: Fundamentals of machine depreciation
111
Appendix 2: Stakeholder analysis
113
Appendix 3: Risk analyses
115
Appendix 4: Calculation of costs for alternative processes
135
Appendix 5: Flowcharts and additional information on alternatives
149
Appendix 6: AHP
158
Appendix 7: Pneumatic tube system
160
XI
List of tables
Table 1: Research questions and research methodology ....................................................................... 8
Table 2: Results of European Central Bank studies on payment instruments 7 .................................... 14
Table 3: Shops of Kappe' and SAR in departure lounges ...................................................................... 22
Table 4: Kappe's contracts with ABN-AMRO ......................................................................................... 23
Table 5: Overview of current processes of cash handling at Kappe' and SAR ..................................... 32
Table 6: Activities in current cash handling procedures at Kappe' and SAR ......................................... 38
Table 22: Data on wages and working hours at SAR ............................................................................. 41
Table 23: Data on time spent on cash handling by employees at SAR ................................................. 42
Table 24: SAR's contract with GWK-Travelex ........................................................................................ 42
Table 25: ABC for SAR in 2012 or 2013 ................................................................................................. 43
Table 28: Stakeholders analysis-summarized ....................................................................................... 50
Table 29: Application of benchmarks in developing new cash handling processes ............................. 59
Table 30: Current arrangement of escrows in cash recycling machine of P&C West ........................... 63
Table 42: ABC for alternative S1 ............................................................................................................ 64
Table 43: ABC for alternative S2 ............................................................................................................ 65
Table 44: ABC for alternative S3 ............................................................................................................ 66
Table 45: ABC for alternative S4 ............................................................................................................ 68
Table 48: ABC for alternative J2 ............................................................................................................ 70
Table 49: Options proposed by G4S in alternatve J3 ............................................................................ 73
Table 50: required number of machines for each of the two joint offices in alternative J3................. 74
Table 51: Comparing number of recycling machines in alternatives K1, S3, and J1A ........................... 84
Table 52: Joint use of cash recycling machines in lounge 1 .................................................................. 85
Table 53: Separate use of cash recycling machines in the lounges 2 and 3.......................................... 85
Table 54: ABC for Kappe’ for alternative J1B ........................................................................................ 86
Table 55: ABC for SAR for alternative J1B ............................................................................................. 86
Table 56: Comparison between J1B, and K1 and S3 ................................................................................... 86
Table 57: Overview of different alternatives for Kappe’ ....................................................................... 95
Table 58: Pair-wise comparison of criteria for Kappe' .......................................................................... 95
Table 59: AHP results for Kappe’ ........................................................................................................... 95
Table 60: Overview of different alternatives proposed for SAR ........................................................... 96
Table 61: Pair-wise comparison of criteria for SAR ............................................................................... 96
Table 62: AHP results for SAR ................................................................................................................ 96
Table 63: Impact of trends in cash payments on cost categories for Kappe’ ....................................... 98
Table 64: Costs of different alternatives for Kappe’ with the impact of trends in cash payments ...... 98
Table 65: Impact of trends in cash payments on cost categories for SAR .......................................... 100
Table 66: Costs of different alternatives for SAR with the impact of trends in cash payments ......... 101
Table 67: Stakeholders analysis-complete .......................................................................................... 113
Table 68: Stakeholder types ................................................................................................................ 114
Table 69: Risk analysis for current system for SAR ............................................................................. 115
Table 70: Risk analysis for Kappe's old system.................................................................................... 116
Table 71: Risk analysis for Kappe's new system .................................................................................. 118
Table 72: Risk analysis for alternative K1 ........................................................................................... 119
Table 73: Risk analysis for alternativeK2 ............................................................................................. 120
Table 74: Risk analysis for alternativeK3 ............................................................................................. 125
XII
Table 75: Risk analysis for alternativeS1 ............................................................................................. 126
Table 76: Risk analysis for alternativeS2 ............................................................................................. 128
Table 77: Risk analysis for alternative S3 ............................................................................................ 129
Table 78: Risk analysis for alternative S4 ............................................................................................ 130
Table 79: Risk analysis for alternative ................................................................................................. 131
Table 80: Risk impact matrix ............................................................................................................... 134
Table 91: Location of three cash three recycling machines at SAR..................................................... 136
Table 92: Skimming for alternative S1 ................................................................................................ 136
Table 93: Time for employee tasks for three cash recycling machines at SAR ................................... 137
Table 94: Administration costs for alternative S1 ............................................................................... 138
Table 95: Employee costs for alternative S1 ....................................................................................... 138
Table 96: ABC for alternative S1 .......................................................................................................... 139
Table 97: Number of seal bags for alternative S2 ............................................................................... 140
Table 98: ABC for alternative S2 .......................................................................................................... 140
Table 99: Administration costs for alternative S3 ............................................................................... 141
Table 100: Employee costs for alternative S3 ..................................................................................... 141
Table 101: Number of seal bags for alternative S3 ............................................................................. 142
Table 102: ABN-AMRO fees for alternative S3 .................................................................................... 142
Table 103: ABC for alternative S3 ........................................................................................................ 142
Table 104: Employee costs for alternative S4 ..................................................................................... 143
Table 105: Investments for alternative S4 .......................................................................................... 144
Table 106: ABC for alternative S4 ........................................................................................................ 144
Table 128: Technology costs for alternative J2 ................................................................................... 147
Table 129: Costs in alternative J2 ........................................................................................................ 148
Table 130: Division of tasks among Kappe' and SAR's employees for alternative J1A ....................... 153
Table 131: Properties of CASH-360 solution ....................................................................................... 155
Table 132: The fundametal scale for AHP ........................................................................................... 158
XIII
List of charts
Chart 1: Distribution of costs for Kappe's old system (after compensation) ........................................ 44
Chart 2: Distribution of costs for Kappe' new system (after compensation) ........................................ 45
Chart 3: Distribution of costs for SAR .................................................................................................... 45
Chart 4: Sensitivity analysis for Kappe's current system ....................................................................... 47
Chart 5: Sensitivity analysis for SAR's current system........................................................................... 47
Chart 6: ABC for Kappe’ for alternative J2............................................................................................. 71
Chart 7: ABC for SAR for alternative J2 ................................................................................................. 71
Chart 8: Sensitivity analysis for alternative K1 ...................................................................................... 75
Chart 9: Sensitivity analysis for alternative K2 ...................................................................................... 75
Chart 10: Sensitivity analysis for alternative K3 .................................................................................... 76
Chart 11: Sensitivity analysis for Kappe' for alternative J1A ................................................................. 76
Chart 12: Comparison between sensitivity analysis for different alternatives for Kappe' ................... 77
Chart 13: Sensitivity analysis for alternative S1 .................................................................................... 77
Chart 14: Sensitivity analysis for alternative S2 .................................................................................... 78
Chart 15: Sensitivity analysis for alternative S3 .................................................................................... 78
Chart 16: Sensitivity analysis for alternative S4 .................................................................................... 79
Chart 17: Sensitivity analysis for SAR for alternative J1A ...................................................................... 79
Chart 18: Comparison between sensitivity analysis for different alternatives for SAR ........................ 80
Chart 19: Total costs of different alternatives for Kappe' ..................................................................... 83
Chart 20: Total costs of different alternatives for SAR.......................................................................... 83
Chart 21: Forecast of trends in cash payments for Kappe’ ................................................................... 98
Chart 22: Costs of different alternatives for Kappe’ with the impact of trends in cash payments ...... 99
Chart 23: Forecast of trends in cash payments for SAR ...................................................................... 100
Chart 24: Costs of different alternatives for SAR with the impact of trends in cash payments ......... 101
XIV
List of figures
Figure 1: Research scope ......................................................................................................................... 5
Figure 2: Research approach ................................................................................................................... 9
Figure 3: Focus of chapter 2 .................................................................................................................. 11
Figure 4: Number and Value of PoS payments in 2007 and 2010......................................................... 12
Figure 5: Usage of PoS payment instruments in 2007 and 2010 .......................................................... 12
Figure 6: Causal relations diagram for costs of cash payments ............................................................ 17
Figure 7: Focus of chapter 3 .................................................................................................................. 19
Figure 8: General scheme of cash handling .......................................................................................... 20
Figure 9: Location of shops of Kappe' and SAR in departure lounges at Amsterdam Airport Schiphol
............................................................................................................................................................... 22
Figure 10: Current cash handling process at Kappe' in Lounges 1 and 2 .............................................. 24
Figure 11: Control scheme for current cash handling process at Kappe' in Lounges 1 and 2............... 25
Figure 12: Current cash handling process at Kappe' in Lounges 3&4 ................................................... 27
Figure 13: Control scheme for current cash handling process at Kappe' in Lounges 3&4 .................... 28
Figure 14: Current cash handling process at SAR .................................................................................. 30
Figure 15: Control scheme for current cash handling process at SAR .................................................. 31
Figure 16: Focus of chapter 4 ................................................................................................................ 34
Figure 17: Focus of chapter 5 ................................................................................................................ 49
Figure 18: Different cash handling processes as benchmarks .............................................................. 57
Figure 19: Focus of chapter 6 ................................................................................................................ 61
Figure 20: Alternative cash handling processes for Kappe' and SAR .................................................... 62
Figure 24: Qualitative assessment for alternative S1............................................................................ 65
Figure 25: Qualitative assessment for alternative S2............................................................................ 66
Figure 26: Qualitative assessment for alternative S3............................................................................ 67
Figure 27: Cash handling process using drop-in safes........................................................................... 67
Figure 28: Qualitative assessment for alternative S4............................................................................ 69
Figure 30: Qualitative assessment for alternative J2 ............................................................................ 72
Figure 31: CASH360 solution by G4S ..................................................................................................... 73
Figure 32: Focus of chapter 7 ................................................................................................................ 82
Figure 33: Implementation steps .......................................................................................................... 89
Figure 34: Focus of chapter 8 ................................................................................................................ 91
Figure 35 :CIR ....................................................................................................................................... 94
Figure 36: Focus of chapter 9 .............................................................................................................. 103
Figure 37: Flowchart for use of drop-in safes ..................................................................................... 149
Figure 38: Scheme of control for use of drop-in safes ........................................................................ 150
Figure 39: Flowchart for alternative J1 ............................................................................................... 151
Figure 40: Scheme of control for alternative J1 .................................................................................. 152
Figure 41: Flowchart for alternative J3 ............................................................................................... 157
Figure 42: Two-way pneumatic tube system ...................................................................................... 160
Figure 43: Two-way pneumatic tube system; point to multiple points and vice versa ....................... 161
XV
Glossary
Automated cash handling:
The process of dispensing, counting and tracking cash in a bank, retail, or other business environment
through specially designed hardware and software for the purposes of loss prevention, theft deterrence
and reducing management time for oversight of cash drawer (till) operations. 55
Back-office functions:
Processing of cash from cash payment transactions (counting, sorting, preparation of change floats,
cash registers for cash, etc.)12
Back office costs of cash handling:
Costs at centralized levels to be allocated to the retail payment system, such as the costs of control and
management departments related to for instance, logistics issues, the costs of information supply to
customers in the form of account statements and telecommunications costs.10
Balancing a cash register:
The process of counting the money, reconciling the receipts and balancing the cash drawer creates an
internal control or accountability of the day's transactions.56
Cash Collection Point Cashiers:
Conduct cash transactions with customers. Monies can be received in person and/or the mail. Endorse
all checks immediately upon receipt with a restrictive endorsement. Provide a receipt to every person
paying in person. Enter each transaction into a cash register or cash receipt journal/log. Count the cash
and forward it on to the deposit preparer (or cash collection point supervisor if one is designated) at
the end of the shift. Forward any supporting documentation (cash register tapes, etc.) to the reconciler
(or cash collection point supervisor if one is designated).57
Cash Collection Point Supervisor:
Monitor cash receipting functions and authorize various transactions, such as refunds, voids, and cash
drawer reconciliation. Have access to the cash drawers and safe, if applicable.57
Cash drawer:
A compartment underneath a cash register in which the cash from transactions is kept. The drawer
typically contains a removable till.58
Cash Handling in Retail:
Learn cash handling procedures and security for any retail environment. Find out where to purchase
cash registers and other cash handling equipment. Print forms for balancing cash drawers and estimate
how much money to keep in the till.56
Cash Management:
practices and techniques designed to accelerate and control collections, ensure prompt deposit of
XVI
receipts, improve control over disbursement methods, and eliminate idle cash balances.56
Cash office:
A place where the cash collected at PoS is transferred to and counted. This place can also supply till
floats.
Cash register (till):
A machine which shows and adds the prices of items bought, with a drawer for keeping the cash
received.
cash shrinkage:
The difference between the amount collected at the PoS and the amount transferred to and counted at
a cash office.
CiT (Cash-in-Transit)company:
Company which delivers cash handling services. Examples are G4S, Brinks, and GWKTravelex.
Coin dispenser:
A hardware used in automated cash handling for dispensing coin as change. 59
Collection:
The transfer of monies from one source to another for the payment of goods and/or services. 56
CVIT:
Cash/Valuables I Transit, the physical transfer of banknotes, coins and items of value from one location
to another.60
CVIT Van / armoured car:
An armoured van or truck, used in transporting valuables, such as large quantities of money (especially
for banks or retail companies).61
Deposit Preparer:
Count the cash receipts, prepare the deposit and deliver it to the bank or designated deposit drop
location. Submit all appropriate accounting information through the online E-deposit system. Deliver
each bank validated deposit slip/E-deposit form to the Reconciler. Store the cash in a safe or other
secure place until it is deposited.57
Financial Institution:
Any bank, savings and loan association, or credit union accepting funds 56
Float:
The period of time that elapses between two collection or disbursement activities. Specific types of
XVII
float are: Billing Float, Mail Float, Processing Float (Collections), Processing Float (Disbursements) 56
Front-office costs of cash handling:
Costs of activities involving more direct contact with customers (compared to back office functions), I
particular costs related to branch office networks, such as bank office counter services in connection
with retail payment products and cash deposit facilities.10
Point of Sale (PoS):
The physical location at which goods are sold to customers. The point of sale is often more specific than
the general building or store where something is sold, typically indicating the piece of technology which
is used to finalize the transaction.62
Private costs of payment:
All the costs incurred by relevant individual parties in the payment chain.
Reconcile:
Verify that the Deposit Preparer has deposited all cash received. On a monthly basis, reconcile validated
deposit forms to the supporting documentation and to the General Ledger Statement of Accounts.8
Retailer:
An organisation in the business of offering products and/or services to private citizens and
organisations. 56
Seigniorage:
The profit that Central Banks accrue through the circulation of cash coming from two sources. First
from the face value of a banknote or coin less the printing or minting cost. Second from the interest
gained on the value of the banknote or coin put into circulation for the duration of its life cycle.56
Social costs of payment:
The costs to society, which reflect the use of resources in the production of payment services. 7
Teller assist units (TAU), automatic teller safes (ATS) or teller cash dispensers(TCD):
Devices used in retail banking for the disbursement of money at a Bank teller wicket or a centralized
area. Other areas of application of TAU include the automation of starting and reconciling teller or
cashier drawers (tills) in retail, check cashing, payday loan / advance, grocery, and casino operations.57
Till float:
cash put into the cash box at the beginning of the day to allow business to start.
Unfit notes:
Bank notes which are not suitable for recirculation. Unfit notes are usually returned to the Central Bank
XVIII
for final authentication and destruction 56
Vault Management System:
Inventory software that monitors the contents of a vault or series of vaults. Capable of being linked to
network compatible hardware 56
XIX
Chapter 1:
Introduction
By the end of 2009, the volume of cash in transaction in Europe had risen to more than €796 billion.
This is a testimony to popularity of cash as a method of payment. Several factors influence such
trends among which are ubiquity of cash, availability of other payment options, size of merchant,
volume of transaction and industry sector. More acceptance of cash at retail stores leads, among
others, to potential increase in security issues, investment costs, logistics costs of transport and
handling cash, and personnel costs. A survey by Wincor Nixdorf has shown that in Europe more than
€50 billion is spent on cash handling each year. 1
The flow of money at retail shops is often a timely and costly process. Reconciling at the Point of Sale
(POS), counting, preparing cash for pick-up, forecasting demand and maintaining till floats are some
of the tasks carried out in the cash handling process. Apart from high workload, large costs, and
security issues, transparency of the cash cycle is also an area of concern. 1
One investigation of the cash centre environment revealed that it consists of a unique combination
of pure service and pure manufacturing.2Some retailers seek assistance from Cash in Transit (CiT)
companies for cash handling activities. Despite its advantages, this can result in a further boost in
costs. The role of technology, automation, and in-house cash offices is neglected in many cases. All
these problems give incentive for a study on possible scenarios for optimization of flow of cash at
retail stores.
Kappe’ and SARI are two retail groups offering various products in their shops at a number of
locations in Amsterdam Airport Schiphol. Kappe's products include cosmetics, sunglasses, medical
products and perfumes which are available at its 12 stores situated in departure lounges 1, 2, 3 and
4. SAR's products are on the other hand, tobacco, liquor and confectionary available in its 7 different
stores in lounges 1, 2 and 3. Kappe' and SAR maintain different levels of till floats in their stores.
More importantly, they have distinct procedures for collection of cash as well as for provision of the
needed amounts for daily transactions at their stores. However, both retail groups use external
parties to handle (at least parts of) cash handling activities.
The diverse tasks and services that need to be done in a cash handling process impose large costs on
retailers, and Kappe’ and SAR are no exception in this regard. In this chapter, by explaining the
general scheme of current procedures at Kappe' and SAR, different aspects of the problem are
formulated. Give the extent of the problem, Kappe' and SAR consider it of key importance to
investigate "Alternative solutions for improving the efficiency of cash handling processes for retail
stores at Amsterdam Airport Schiphol ". Based on this objective, scope of the research is specified
and research questions are posed. Finally, a step-wise approach is proposed in order to answer the
research questions. Suitable data collection and analysis methodologies are recommended for each
step.
I
Schiphol Airport Retail
1
1.1. Research problem
In order to describe the research problem, it is crucial to have a clear understanding of the current
processes of handling cash at Kappe' and SAR. A brief description of these processes is provided
below.
1.1.1. Current procedure of cash handling
According to their agreement with Schiphol a number of currencies are accepted at the cash registers
of Kappe and SAR (including Swedish and Norwegian Krone, Swiss Francs, Japanese Yen, Australian
Dollars). Change is nevertheless only offered in Pounds, Euros and Dollars.
SAR has outsourced its cash handling activities between the stores and the bank to GWKI Travelex.
For the employees in SAR’s store, a shift starts with issuing the initial till float from red seal bag of the
previous shift. Each employee has an individual red seal bag with a personnel code. After the
customer transactions take place during the shift, the shift ends with the employees emptying the
tills in the counting room. A portion of the money (amounting to between 400€ and 500€) is counted
and put in the personalized red seal bags. These red seal bags are then altogether put in a safe. The
rest of the money in the till is also counted and put in blue seal bags to be collected by GWK’s CVIT
vansII. However, the coins are only put in the red seal bags so that they can be recycled for the next
shifts. The amount of money in the red seal bags and blue seal bags are compared with the actual
transactions reported by GWK after counting.
In addition, if during the shift an employee needs additional coins or notes, the shift supervisor
brings the needed amount from safety stock. In the past at least one supervisor was present during
each of the three working shifts. Nowadays, three supervisory positions are defined for each store,
but there are shifts during which none of the supervisors is present at the store. This may also be
true at times of cash collection. The amount of coins needed for the next day are determined at the
end of each day and faxed to GWK. Estimations of amounts needed in different currencies and
denominations are based mainly on intuition, speculation and experience.
Kappe' has 12 stores in Amsterdam Airport Schiphol. The 7 stores located in Lounges 1 and 2 are run
using an old system. New note dispenser/ depositor and coin dispensers are installed in store “P&C
West”. These machines are used as parts of the new procedure of cash handling which is used in the
5 stores located in Lounges 3 and 4. In Kappe’s system, change is only offered in Euros and Dollars
(and Pounds when available).
In lounges 1 and 2 coins needed for till floats are reordered every 3 weeks and stored in a central
location at Schiphol to be provided to Kappe's employee. At the beginning of a shift, each of the
employee counts the starting money to reconcile with the amount recorded by the previous shift’s
personnel. During the shift if smaller denominations are needed, one of the employees personally
visits the bank. At the end of each shift, cash is counted and a starting amount is maintained in seal
bags for the next shift. The rest of the money is deposited by every cashier individually at the closeby ABN office at Schiphol. This results in about 52 visits per day to the bank (once by each employee
working in lounge 1 or 2). In addition there is on average 2 visits per day for supplying change in the
needed currencies and denominations.
At the stores in lounges 3 and 4 which are run in the new system, starting amounts are withdrawn
from the note dispensers at P&C West at the beginning of the shifts. At the end of their shifts,
cashiers deposit the turnover money in the same machines. The money collected in the note
I
II
Grenswisselkantoor
waardetransporter
2
dispenser/depositor (apart from a safety stock amount) is deposited every 3-4 days. In case of
shortage of change in the machine, ad hoc orders are placed which will be delivered with a lead time
of 2 days.
1.1.2. Problem formulation
There are several reasons behind the large costs incurred by Kappe' and SAR for handling cash. The
following problems have been identified in the current procedures:
There are deficiencies and inefficiencies in current cash handling procedures. These include
organizational aspects (e.g. number of working hours of personnel and personal end-of-shift
deposits), investments in technological solutions for automation of procedures and degree of
outsourcing cash handling activities.
Attention for current and future share of cash in total payments and its implications for suitable
changes to enhance the efficiency of the process is missing.
Despite similarities in needs and type and size of their businesses, there seems to be a lack of
cooperation in cash handling activities between Kappe' and SAR (and possibly other retailers at
Amsterdam Airport Schiphol)
These problems can be broken down to the following:
Organizational inefficiencies of work flows
SAR:
Employees are required to spend time counting the money at the end of their shifts. This
increases personnel costs paid for cash handling tasks rather than core activities.
• There is a risk of cash shrinkage since supervisors might be absent during working shifts and
at the time of cash collection by GWK.
Current system of Kappe’ in lounges 1 and 2 (Kappe's old systemI):
•
Employees need to spend time counting the money at the beginning and end of their shift.
Employees needs to personally deposit money at the bank at the end of their shift. (about 60
visits per day per store)
• Employees need to visit the bank during their shift to exchange money or get other
denominations (i.e. about 2 visits per day per store each of which take 30-60 minutes).
• Employees need to have the store managers check their transactions before and after
visiting the bank to provide change.
• Due to personal responsibility of Kappe's employee for depositing cash, possibility of robbery
is a concern.
Current system of Kappe’ in lounges 3 and 4 (Kappe's new systemII):
•
•
•
Employees of stores in Lounges 3 and 4 need extra time to travel to P&C West to withdraw
and deposit money at the beginning and end of their shifts.
Apart from security issues and cost inefficiency, lack of a pre-defined structure for dealing with
uncertainties in cash demand leads to employees' ineffectiveness in performing their primary tasks.
I
II
Current system of Kappe’ in lounges 1 and 2 hereon will be referred to as Kappe's old system.
Current system of Kappe’ in lounges 3 and 4 hereon will be referred to as Kappe's new system.
3
One example is the cases when a cashier is forced to leave the store to supply the needed cash, while
customers wait or forego their purchases.
Technological inefficiencies: absence or limited use of state-of-the-art technology
SAR:
Counting money at the end of the shift is done manually by each cashier. The information is
then entered in the computer to check the balance. This is a timely process. It also means
more personnel cost.
• Safety stock is kept in a basin. Coin and note dispensers are not used.
Kappe's old system:
•
In the old system, counting money at the beginning (double checking for previous cashier)
and at the end of shift (by the cashiers themselves) is done manually. No machine is
available.
• No note dispensers are available. So, if denominations or currencies are needed, employees
need to visit the bank counter. This means a lot of waiting time, therefore more personnel
costs and more waiting time for customers or even lost sales in some cases.
detachment of cash handling infrastructure and processes at Kappe’ and SAR:
• Despite their similar needs and contracts with Schiphol (e.g. currencies accepted in cash
payments and those used as change), Kappe' and SAR have outsourced cash handling to
ABN-AMRO and GWK, respectively. They are currently failing to benefit from economies of
scale through a joint cash office.
• Degree of automation, level of employee involvement, and interval between cash-reorders
are dissimilar. Integration of procedures might aid the organizations in sharing costs as well
as spreading risks.
• Although Kappe' uses an office for storing the cash demand of three weeks, a common cash
storage and forecast office at both organizations is missing. Such an office might enhance the
efficiency of cash handling process by offering shared cash balances forecasted accurately.
•
In addition to the aforementioned problems, there are large amounts of un-invested cash and cashin-between at Kappe' and SAR. They can be disregarded in calculations since the reported interest
losses are not significant. However, alternative processes should be developed in such a way that
amounts of cash-in-between can be reduced.
1.2. Research objectives
The objective of the research is to develop "Alternative solutions for improving the efficiency of
cash handling processes for retail stores at Amsterdam Airport Schiphol ". To achieve, this
objective a number of smaller objectives need to be accomplished. Firstly, the current logistical
scheme of money flow for Kappe and SAR at Schiphol airport needs to be described. Then, based on
sources of costs and success criteria for the problem owners, alternative solutions for enhancing the
efficiency of the cash handling process need to be developed. It is also intended to study the
possibility of further cost savings through a collaborative cash handling process between Kappe' and
SAR and even other retailers. The suggested alternatives will then be reassessed using a multi-criteria
decision making technique as well as with attention for the trends in cash payments.
4
1.3. Research scope
In order to accomplish the research objectives, a number of aspects will be considered and their
contribution to improvement of the money flow will be evaluated. These aspects include:
Alternate procedures for enhancing the efficiency of cash handling procedures in terms of
total costs, availability of employees for core tasks and other process criteria
Risks and security issues of current processes of cash handling at Kappe' and SAR as well as
the suggested scenarios
Role of technology and external parties (banks and CiT companies) in enhancing the
efficiency of cash handling procedures and reducing the risks involved
Possibility of collaboration in cash handling between Kappe' and SAR (and other retailers at
Amsterdam Airport Schiphol)
Impact of trends of customers’ choice of cash in payments on effectiveness of different
scenarios
This research will not include:
An optimization model to reduce inaccuracies in estimation of cash-in-between (start-up
floats, cash holdings and change orders)
Investigation of the factors causing the trends in cash payments
Figure 1 illustrates the scope of the research.
Included
collaboration
between
retailers in
cash handling
procedures
properties of
efficient cash
handling
procedures
risks and
security issues
of different
cash handling
procedures
Alternatives for
improving the
efficiency of cash
flow
effectiveness
of different
cash handling
procedures
Excluded
role of
technology
and external
parties in cash
handling
factors impacting
the trends of
payment methods
optmization of
cash on hand
estimations
Figure 1: Research scope
1.4. Research questions
Considering the type of the research (case study) it is critical to find the factors underlying costs and
degree of their influence. These will assist in developing alternatives and assessing them. The
research questions can be broken down to a sequence of sub-questions. The sub-questions are in
direct connection with the research objectives, and in line with the research approach, and they take
note of the research methodology. The main research questions and their corresponding subquestions are as follows.
5
1. What are the components/ determinants of costs of cash payment in the retail sector?
To answer this question, a literature review needs to be done. The answer will aid in identification
and classification of factors that play a role in cash handling process and the associated costs. The
discovered relationships will be displayed in a causal loop diagram. This diagram facilitates finding
both common and process-specific sources of costs in terms of cash handling between different
retail companies.
2. What are the current procedures for cash handling at Kappe’ and SAR?
• What are the procedures for withdrawing and depositing the cash collected in the cash
drawers?
• What are the procedures for providing the needed change with regards to amounts,
currencies and denominations? How frequently is cash withdrawn/ ordered?
• How are insufficiencies in terms of total available float, denominations and currency type
dealt with?
• Which CiT companies are used by Kappe’ and SAR for cash handling services? To what extent
are these services outsourced? What are the terms of contracts with these companies?
• What is fixed in the current scheme of cash handling? And what can be altered?
To answer question 2, information should be collected from the employees of Kappe' and SAR's
shops as well as representatives of the companies. Observation of the processes can also be of great
assistance. These answers will provide a clear picture of the current scheme of cash handling at
Kappe’ and SAR. This will can be used in comparing the cash handling procedure at Kappe’ and SAR
with other companies. It will also help identify potential areas of improvement.
3. Which factors and to what extent influence the costs of cash handling at Kappe’ and SAR?
Based on the generic understanding of cash handling procedures at Kappe’ and SAR, the sources of
costs in these organizations can be identified using Activity-Based Costing.
4. What are the criteria for assessment of alternative solutions?
When this question has been answered, the measures for comparing different cash handling
procedures and selecting the superior solution scenario will be established. In other words, it will be
decided which criteria are of significance to the problem owners and what are their respective
priorities. Specification of these criteria should be done with special attention for the expectations of
Kappe' and SAR of an efficient cash handling process.
5. What alternative solutions can improve the efficiency of cash handling process? How do the
alternative solutions compare with regards to the selected assessment criteria?
• What would be the impact of each alternative on the cash handling processes?
• How do the alternative solutions compare in terms of sources of costs?
The answer to this question will include different alternatives that can replace (or be merged with)
the current scheme of cash handling. Successful procedures followed by other retail companies will
assist in generating ideas. Stakeholder analysis will also assist in modifying the solutions to suit the
case at hand. The impact of each solution in achieving a more efficient cash handling process with
regards to previously selected criteria should then be assessed.
6
6. Which alternative(s) is (are) selected by Kappe' and SAR to enhance the efficiency of their
processes? How should it (they) be implemented in practice?
The answer to question 6 will include the implementation approach that can help Kappe’ and SAR to
successfully embark upon more efficient cash handling processes.
7. How might Kappe' and SAR's choice of alternative change in the future?
• How would the alternatives be ranked for Kappe' and SAR with a multi-criteria decision
making approach?
• How would the trends in share of cash as a payment instrument influence Kappe' and SAR's
decision with regards to the suitable alternative?
By answering question 7, the research will be concluded. Recommendations to Kappe' and SAR for
minor and/or major adjustments in their cash handling processes will be derived using a multicriteria decision making technique. Attention will be paid to the trends in customer's choice of
payment in the coming years and the expected effects on different cash handling procedures.
1.5. Research methodology
In order to answer the research questions, a number of methods are used to analyse the current
situation, develop alternative solutions and finally evaluate their impact on improving the efficiency
of cash handling processes at Kappe' and SAR. These methods are described below.
Activity-based costing: Activity-Based Costing (ABC) is a method for developing cost estimates in
which the project is subdivided into discrete quantifiable activities or a work unit”. 1The project
will be divided to work units. The costs of individual activities will be calculated and costs will be
assigned to cost objects to identify sources of profits and losses and decide which areas need to
be improved for a more efficient cash handling process.
Multi-criteria decision making: "Multi-criteria decision making (MCDM) refers to making
decisions in the presence of multiple, usually conflicting, criteria." 2 One of the methods used in
MCDM is Analytic Hierarchy Process (AHP). AHP was developed by Saaty in 1970th. In this
method, numerical pair-wise comparisons between criteria are used to derive the priority vector.
The different alternatives are then assessed on the criteria and finally an overall ranking of them
is attained.3This approach "organizes tangible and intangible factors in a systematic way, and
provides a structured yet relatively simple solution to the decision-making problems". 4 5
Benchmarking: Cash handling procedures at Kappe’ and SAR will be compared to other
companies and ideas suiting the case will be derived.
Lewin's change model: Change model, developed by Lewin in 1940s, is a common thread for
managing organizational change in three steps: unfreeze, change and refreeze. 6
Table 1 shows the methodologies used in this research to answer each of the research questions.
7
Table 1: Research questions and research methodology
Research question
Methodology
Corresponding
chapter
1.
What are the components/ determinants of costs
of cash payment in the retail sector?
Literature review
2
2.
What are the current procedures for cash handling
at Kappe’ and SAR?
Interviews, observations and data
collection
3
3.
Which factors and to what extent influence the
costs of cash handling at Kappe’ and SAR?
Activity-Based costing
4
4.
What are the criteria for assessment of alternative
solutions? Which processes can contribute to the
efficiency of cash handling?
Interviews, benchmarking
5
What alternatives solutions can improve the
efficiency of cash handling process? In what terms
does each alternative solution enhance the
efficiency of cash handling process? How do these
solutions compare?
Literature review, visiting retail
fair and collecting information
about different technologies ,
Activity-Based costing
6
Which changes in the current scheme of cash
handling are recommended for enhancement of
the process efficiency in practice? (Selection and
implementation)
Discussion, feedback sessions,
revision and modification, Lewin's
change model
7
How might Kappe' and SAR's choice of alternative
change in the future?
Analytic Hierarchy Process (multicriteria analysis technique)
8
5.
6.
7.
1.6. Data collection
Needed data is both quantitative and qualitative and will be collected from a number of sources.
Interviews with financial and security managers of Kappe’ and SAR will assist in understanding the
general scheme of money flow at each organization. Such data can play an explanatory role in finding
the factors that lead to high costs of cash handling. Observations of the procedure at the stores,
recording the details about working shifts, the efficiency and reliability of employee and congruence
with the standards presumed by the high-level officials will be helpful in complete understanding of
the current situation. Terms of contract of Kappe’ and SAR with ABN-AMRO and GWK-Travelex are
also expected to be of assistance.
In addition to the aforementioned sources, information collected through interviews from the
employees of Kappe' and SAR and data on transactions count and volume will clarify the process.
Archival records of the organizations will be used to study the possible changes that have occurred in
the processes and their impacts. Literatures in several fields are useful in selecting areas of focus and
collecting the needed data.
1.7. Research structure
In order to recommend solutions for enhancing the efficiency of cash handling at Kappe' and SAR, a
sequence of steps will be followed. These steps make it possible to start from the research problem
8
and achieve the research objectives. During this process, assistance will be sought from relevant
literature and efficient cash handling procedure of other retail organizations as benchmarks. Figure 2
depicts the step-wise approach followed.
Literature review and topic
acquanting
Investigation of the current
procedures of cash handling
Identification of sources of costs of
cash handling
Developing alternative cash
handling procedures
Determining the criteria for
assessment of alternative solutions
Assessment of alternatives on the
desired criteria
Selection of alternatives and
implementation
Conclusions and recommendations
Figure 2: Research approach
9
Summation
This chapter serves as the proposal for research on "Alternative solutions for improving the
efficiency of cash handling processes for retail stores at Amsterdam Airport Schiphol". As
explained, the problem originates from organizational and technological inefficiencies of and
detachment between cash handling processes at Kappe' and SAR.
Once the problem was clearly formulated and the objective set, the scope of the research
was defined and a sequence of research questions was developed in a step-wise approach. In
this approach by understanding the sources of costs in the current processes, and with
attention for success criteria alternative cash handling solutions can be developed and
assessed. After that, the research will be focused on re-assessment of selected alternatives.
Finally, conclusions can be drawn based on the answers to research questions and
recommendations can be provided for future decisions.
10
Chapter 2:
Cash payments and costs components in
cash handling processes
Despite the advances in electronic payment methods, cash is still widely used in transactions. By the
end of 2009, the volume of cash in transaction in Europe had risen to more than € 796 billion. While
cash is a popular form of payment among both customers and merchants, evidence especially across
retail sector shows that cash payments can be followed by large costs for different parties involved.
In this chapter, firstly commonality of cash payments and factors driving it will be elaborated on with
a literature review. Then, costs of handling cash will be investigated and the components will be
projected in a causal relations diagram. These will provide the answer to the first research question
that is "what are the components/ determinants of costs of cash payment in the retail sector?"
Figure 3 shows the focus of chapter 2 as part of the research.
Literature review of cost components of cash handling
Previous
research
and literature on
costs of payment
Current cash handling processes
ABC on sources of costs
General knowledge
on sources of costs
and possible areas of
improvement
Assessment criteria and benchmarks
Alternative solutions
Selection and implementation
Reassessment of choice
Conclusion and recommendation
Figure 3: Focus of chapter 2
2.1. Popularity of cash
The volume of cash among retail payment instruments is dissimilar in different countries. In the
Netherlands in 2009, cash accounted for about 48% of the total volume of transactions in the retail
sector.
In 2010 in the Netherlands, a total of 7.4 billion payments were made by consumers by means of
cash, debit cards, prepaid cards or credit cards; 4.4 billion of which were done in cash. Cash is
primarily used for minor purchases and the total values of cash payments in 2010 amounted to 62
billion. Due to the increasing use of debit cards among the Dutch consumers, a 17% decline (from 5.2
billion to 4.4 billion) in the number of POS payments has been recorded between 2007 and 2010. A
rise from 23% to 32& in the debit card POS payments and at the same time a fall from 74% to 65% in
11
cash POS payment is a testimony to this claim. In terms of payment values, the trend is less steep. A
3% increase for debit card payments (56% to 59%) in line with a decrease of the same magnitude
(from 41% to 38%) for cash payments has been reported. 7
The decline in numbers is much higher than the fall in the value of the payments (charts in Figure 4).
The reason for this is claimed to be more use of debit cards rather than cash for small payments.
Therefore, it can be concluded that the total value of payment influences the choice of the payment
method. While small amounts are usually paid by cash, debit cards are preferred for larger
transactions. However, this trend has also been changing through the years. Figure 5 depicts the
variations in the choice of payment method by the total transaction value from 2007 to 2010. 8
Figure 4: Number and Value of PoS payments in 2007 and 2010
Figure 5: Usage of PoS payment instruments in 2007 and 2010
8
8
Another factor that influences the use of cash is the market segment in which purchases are made. In
some segments cash seems to be the dominant payment method compared to other methods. 8As
shown by the statistics of European Central Bank (ECB), the amount of cash in use within the Euro
zone has had an effective annual average rise of 11% since the introduction of Euro in 2002.
According to a recent study by Dutch National Bank (DNB), 72% of the total annual transactions are
12
cash transactions (5.5 billion out of 7.6 billion). The 2009 figures demonstrate that cash payments to
the retailers account for 51.8%of the total estimated cash payments in the Netherlands. 9
2.1.1. Popularity of cash among consumers
A number of factors play a role in consumers' choice of payment instruments. Among these are
geographic residence location, age, level of education, income, social background, and employment
status. The value of transaction and type of purchase as mentioned before are also of significance. In
many cases consumers continue to use cash rather than other payment instruments. The reasons
behind this are:
•
•
•
•
•
Anonymity: According to some European studies, the amount of cash used in a country
corresponds to the scale of informal economy. With an informal economy of €60 billion, the
Netherlands' informal economy is about 10% of its GNP. This shows the appeal of cash as a
payment method that, unlike electronic payment instruments, does not allow for tracing of
activities. Incidentally, in the formal economy full transparency of the transactions is also
undesirable. Thus, anonymity of cash is one of the reasons for its popularity as a means of
payment.
Directness: One of the other advantages of cash payments is that they eliminate the need to
third parties. In addition, they can easily be reversed within a period after the transaction.
Certainty: A growing group of consumers view cash as a stable payment instrument especially in
times of uncertainty of the financial system.
(Un) safety: Despite its less practicality in carrying and potential risks of robbery, cash is still
perceived by many as a safe payment method. This can be attributed to lower perceived
likelihood of being a victim of an incident as well as lesser severity of the consequences of such
cases.
Being tangible: Cash is a convenient means of payment that has more aesthetic components and
is accompanied with a more responsible attitude by many consumers. 9
2.1.2. Acceptance of cash by retailers
The costs and benefits of accepting different payment methods might vary among merchants
depending on:
•
•
•
•
Size of merchant
Industry sector 8
Typical payment method and value of transaction 9
Set of payment instruments available to customers 7
Accepting cash in payments, like other payment methods, has both advantages and disadvantages
for retailers. While liquidity makes cash appealing to them, it is associated with a number of
problems including risk of theft, robbery and counterfeiting, and human error during manual
exchanges and reconciliations.10 Costs of cash are discussed below.
2.2. Costs of cash payments
Costs of cash payments can be classified as social costs and private costs. Social costs are "the costs
of the resources, in terms of capital and labour, which are put into the production of payment
13
services". Social costs consist of all internal costs made by the relevant parties (the central bank, the
banking sector, the retail sector and consumers) in the payment chain in order to carry out POS
transactions.10Private costs refer to all the costs incurred by the relevant individual parties in the
payment chain.7External costs on the other hand, are payments (fees/tariffs etc.) charged to other
parties in the payment chain.10
The largest part of private costs of retail payment instruments is born by the retailers (0.59 % of
GDP).7As Table 2 shows, retailers undergo also a large part of the social costs of different payment
instruments in the Netherlands.
Table 2: Results of European Central Bank studies on payment instruments
Payment chain participants
7
Social costs as a percentage of GDP
Dutch report
European study
Banks
0.31
0.21
Retailers
0.32
0.19
Royal Dutch Mint /Central Bank
0.02
0.03
Total
0.65
0.42
According to a survey by Arango and Taylor the variable costs of credit cards, debit cards and cash
consist of the following items:
• The labour cost of tender time
• The labour cost of cash reconciliation, deposit preparation, and deposit delivery to the bank
• Cash-deposit and coin-ordering fees
• The per transaction fees for processing debit and credit card payments
• The cost of cash theft and losses as a result of counterfeiting10
• The cost of a credit card chargeback
• The opportunity cost of funds in transitI based on short-term interest rates.11
This shows that cash is the most expensive on many of the listed cost items especially those for
performing which merchants rely on employee or third parties.
2.2.1. Consumers' costs of cash
For consumers, costs of cash (social costs of retail payment) are the product of:
• fees paid for cash withdrawals from ATMs ( in case of using currencies other than those
accepted by the retailer)
• personal costs of holding cash in possession such as risk of robbery
• seigniorage (interest rate costs from holding liquidity). 12
Considering the scope of the research, consumers' costs of cash are not of direct relevance in this
study. Therefore, the next section will be focusing on retailers' costs of cash and their components.
I
"For cash, this refers to the time it takes for the financial institution to credit the merchant’s account and the
average time total cash sales remain in the store before being deposited at a financial institution."
14
2.2.2. Retailers' costs of cash
The flow of money at retail shops is often a timely and costly process. Reconciling cash drawers,
counting, and preparing cash for pick up, forecasting demand and maintaining till floats are some of
the activities entailed in the cash handling process. Apart from the high workload, large costs, and
security issues, transparency of the cash cycle is also an area of concern.13
According to a study by ECB in 2012, costs are, on average, higher for retailers than banks and
infrastructures, with 0.587% and 0.493% of GDP respectively. This reveals that fees and tariffs paid
by retailers to third parties (namely CiT companies) constitute a significant part of their costs (about
0.15% of GDP on average).7
An investigation into the cash centre environment revealed that it consists of a unique combination
of pure service and pure manufacturing.14Whether fixed or variable, explicit (i.e. fees paid to third
parties) or inexplicit (i.e. labour costs) costs of cash handling are large. These costs make cash the
most labour-intensive form of payment. 11
For the retail sector, costs can be divided to two categories: back-office and front-office costs. Backoffice costs relate to preparation, emptying and balancing cash registers, cash management,
preparing daily receipts to be deposited, procurement of small change and cash register rolls and all
underlying administrative activities. Back office costs of handling cash account for 43% of the total
handling cost of all payment methods (debit, credit, e-purse).10
The cost items of cash handling for the retail sector and subcontractor can be listed as:
•
•
•
•
•
Cash deposits and withdrawals in bank branches
PoS cashier operations to handle cash from the customers
Back office functions including processing of cash from cash payment transactions (counting,
sorting, preparation of change floats, cash registers for cash, etc.)
Storage and transport of cash to the banks or to the cash centres
Security for cash operations12
Several attempts have been made to answer the question "Should cash management services be
outsourced?" According to Jack Large of J&W Associates, it is only the degree of outsourcing that is
the point of discussion, not outsourcing itself. Once cash services are different from a company's
core activities, outsourcing them is considered beneficial from some aspects. Among these are,
freeing up resources for more essential investment opportunities, achieving economies of scale and
more availability of employees for core activities .15An increase in costs is inevitable in case of
outsourcing cash handling services. A previous survey by Ernst and Young (1999) revealed a growth
from 7 to $10 billion in revenues from cash management. In application of lean manufacturing tools
in cash centres to improve operational efficiency, it is suggested to make a shift from push to pull
cash system to reduce the discrepancies between value propositions of CiT companies and retailers.
Moreover, smaller feedback loops of demand planning and forecasting are expected to enhance the
efficiency of the process through more accuracy of payrolls and floats. 14
Some retailers make use of Professional Cash handlers (PHC) or CiT companies to carry out some of
these activities. These financial institutions charge fees for deposits and change (coin or smaller
denomination) orders. Installing automated cash recyclers and software solutions would also help
15
reduce the amount of time spent by employees on cash handling. Although the investment costs of
such technologies can possibly be recovered over the life span of the machine, they still impose large
costs up-front and call for training of employees.
Regardless of the distribution of cash handling activities among employee and CiTs and presence or
absence of technological solutions, retailers maintain a level cash safety stock. For large retailers, this
amount is separate from the till floats. They are intended to supply cashiers with coin, small
denominations and in some cases other currencies. On the other hand, the collected cash that
exceeds the total till floats and safety stock might be waiting for a few days at the store before being
deposited. Consequently, the opportunity cost of lost "interest on cash holdings in registers or vaults
or while it is in transit" are also part of the costs incurred by retailers.11 12
Differences in prices and terms of contracts for cash management services call for periodic
evaluation of the available external parties. Furthermore, high overhead and operating costs of such
outsourcing, confidentiality and security issues in addition to possible downsizing of employees and
its negative effect on a retailer's morale might act as incentives to a reconsideration of outsourcing
cash handling services, or even in-house execution of them. 15
All these problems give incentive for a study on possible scenarios for optimization of flow of cash at
retail stores. A number of literatures have previously been dedicated to developing and assessing
algorithms for cash management optimization. Cramer's algorithm on efficient payment schemes16
and ANNI-based algorithms17 are two examples.
The results of literature review on costs of cash payments is shown as a causal relations diagram
shown in Figure 6.
I
Artificial Neural Networks
16
directness and certainty
reversibility
being tangible
+
+
anonymity
perceived safety
+
+
use of cash in
payments by
customers
+
value of cash
fees for cash
withdrawals from
ATMs
personal costs of
holding cash
social costs of cash
payment in retail
Seigniorage
insurance costs
availability of different
payment options
size of
merchant
security issues +
+
+
-
acceptance of cash in + volume of cash in
payments by retailers
circulation
material and
clearing costs
+
ubiquity and
acceptance of cash
investment costs
-
transparency of
cash cycle
insufficiency of cash
+ reserves/balances
need for automation of cash
processes at the check-out
point
+
time for PoS
settlements
+
+
+
logistics costs for
transport and handling
time for preparation for
pick-up by CiT
companies
+
+
costs for the
retailers
+
personnel costs
+
need for IT and
hardware solutions
need to CiT
companies
+
+
degree of outsourcing cash
management activities
costs for banks and
CiT companies
opportunity costs
with inventories
+
time for depositing
in a safe
private costs of cash
payment in retail
+
+
industry sector
value of
transaction
+
+
downsizing of
personnel
+
+
loss of competent
employees
economies of scale
-
-
company's morale
+
overhead and
operating costs
leakage of confidential
information to third parties
Figure 6: Causal relations diagram for costs of cash payments
17
Summation
In this chapter, the results of a literature review on cash payments were presented. Firstly,
the volume and value of cash in payments in Europe and the Netherlands were studied. As
found in some studies 72% of transactions in the Netherlands are still done in cash. This
popularity of cash among consumers can be attributed to several factors including its
anonymity and directness. For retailers, acceptance of cash differs depending, among others,
on size of merchant, industry sector and value of transactions.
In the next part, costs of this form of payment were classified as social and private. The focus
of the research at hand is the costs to the retailers which belong to the latter category. The
major constituents of this category are found to be investment cots, logistic costs, security
costs and staff costs. In chapter 3, the current processes of handling cash at Kappe' and SAR
will be analyzed. Then, based on the acquired insight and also the cost components identified
in this chapter, main sources of costs at Kappe' and SAR can be derived.
18
Chapter 3:
Current cash handling procedures at
Kappe’ and SAR
In general, the process of cash handling begins with start-up floats to be used as change in cash
transactions. Additional change may be needed during the shifts and these might be provided from
different sources. Some retailers use a safety stock basin or a cash dispensing machine while some
others require their employee to visit the bank counter in person. In this chapter current cash
handling procedures at Kappe' and SAR are analyzed. Figure 7 shows the focus of chapter 3 as part of
the research.
Interviews,
observations and
data collection
Literature review of cost components of cash handling
Current cash handling processes
ABC on sources of costs
Assessment criteria and benchmarks
Understanding
the cash handling
process & the
control scheme
Alternative solutions
Selection and implementation
Reassessment of choice
Conclusion and recommendation
Figure 7: Focus of chapter 3
Figure 8 shows a basic cash handling process. In this process ordered amounts (usually coins and
small denominations of notes) are withdrawn from the retailers account and delivered to the stores
by a CiT company. After reconciliation, till floats are provided and daily transactions begin. The
money collected from the customers is stored in the till until the end of the day when these amounts
are counted in the back office. Once reconciled with the record of daily sales, till floats required for
the next day are maintained in a safe. The excess cash is prepared for pick-up by CiT Company. In
addition, amount of additional change required is communicated to the CiT Company. CiT Company
delivers these amounts to the stores and picks up the excess cash to deposit in the retailer’s bank
account.
19
Figure 8: General scheme of cash handling
18
Retailers have different strategies in dealing with cash. For security reasons, some store highdenomination notes in a separate area of their drawers namely an air box or a drop-in safe. These
are later prepared for depositing at the bank or pick-up by CiT companies either separately or as a
bulk of cash. On the other hand, smaller denominations are maintained as floats for the next shifts.
Such a circulation aims to reduce the need for change orders and its concomitant issues (e.g. large
amounts of cash-in-between, increased handling time and enlarged outsourcing costs). Also, in order
to reduce the frequency of change stock-outs, sales employee tries to use a good change
combination in transactions. Smart check-out counters can facilitate this process. However, many still
rely on skills of employee (learning by doing). Despite such measures, more low-denomination bills
and coins are given to customers than collected from them. Therefore, ordering change is inevitable
for the retailers and it is only the frequency and amount that can be altered when it comes to
enhancing the efficiency of the cash handling process.
There has been much advancement in automation of cash solutions. Automatic cash recyclers, cash
dispensers and reconciliation softwares are some examples. Such tools, expedite or eliminate the
cash activities done by employees at the start and end of their shifts, improve security, increase the
transparency of the cash cycle and reduce the problems in providing additional floats during the
working shifts. 18
As two retailers functioning in Amsterdam Airport Schiphol, Kappe’ and SAR have their specific cash
handling procedures. According to their agreement with Schiphol a number of currencies are
accepted at the cash registers of Kappe and SAR (including Swedish and Norwegian Krone, Swiss
Francs, Japanese Yen, Australian Dollars). Change is nevertheless only offered in Euros, Dollars and in
20
cases, Pounds. Kappe’ and SAR have respectively 12 and 7 stores at Schiphol. Out of the 12 stores of
Kappe’, 5 are run using a rather new method of cash handling while the other 7 are still using the
older process. SAR also has its own cash handling process which differs from those of Kappe’ in a
number of ways. Overall, three procedures of cash handling have been identified at the two
companies’ stores. A detailed description of these procedures and their differences follows.
1.1. Payment methods at Schiphol
Considering the position of Amsterdam Airport Schiphol as an international hub as well as
destination, it is only logical for shops to offer a wide possibility of payment methods. Therefore,
shoppers can select the method that they find most convenient. In non-cash transactions bank
cards, American Express, Maestro, MasterCard, and Visa are among the acceptable cards. Moreover,
it is possible to use Traveller’s cheques (up to €100) and Buy Fly vouchers at some shops. On the
other hand, cash payments are accepted in Euros, US dollars, pound sterling and Japanese yen as
well as some other currencies. The change will be given in Euros (also US dollars and British Pounds
in some cases).19
1.2. Financial institutes at Schiphol
Many travellers would like to exchange their cash for foreign currencies or travellers cheques. Similar
to other international airports, exchange services are available at Amsterdam Airport Schiphol. ABNAMRO20 and GWK-Travelex21 are the two parties active at the airport. Apart from exchange services
for travellers, they offer a number of services to the retail groups present at the airport. G4S has
recently started operating at the airport as well. It is such services that are of interest for the purpose
of this study.
Among the services offered by ABN-AMRO and GWK-Travelex at Schiphol, are processing of cash and
non-cash payments at the shops within the airport. These services vary depending on the cash
handling procedures followed by the functioning retailers. With regard to cash, these could range
from exchanges to smaller denominations and other currencies, delivery of change orders, and pickup and processing of deposited seal bags.
Availability of only two financial institutes at Schiphol reduces the bargaining power of retailers. In
addition, Fees are charged either on the basis of number and type of seal bags deposited or (a
percentage of) the total value of annual transactions. These terms of contract are not always apt for
the cash handling procedures of retailers (Kappe’ and SAR in the study at hand). Furthermore, the
prices are rising further, making cash handling processes even more costly for Kappe’ and SAR.
1.3. Map
Shops of Kappe’ and SAR in each lounge are listed in Table 3 and shown in Figure 9.
21
Table 3: Shops of Kappe' and SAR in departure lounges
Company
Lounge 1
Lounge 2
Lounge 3&4
Kappe'
PE Schengen
BC-pier Rituals
Sunglasses Schengen
Promo Schengen
P&C Centraal
Sunglasses Centraal
MAC Centraal
P&C west (dispensers' location)
Sunglasses West
Drugstore West
Branded
SBF
SAR
Zuid
Whiskey & Cigars
Confectionary L1
Centraal
West
FS&C
Confectionary L3
Figure 9: Location of shops of Kappe' and SAR in departure lounges at Amsterdam Airport Schiphol
22
1.4. Cash handling processes
1.4.1. Cash handling at Kappe's stores
Kappe has 12 stores in Amsterdam Airport Schiphol. In Kappe’s system, change is only offered in
Euros and Dollars (and Pounds when available). Traveller's checks are not accepted by Kappe. Its
contract with ABN-AMRO is based on the number of seal bags handed in. As of April 1st 2013 a new
contract is started right after the previous one ends. Terms of both contracts are included in Table 4.
22
Table 4: Kappe's contracts with ABN-AMRO
contract
period
ending
31-3-2013
starting
1-4-2013
number of seal bags
price per
seal bag (€)
0-9000
1.50
9000-24000
3.50
> 24000
6.00
Foreign
any
1.00
1% of the value of foreign currency
(in €)
€
any
3.25
N/A
Foreign
any
3.25
2% of the value of foreign currency
(in €)
Type of seal bags
€
I
Terms of compensation
N/A
Seven of Kappe's stores located in lounges 1 and 2, are run using an old system while 5 stores in
lounges 3 and 4 rely on a rather up-to-date procedure for cash handling. These systems are described
in detail below.
1.4.1.1.
Kappe's old system
The seven stores located in Lounges 1 and 2 are run using an old system. II In this system coins
needed to provide till floats are reordered every 3 weeks and stored in a central location at Schiphol
to be provided to Kappe's employee through Automated Teller Safes. At the beginning of the shift,
each of the employees counts the starting float and reconciles the number with the amounts
recorded by the previous shift’s personnel. During the shift if smaller denominations, coins or other
currencies are needed, one of the employees personally visits the bank counter. This results in a daily
average of 2 bank visits per shop. These transactions will be reconciled by the store manager. At the
end of each shift, each employee counts the collected amounts and retains a certain amount in a seal
bag. This will be the start-up float for one employee from the next shift. The rest of the money is
deposited by every employee individually at the close-by ABN office at Schiphol before leaving. This
results in another 52 visits per day to the bank. Figures 10 and 11 show the cash handling process at
Kappe's old system and its control scheme.
I
Compensation is the partial refund paid for foreign currencies deposited to ABN-AMRO. It is a percentage of
the Euro equivalent value of foreign currencies deposited. In this report some figures are specified as "before
compensation" and some others as "after compensation". It is noteworthy that the final costs incurred by the
retailer are those denoted as "after compensation".
II
The list also includes Promo Chanel for the short period of September and October 2012
23
Figure 10: Current cash handling process at Kappe' in Lounges 1 and 2
24
Figure 11: Control scheme for current cash handling process at Kappe' in Lounges 1 and 2
25
1.4.1.2.
Kappe's new system
New note dispenser/ depositor and coin dispensers are installed in the store “P&C West”. These
machines are used as parts of the new system which is used in the 5 stores located in lounges 3 and
4. These are P&C West, Sunglasses West, and Drugstore West (in lounge 3) in addition to Branded
and SBF (in lounge 4). At the beginning of shifts, employees travel to P&C West and withdraw their
start-up floats from the coin and note dispensers located there. At the end of their shifts, employees
travel back to P&C West to deposit the money in the machines. The money collected in the machine
is deposited at the bank office every 3-4 days depending on the amounts of seasonal sales. Coin and
note machine are checked by the store manager and orders are placed for refilling them when
needed. These orders are almost never needed for the note machine considering the €2500
maintained as safety stock mostly in small denominations. When there is a need for additional
change, employees contact those who would be starting their shifts shortly to withdraw the required
amount from the machine. Figures 12 and 13 show the cash handling process at Kappe's new system
and its control scheme.
26
Figure 12: Current cash handling process at Kappe' in Lounges 3&4
27
Figure 13: Control scheme for current cash handling process at Kappe' in Lounges 3&4
28
1.4.2. Cash handling at SAR’s stores
SAR has 7 stores at Amsterdam Airport Schiphol. At these stores, transactions are possible in the
currencies agreed with Schiphol Group. Change is offered in Euros, Dollars and Pounds. SAR has
outsourced its cash handling activities between the stores and the bank to GWK-Travelex. For the
employees in SAR’s store, a shift starts with individual red seal bags. These seal bags contain start-up
floats provided using a part of the money collected in transactions and are prepared by each
employee themselves at the end of their previous working shift. After the customer transactions take
place during the shift, the shift ends with the employee emptying the tills in the back office counting
room. They in turn, prepare a portion of the money as till floats for their next shift and keep their red
seal bags in a safe. The start-up floats amount to between €400 and €500. All the coins are preserved
in the red seal bags. This coin recycling process reduces the need for frequent coin orders to be
delivered by GWK-Travelex. The rest of the money in the till is also counted and put in blue seal bags
to be collected by GWK-Travelex’s CVIT vansI. The counted amounts are then entered to the
computer and reconciled with the corresponding sales records and start-up floats. Once GWKTravelex has processed the collected amounts, reports are sent to SAR. This will enable the store
supervisor to carry out the final step of reconciliation and track sources of fraud or mistakes in case
of discrepancies.
If employees need additional floats (coins, smaller denominations or other currencies) during the
shifts, the present supervisor (or a trusted employee) can provide them with the needed amounts
from the safety stock basin. In the past at least one supervisor was present during each of the three
working shifts. Nowadays, three supervisory positions are defined for each store, but there are shifts
during which none of the supervisors is present in the store. This may also be true during cash
collection periods by employee of GWK-Travelex and can make it difficult to identify sources of cash
shrinkage.
As mentioned, coins are not handed over to GWK-Travelex in the blue seal bags, but rather kept in
the red seal bags. The additional amounts of change needed are determined each day and faxed to
GWK-Travelex. The needed amounts in different currencies and denominations are estimated merely
on the basis of experience, intuition and speculation. Figure 14 shows the current cash handling
process at SAR and Figure 15 depicts the control scheme for this process.
I
Waardetransporter
29
Figure 14: Current cash handling process at SAR
30
Figure 15: Control scheme for current cash handling process at SAR
31
Table 5 provides an overview of the current processes of cash handling at Kappe' and SAR.
Table 5: Overview of current processes of cash handling at Kappe' and SAR
Kappe's Old system
(Lounges 1 & 2)
Kappe's New system
(Lounge 3 & 4)
SAR's system
Start-up float
€ 400
$ 100
€ 250
$ 50
400-500 (€+$)
Coins for starting
the shift provided
by
Automatic Coin dispenser/
black bags
Automatic Coin dispenser
Red bags
Change currencies
€,$
€,$
€, $ , £
Automatic Coin
dispenser
Yes
Yes
No
Automatic Note
dispenser
No
Yes
No
Safety stock basin
(Notes and coins)
No
No
Yes
Balance checking
Manual- double time: check
yours and the previous
cashier's deposit (black box)
at the end of the shift
Automatic- done by the
note dispenser for each
cashier at the end of their
shift
Manual+ automatic- money
counted and the starting
amount is put in red sealed
bags, the rest is put in blue
sealed bags and dropped in
the safe. Figures are
entered in the computer for
balance checks.
Depositing in the
bank
Done individually by
cashiers- about 60 sealed
bags per day+ 3 additional
visits for exchanges (30-60
min per visit)
Every 3-4 days (there's
always more than enough
in the note dispenser safety stock)
Done daily by GWKTravelex value transporter
Providing the
needed
denominations
Visiting the bank
Note dispenser
Safety stock basin
Accessibility/
responsible
person
Some cashiers
All cashiers
One person during each
shift
Daily bank visits
for exchange
purposes
2-3
0
0 (almost never)
Frequency of coin
orders
Every 3 weeks
When needed
Daily
32
Summation
This chapter described the cash handling processes at Kappe' and SAR. Generally, at retail
stores, the cash handling process in each shift begins with an amount of start-up float placed
in the till to be used as change in cash transactions. The amounts collected during the shift are
then deposited in the retailer's bank account once counted and reconciled. Separation in startup floats and deposits allows for individual responsibility of employees and more transparency
in the cash handling process. Having explained the general scheme of cash handling at Kappe'
and SAR in this chapter, chapter 4 will focus on using Activity-Based Costing for identifying the
main sources of costs of these processes.
33
Chapter 4:
Sources of costs in current cash handling
procedures at Kappe' and SAR
So far, a review of available literature on cash handling and its underlying cost items has provided a
general understanding of the factors that can increase the costs of cash handling in the retail sector.
Depending on the actual scheme of the process, these factors will have different shares in total costs
of cash handling. Contractual agreements with Professional Cash handlers might be a large part of
costs for one retail group. On the other hand, some retailers are more old-fashioned and delegate
(part of) the counting and reconciliation activities to their employee which can be observed in larger
share of employee costs in total costs of cash handling. While investments in technological solutions
impose large upfront costs, they allow for decreasing the costs of other categories and can be
redeemed in a few years. Nonetheless, the decision for adopting them should be made based on not
only the current, but also the future popularity of cash as a payment instrument. In other words, the
investment must be economically justifiable considering the future demand for cash in comparison
with other forms of payment (e.g. credit card, debit card)
This chapter will focus on identification of the factors that are of significance in the total costs of cash
handling. To this end, Activity Based Costing (ABC) will be used to systematically discover the causes
of large costs of cash handling at Kappe' and SAR. The literature review discussed in chapter 2,
provided a general insight to such causes, whereas ABC will allow for a detailed understanding of the
problem at the organizations under study. By using ABC, different cost categories will be compared in
terms of their share in total costs of cash handling. Such an approach will make it possible to modify
the alternative solutions in such a way that the deficiencies of the system can be eliminated/
reduced. Figure 16 shows the focus of chapter 4 as part of the research.
Literature review of cost components of cash handling
Data on cost drivers
of cash handling
Current cash handling processes
ABC on sources of costs
Assessment criteria and benchmarks
Costly tasks/ cost
categories in
cash handling
Alternative solutions
Selection and implementation
Reassessment of choice
Conclusion and recommendation
Figure 16: Focus of chapter 4
34
4.1. Activity-Based Costing
4.1.1. Definition
The concept of Activity-Based costing (ABC) was developed in the manufacturing sector in the United
States during the 1970s and 1980s. It is a method used for specifying costs by dividing a project into
discrete, quantifiable activities or a work unit. ABC is used to identify, describe, assign costs to, and
report on operations and it is considered a more accurate system for cost management compared to
traditional cost accounting methods.1
In ABC the project is broken down to its constituent activities or work units that can be quantifies.
Then costs are assigned to each individual activity based on its use of resources. Thereby, cost of cost
object is calculated based on its use of activities. 1
4.1.2. Applications of ABC: motivation for choice of methodology
Given its advantages over traditional accounting methods, ABC has been widely used in cost
estimates. In calculations of costs of different payment instruments ABC has been considered a
proper method by national banks in several countries (Norway, Portugal, Finland, Netherlands).
In Gosselin’s 1997 article on implementation of ABC, it has been referred to as the third level of
Activity Management (AM). AM is the effective and consistent organization of a Strategic Business
Unit (SBU)’s activities in order to use its resources in the best possible way to achieve its objectives
(Brimson, 1991). According to Cooper (1998), ABC enables management to measure product and
service costs with more accuracy. 23
ABC has also been one of the key elements of the methodology used by ECB and MNBI to assess costs
for central bank, credit institutions, cash-in-transit companies, and interbank infrastructure
providers. In these cases, calculations for ABC were based on the time needed for activities.24
Use has been made of ABC in Norwegian25and Portuguese26studies on the social costs of retail
payment instruments_ at least where the banks’ costs are concerned. In addition to POS payment
instruments, these studies also consider direct debit and credit transfers. It proved to be a suitable
concept for analysing relevant costs in payment systems. In this methodology, the cost of the
activities along the payment chain has been allocated to the different payment products and services
within a bank.7
Another case where ABC has been used is by the Portuguese central bank. It estimated the private
cost of cash, direct debit, cheque and credit card and debit card transactions. The cost was estimated
with the ABC method in the banking sector and with the collection of costs and work expenditures
relating to payments in the case of merchants.24Correspondingly in the UK, ABC has also been
considered as a suitable methodology for detailing activities of an organization and their respective
costs and thereby providing more clarity to costs. Categorizing costs based on the way they are
consumed, cost reduction possibilities can be investigated. 27
In Gresvik and Owre's 2003 study on "Costs and income in the Norwegian payment system", the
results were derived using ABC. Analyses of data on Norwegian banks using Contribution Margin
Analysis and ABC, have shown ABC method to deliver more accurate results. Allocation of costs to
I
Magyar Nemzet Bank (Hungarian National Bank)
35
products/ services in ABC results in a more precise picture of the distribution of costs and a useful
basis for strategic decisions.28
In order to find out the cost structure of a Microfinance Institution (MFI)I, the activities on which an
MFI incurs costs, need to be identified. Similar to aforementioned bank reports, the methodology
used, borrowed heavily from the Activity Based Costing templates of Consultative Group to Assist the
Poor (CGAP). It involved desk work in terms of collection of data, its cleaning and then analysis. The
field activities include holding consultations with the personnel of MFIs at various levels starting from
the CEO to the operational staff.29In this study of costs of cash handling for Kappe’ and SAR, data has
been provided in a similar manner and will be used in determining the cost-imposing activities. Thus,
ABC is recognized as a proper methodology.
In calculating the total costs of cash handling at Kappe’ and SAR, it is desirable to identify the cost of
individual activities carried out in the cash handling process. For activities carried out by staff this will
be done based on the amount of time spent on the activity and the corresponding costs. Other costs,
including bank/ CiT costs, rent fees and technology costs will also be derived from a basis. The
similarities between objectives of this study and aforementioned studies, are adequate support for
application of ABC in assigning costs to different activities of Kappe’ and SAR. If done properly, this
can result in coherent figures. 7
4.1.3. Stages of ABC
In using ABC, three terms need to be defined. These are:
•
•
•
Cost object: An item for which measurement is required (e.g. a product, a service or a customer).
Cost pool: Grouping of costs incurred on a particular activity which drives them.
Cost driver: Any factor or force that causes a change in the costs of activity. Cost driver can be a
resource cost driver or an activity cost driver. A resource cost driver is a measure of the quantity
of the resources an activity consumes whereas an activity cost driver indicates the frequency and
intensity of demand for an activity.
ABC consists of a number of steps. They are as follows.
Identifying the cost objects
For the purpose of study of cash handling at Kappe' and SAR, the cost object is the "cash handling
processes at Kappe’ and SAR" for which total annual costs must be calculated. The total costs are the
sum of annual employee costs, technology costs and fees paid to CiT Company/ bank.II
Identifying the different activities within the organization
Considering the current procedures of cash handling at Kappe’ and SAR, the activities can be divided
depending on the responsible party. Activities can be done by the retailer’s employee, cash recycling
machines (i.e. mechanically) and CiT Company/ bank. Therefore there are three main cost categories:
•
•
I
Staff costs
Technology costs
Basic function of MFIs is to deliver microfinance services to low-income clients.
In case extra space is required for cash office, its rent must also be accounted for.
II
36
•
CiT company/ bank costs
These cost categories include a number of tasks/ sub-categories for which costs are incurred. These
tasks represent the cost pools in Activity-Based Costing.
Determining the activity cost driver
Cost drivers depend on the activity and the liable party. For some employee activities the cost drivers
are number of man hours and wage per man hour. The fees paid to external parties such as recycling
machines’ merchants, ABN-AMRO and GWK-Travelex are agreed upon through contracts and are
dissimilar. For instance GWK-Travelex charges Kappe’ based on the number of seal bags deposited,
while ABN-AMRO charges SAR on the basis of total annual transactions of the company with the
bank.
Table 6 includes the complete list of cost pools, activities and their corresponding cost drivers for the
current cash handling systems at Kappe’ and SAR.
37
Table 6: Activities in current cash handling procedures at Kappe' and SAR
Responsible
party
Cost pool
Activities included
Cost driver(s)
Kappe' old
•
start of the shift
Travelling a distance (if required)
and preparing start-up float
man hours spent
€ per man hour
•
•
•
Employee
•
end of the shift
Counting the value of the till and
registering the value in the back
office system OR Travelling a
distance (if required) and
depositing transactions value
During the shift Travelling a
distance (if required)and
changing banknotes at the desk
of
•
man hours spent
€ per man hour
•
•
•
man hours spent
€ per man hour
•
taking a seal bag from
the safe in the back
office
counting the amount
reconciling with the
number recorded by the
previous employee
putting the money in
the till
taking the money to the
back office
counting, keeping
enough as next shift's
float
entering amounts to the
computer to reconcile
taking the rest of the
money to ABN on their
way home
collecting orders from
colleagues
visiting the bank and
getting the needed
amounts
Kappe' new
•
•
•
•
•
•
travelling to P&C west (if
needed)
withdrawing till float from
the machines with
personnel ID
going to the store
depositing the money in
machines and reconciling
with personnel ID
travelling to P&C West to
deposit the collected
amounts in the machine
depositing the seal bag in
the machine in bank
deposit machine
N/A (visiting P&C West if
needed)
SAR
•
taking personal red seal bag
from the safe and putting in
the till
•
counting the collected
amount
putting sufficient float for
next shift in the red seal
bag
putting the rest in the blue
seal bag
entering amounts in the
computer to reconcile
•
•
•
•
asking the shift supervisor
for the needed change/
denominations/ currencies
38
•
•
Administration and control
activities
man hours spent
€ per man hour
•
ABN-AMRO/GWK-Travelex
•
Euro seal bags
number of seal
bags
Foreign seal bags
number of seal
bags
Compensation for foreign seal
bags
% of value of
foreign seal bags
•
reconciling each cash
counting of sales
employee
ordering and handling
coins
monitoring and
investigating differences
in cash
controlling value of
deposited seal bags at
bank account
depositing Euro and
Foreign seal bags in the
bank by employees
minus compensation by
bank
•
•
•
•
•
controlling coin machines
and cash machine
ordering and handling
coins
monitoring and
investigating differences in
cash procedures
controlling value of
deposited seal bags at
bank account
depositing large Euro and
Foreign seal bags in the
bank by employees minus
compensation by bank
•
•
•
N/A (pay basis is different)
•
•
Total amount deposited
% of total
transactions value
N/A (pay basis is different)
N/A (pay basis is different)
•
•
Technology
(Recycling
machines)
•
Acquisition
€ per year
Maintenance
€ per year
•
purchasing coin and
note machines
(hardware and
software)
performing regular
maintenance
N/A (The corresponding costs
are excluded since they were
incurred years ago and have
since been recovered)
managing cashier employee
doing research on
discrepancies
financial administration:
maintaining safety stock
and placing coin orders
Value Transport and temp
storage
recounting deposits /
deposit on account
management on banking
process
charging based on amount
of total annual deposits
value in Euro
N/A (The corresponding costs
are excluded since they were
incurred years ago and have
since been recovered)
39
Relating the overhead and support activities to primary activities
Normally in Activity-Based Costing support activities (i.e. activities which provide support, assistance
or administration to other activities) are spread across other activities. This indicates which primary
activities require support and to what extent.1Nevertheless, for the purpose of our study it is
considered more insightful to keep some of the support activities as separate fields. The reasons for
this approach are the following:
• Administrative tasks are part of the employee activities. Regardless of the type of system
they are required to some extent. The difference may only be in the activities. For the case
of this study, this difference is irrelevant. It is merely the total administration time that is of
interest since administrative employees are paid more than the others. Therefore, the
administrative costs will not be spread over cost pools. They will instead be calculated
separately and included in the staff cost category. This approach has a number of
advantages for the purpose of this study.
1. Wages of administrative employees are normally higher than normal employees. A
separate calculation of administration costs would allow for more clarity and ease in
case a change in wages is to happen.
2. It will be more clear who is in charge in the three-fold responsibility matrix of staff,
technology, and CiT company/bank.
3. Administration costs in the solution scenarios will also be calculated separately. Thus, it
will be possible to compare current and future situations in terms of administration
required.
• Installing cash machines at the stores influences the employee cash handling time (and
costs) as well as the reliance on CiT companies. It is only the total technology costs that
Kappe' and SAR are interested in, not the reasons for changes in technology costs. In
addition, there are no constraints with regards to amounts of investments or possibilities of
changes in the current systems. Furthermore, having a separate cost category for
technology will assist in comparing different solution scenarios with each other as well as
the current situation. Therefore, technology will be a separate cost category in ActivityBased Costing.
• Financial institutes and CiT companies differ in their terms of contract. For instance in the
current systems, ABN-AMRO charges Kappe’ per seal bag while GWK-Travelex charges SAR
based on the total annual amount deposited. The suitable contract depends on a company’s
strategy, transactions and cash handling processes. Having a separate cost category for costs
paid to financial institutes makes it possible to compare solution scenarios considering their
appropriateness for each retailer.
Identifying the direct costs of products
Costs of different cost pools are listed in this step and then added up to show the total costs. Since
the total number and value of transactions differ among the systems under study, calculating cost
per transaction and cost per Euro of transaction can provide a common basis for comparison. The
share of each cost pool (and cost category) in total costs, helps in comparing different systems with
regards to the main source of costs in them. Having said these, the following calculations are done
for each system.
Cost = Costdriver ∗ unitcosts
40
Costpertransaction =
Cost
Numberofcashtransactions
CostperEurooftransaction =
Shareintotalcosts =
Cost
Valueofcashtransactions
Cost
Totalcosts
In the following, the steps of ABC are done for cash handling processes at Kappe' and SAR in 2012.
Considering some expected changes, the cost pools might be different in 2013. ABC of 2013 will
therefore also be done. After that, the effect of changes on the cost pools will be analyzed by
comparing 2012 figures with those of 2013. It should be noted that if no alternative procedures are
adopted by Kappe' and SAR, the current systems will reside. Consequently, the costs will resemble
the calculations for 2013.
4.1.4. ABC for Kappe'
Not disclosed in this document
4.1.5. ABC for current system of SAR
Staff costs
Tables 22 and 23 include the basic information and calculations for the cash handling process at SAR.
Table 7: Data on wages and working hours at SAR
Field
Amount
Average wage (€ per hour)
32
FTE (hour per year)
1,664
FTE salary (thousand € per year)
53
41
Table 8: Data on time spent on cash handling by employees at SAR
Activity
Average
frequency
per day
Average
time
(min)
FTE
equivalen
t
Annual
I
time
(hour per
year)
Annual
II
cost
(€ per
year)
Start of the shift: preparing till with start-up
float
42
3
0.46
767
24,544
During the shift: changing currencies / cash
denominations
1.03
5
0.02
31
992
End of the shift: composing turnover deposit
and cash advance
42
20
3.07
5,110
163,520
Administration: maintaining bulk cash advance
/ check of content
2
15
0.11
183
5,856
Administration: research on discrepancies
1
60
0.13
209
6,688
Financial administration
3.4
-
0.53
886
28,352
GWK-Travelex fees
Table 24 summarizes SAR's agreement with GWK-Travelex for the outsourced tasks.
Table 9: SAR's contract with GWK-Travelex
Services provided by GWK-Travelex
Average
frequency
of visits
(times per
day)
Payment
basis
Value Transport and temporary storage, Recounting deposits / transferring
deposits to bank account, management on banking process, delivery of change
1
1% of value of
annual
III
transactions
Total costs
Table 25 shows the costs of main categories for cash handling at SAR in 2013 (the same as 2012IV). It
also helps compare different cost categories in terms of their significance in total costs of cash
handling at SAR.
I
FTE*1664 hour per year per FTE
FTE* € 32 per hour per FTE
III
Annual transactions amount to about €92 million.
IV
The revenues are expected to fall by a small amount in 2013. However, since no data is available, no
particular distinction can be made between costs in 2012 and 2013.
II
42
Table 10: ABC for SAR in 2012 or 2013
Cost category
Cost (€)
cost per
transaction (€)
cost per Euro of
transaction (€)
Share in total
costs
Staffs' cash handling tasks
229,952
0.13
0.0057
71%
GWK-Travelex fees
92,000
0.05
0.0023
29%
Technology costs
0
0
0
0%
Total costs
321,952
0.18
0.0080
100%
It can be observed that staff costs of cash handling have a much larger share in total costs compared
to fees paid to GWK. Since there is no use of cash recycling or counting machines, the cost of this
category is 0. The total costs will be around €322 K and handling of each transaction will cost around
€0.18.
4.2. Analysis of sources of costs
4.2.1. Sources of cost in Kappe's old system
In 2013, over 8500 hours of the staffs' working time will be spent on cash handling activities
delegated to them. In other words, over €205k of wages paid will be due to cash handling activities
and not core tasks namely sales and customer service. On the whole, large reliance on employee
results in a share of 67% for employee costs in total costs of cash handling to be incurred by Kappe'
in 2013. Of this share, 50% will correspond to cash handling activities carried out at the end of each
individual's shift. Taking the tills to the back office, counting the money, preparing next shift's startup float, and reconciling the transactions are all part of end of shift activities. The second largest
share in total costs of cash handling belongs to administration and control activities with a 17%
share in total costs. In Kappe's old system, the store managers and supervisors are highly involved in
checking (and in cases double checking) activities of employees at different times. For instance when
additional floats (smaller denominations and other currencies) are needed during the shift, the store
manager needs to approve of and check the amounts before and after a bank visit is done by one of
the employees. In addition, he/ she is responsible for randomly checking the start-up floats left in
the seal bags with the amounts recorded by employees for any possibilities of cash shrinkage.
Checking sufficiency of coin supply in the coin dispensing machine and reconciliation of total
amounts are other tasks for which the store managers are held responsible.
As explained previously, a new contract with ABN-AMRO from April 1st 2013 will increase the total
fees paid to the bank in the year ahead. The number of seal bags in 2013 has been estimated based
on the expected growth in transactions. Kappe' will have to pay over €100 to ABN-AMRO in 2013
which would be reduced to around €32k after a 2% compensation for foreign currencies. This will be
33% (before compensation) of the costs of cash handling in Kappe's old system in 2013.
The share of employee tasks in total costs leads to €0.45 per transaction (after compensation). Fees
paid to ABN-AMRO are the reason behind €0.07 of costs per transaction (€0.22 before
compensation). Technology costs would have a share of 3% in the total costs. In total, the old system
used by 7 stores of Kappe' will impose a cost of €245k on the retailer in 2013 (i.e. €0.53 per
transaction) after compensation. Chart 1 shows the sources of costs in Kappe's old system.
43
13%
3%
employee tasks
administrative
tasks
17%
ABN-AMRO fees
67%
Machine costs
Chart 1: Distribution of costs for Kappe's old system (after compensation)
4.2.2. Sources of cost in Kappe's new system
If no improvements are made in the system used in 2012, this system will continue to be utilized in
2013 and will impose costs as included in Table 20 (Kappe' new 2013). A plausible solution will be
one that enhances the efficiency of Kappe' new in 2013 (not Kappe' new in 2012). Therefore,
different cost categories in the solutions, should be compared in terms of cost, cost per transaction,
cost per value of transaction and share in total costs in 2013.
It is expected that in 2013, over 3000 hours will be spent on cash handling activities by the
employees at the stores run using the new system. This means that over €80k paid by Kappe' to its
store employees are for their cash handling tasks (77% of total costs of cash handling before
compensation). This is composed of almost equal share of administrative and non-administrative
tasks (38% and 39%, respectively). This is the direct result of the nature of the system which is highly
reliant on cash recycling and largely automated. The employees no longer need to count their startup floats and collected amounts. Individual bank visits for depositing seal bags is not required either.
On the other hand, supervisors' tasks are focused more on controlling the cash safety stock levels in
the machine and depositing the seal bags at the near-by bank deposit machine at appropriate
intervals.
The anticipated rise in transactions of Kappe' in 2013, will slightly increase the number of seal bags
at the new stores as well. The total fees to ABN-AMRO in 2013, will amount to about €7k before
compensation. This is equivalent to a 16% share in total cash handling costs in 2013 or €0.03 per
transaction. The 2% compensation to be paid by ABN-AMRO will reduce the costs further by around
€35k.
In terms of technology costs, about €16k will be the amount incurred in 2013 (up-front investment is
distributed over the depreciation period). This is in line with €0.06 per transaction. On the whole in
2013, around €70k will be spent on cash handling in the new stores (after compensation by the
bank). This corresponds to €0.28 per transaction considering the compensation. Chart 2 shows the
sources of costs in Kappe's new system.
44
24%
employee tasks
59%
-40%
administrative
tasks
ABN-AMRO fees
Machine costs
57%
Chart 2: Distribution of costs for Kappe' new system (after compensation)
4.2.3. Sources of cost in SAR's current system
As the calculations show, in 2013 about 7200 hours will be spent by employee on cash handling
activities. This will amount to around €229k of wages to be paid and a share of 71% in total costs of
cash handling. Over 2/3 of this will be originated from end of shift activities carried out by employee.
These include counting the collected amounts, preparing one’s start-up float for the next shift to be
stored in red seal bag, storing the rest of the money in blue seal bags, and reconciling the
transactions with softwareI. The administrative employee are responsible for controlling transactions
and amounts reconciled by employees, maintaining the required level of safety stock and issuing
change orders, and checking the reports received from GWK on deposited seal bags. All of these are
reflected in the 13% estimate for share in total costs. Availability of a safety stock cuts on lengthy
change interventions and thereby reduces costs of such errands (note the small 0.31% share in total
costs for during the shift activities).
€92k will be paid to GWK based on the amount of transactions. This will account for the other 29%
of the total costs of cash handling which is equivalent to €0.05 per transaction. In total, SAR will be
undergoing €322k for cash handing purposes. Given the number of transactions, each transaction
will cost €0.18. Chart 3 shows the sources of costs in SAR's current system.
0%
employee tasks
29%
administrative
tasks
58%
13%
GWK-Travelex
fees
Machine costs
Chart 3: Distribution of costs for SAR
I
Similar to Kappe’s old system, the software costs for SAR are left out of the estimations since they were
incurred before 2012.
45
4.2.4. Comparison of current systems at Kappe' and SAR
Not disclosed in this document
4.3. Sensitivity analysis
Data used in this study has been provided from different sources with different degrees of accuracy.
In addition since the systems under analysis are dissimilar in terms of tasks involved, there is a
natural dissimilarity in the data on cost drivers relating to cash handling tasks carried out by
employees. The used data is an average and no estimations of actual accuracy could be provided by
those who have supplied the raw figures. Therefore, a sensitivity analysis is using the following
primary definitions:
Cost drivers: unit time spent on cash handling tasksI
Initial amount: the estimates provided by Kappe' for the variables
Change in cost driver: up to ±25% of the variable
Sensitivity analysis shows how variant the total costs are with different levels of change in initial
amounts of cost drivers. Below the results of sensitivity analysis for current systems of Kappe' and
SAR are presented.
As chart 4 shows, in Kappe's current system, from different factors in the old system unit time for
end of shift activities in lounges 1 and 2 can cause the largest variation in total costs. This originates
mainly from the issue of using the back office also for non-cash handling purposes and the potential
distractions for employees. On the other hand, in the new system time for administration causes the
largest change in total costs. This can be attributed to significant role of administration in an
automated process.
I
In charts for Sensitivity analysis these cost drivers are referred to as start of shift, end of shift, during the shift,
distance to the bank, and distance to the machines. These are in correspondence with the activities explained
at length in Table 6. All factors refers to equal simultaneous changes in all the cost drivers for the system/
alternative.
46
25%
start of shift in lounges 1&2
during the shift in lounges 1&2
20%
Change in total costs
end of shift in lounges 1&2
distance to bank in lounges 1&2
15%
start of shift in lounges 3&4
10%
end of shift in lounges 3&4
distance to machines in lounges
3&4
5%
administration in lounges 1&2
administration in lounges 3&4
0%
%5
%10
%15
%20
Change in cost driver
%25
all factors
Chart 4: Sensitivity analysis for Kappe's current system
Change in total costs
As chart 5 shows in SAR's current system, similar to Kappe's old system, costs are the most variant if
the unit time for end of shift activities change. Since there is automation in counting money and the
back office is not used particularly for this purpose, this activity is likely to be highly variable.
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
start of shift
end of shift
during the shift
administration
all factors
%5
%10 %15 %20
Change in cost driver
%25
Chart 5: Sensitivity analysis for SAR's current system
As explained above, at both Kappe' and SAR, lack of automation takes its toll. This can be observed
in large sensitivity of total costs to end of shift activities of employees.
47
Summation
In this chapter, Activity –Based Costing was used to find the sources of costs in the cash
handling processes currently used at Kappe' and SAR. The main cost pools have been found
to be staff wages, machine costs, and bank/ CiT company fees. Then, the comparison
between systems showed that automation can reduce the costs of cash handling as in
Kappe's new system. Finally, a sensitivity analysis was done for each system to identify the
cost drivers which can cause large variation in total costs of cash handling. It was observed
that in Kappe's old system and SAR's system, end of shift activities can cause the largest
variation in total costs. This is due mainly to the issue of using the back office also for noncash handling purposes In Kappe's new system, time for administration leads to the largest
change in total costs. This can be attributed to significant role of administration in an
automated process.
Before substitute cash handling processes are proposed, success criteria will be studied in
chapter 5.
48
Chapter 5:
Assessment criteria, and benchmarks
A number of factors can influence the choice of solutions for handling cash by retailers. Among these
are type of products, amount, and number of transactions, location of stores, and even some
uncontrollable elements such as trends in payment methods and services offered by third parties
(i.e. banks and CiT companies). These factors were studied in detail in chapter 1 in general and in
chapter 3 for the special case of Kappe’ and SAR.
Selection of solutions for cash handling process can be a daunting task given the numerous
technological solutions and CiT services. Employees can be involved to varying degrees in the
process. Each of these may have both advantages and disadvantages. It is therefore crucial to select
suitable measures to compare the solutions with each other as well as the current situation.
The differences among retailers in terms of determinants of costs of cash handling result in different
views on appropriate cash handling solutions. By determining the requirements of the problem
owner, different solutions can be compared on criteria of interest. This helps retailers have a clear
picture of the pros and cons of each solution and weigh them against each other. Interests of
customers and preferences of employees are among the other factors that can influence retailers'
choice. These views should be projected in the criteria for assessment of solutions.
There are also some external factors in selection of a solution (e.g. seasonal changes of demand,
variations in customers' choice of payment instrument, and type of business). The impact of these
factors is excluded from this study. Assessment criteria will nonetheless, provide sufficient insight
into the expected impact of such factors. With this prospect, retailers can modify their choices at a
later point in time in case some unpredicted changes arise.
Figure 17 shows the focus of chapter 5 as part of the research.
Literature review of cost components of cash handling
Opinion of
company
representatives,
cash handling at
other retail shops
Current cash handling processes
ABC on sources of costs
Assessment criteria and benchmarks
Alternative solutions
Criteria of interest
to stakeholders
Selection and implementation
Reassessment of choice
Conclusion and recommendation
Figure 17: Focus of chapter 5
49
5.1. Stakeholder analysis
Given the significance of varying views in developing and then evaluating alternative cash handling
procedures, a stakeholder analysis is deemed necessary. There are several stakeholders in the cash
handling process including Kappe' and SAR, their employees, Schiphol Group, Amsterdam Airport
Schiphol, banks, CiT companies and customers. These stakeholders may have both common and
diverging interests which have been discussed with representatives of Kappe' and SAR and projected
in Table 28.
Table 11: Stakeholders analysis-summarized
Stakeholder
Interest
•
•
Kappe' & SAR
management
Employees
Customers
Other
retailers
Bank/
CiT company
Schiphol
Group
•
•
•
reduce the total costs of cash handling
reduce the amount of time spent by
staff on non-core activities
reduce the risks involved in the process
improve performance
work with other retailers to benefit
from economies of scale
Criticality
****
Involvement
pay attention t the stakeholder,
harness their support and
maintain it
•
•
•
spend less time on non-core activities
undergo minimum amount of training
have safe working conditions
*
keep informed and maintain
their support
•
•
•
reduced waiting time
safe purchases
acceptability of different payment
instruments and currencies
*
no action-keep informed if
needed
•
get better contract terms by
cooperating with Kappe' and SAR
•
•
•
•
maximize profit
have fewer unplanned services
reduce frequency of change delivery
and cash pick-ups
enhance the security of the process
•
•
•
maximize profit
meet customers' requirements
ensure a safe work environment
**
N/A
****
raise awareness about the
potential contributions of the
project and seek positive input
keep informed of desired
changes-motivate to contribute
to the project
pay attention t the stakeholder,
harness their support and
maintain it
Table 28 shows that attention to Kappe' and SAR's interests is of top priority (high criticality). The
same is true for Schiphol group. This is in compliance with the objective of this study which is to
enhance the efficiency of cash handling for Kappe' and SAR. Other retailers seek a possibility of cost
reduction which might also be of assistance to Kappe' and SAR. Thus, they are fairly critical.
Customers and employees should be accounted for as well in finding ways to improve the current
processes. However, their main interests will be addressed through those of Kappe' and SAR.
50
Therefore, their criticality is lower than the companies themselves. The complete table for
stakeholder analysis can be found in Appendix 2.
In the next section, with attention for interests, attitudes, and power positions of stakeholders
assessment criteria will be specified. The most prominent ones will be chosen as success criteria, to
be used also in multi-criteria analysis later in the report.
5.2. Assessment criteria
Stakeholder analysis helps decide how much attention should be given to the interests of the
different groups involved, especially the most critical ones. Given the nature of this research, the
focus is on enhancing the efficiency of cash handling procedures mostly from the perspective of
Kappe’ and SAR (the retailers) and Schiphol Group. In addition, (frequency and amount of) waiting
time for customers should be reduced. IThus, performance also needs to be assessed in terms of
customer service. Moreover, employees should be able to focus on their core activities and spend
less time on cash handling tasks. These main criteria are explained below.
5.2.1. Criteria from the perspective of Kappe' and SAR
Costs
The main cost categories for solutions are those described in previous chapter in Activity-Based
Costing.
Costs of employees and administration
In many shops employees are involved (to some extent) in preparing start-up floats, sorting,
counting, validating, investigating cash differences and even taking the cash to the bank. As a result,
a large part of the wages, are paid for carrying out cash handling tasks rather than core tasks (i.e.
sales and customer service).
Fees paid to CiT Company/ bank
Retailers rely on third parties for supply of change, insuring cash against possible threats, making
deposits and occasionally transporting values. These parties offer different services with varying
payment schemes. Bank deposit fees are among the important factors that drive decisions about the
way cash is handled. To this CiT charges might be added for taking cash deposits into their regional
cash centres. The general policy is to charge more for small volume of cash.II The objective behind it
is to discourage retailers from depositing cash into local branches because handling cash in these
branches is more costly compared to regional cash centres. Depositing via CiT services is a
motivating procedure for many retailers. Bank fees are subject to rises; the direct result of which is
the boost in costs incurred by retailers.30 Given Kappe' and SAR's interest in low-cost cash handling
processes, it is crucial to include costs in the assessment criteria.
Acquisition and maintenance costs of machines and technologies
I
II
Customers might be kept waiting if denominations or foreign currencies are not sufficiently available.
See terms of contract for ABN-AMRO in previous chapters
51
Using technological solutions has a number of positive implications. It can bring about reductions in
cash handling time, risk of robbery and cash shrinkage, and perhaps even fees paid to third parties.
Despite the large up-front investment, such costs can be recovered after a number of years. As a
result, costs of purchasing machines for recycling, dispensing, depositing, and counting cash should
be taken into account. 30
Risks
It is important to provide a risk assessment for each solution. Security of cash cycle depends on a
number of factors namely place of work, tasks, scope of responsibilities, and security of cash cycle.
The proximity of parking area for CVIT van to the place of collection/delivery is also of importance.
By defining the likelihood (probability) and impact (harm/ seriousness) of risks, they can be rated.
The ratings assist in comparing different cash handling processes to see whether control measures
are sufficient or more should be done to prevent harm.31 Risks can be divided to two main categories
based on their sources: internal and external.
Internal risks
• Embezzlement 32: Risk of theft or loss is among the major disadvantages of employees'
contact with cash.33In different cash handling procedures, there is a possibility of theft or
chance of mistake in counting or keeping records by employees. By comparing solutions,
procedures that adequately eliminate the shortcomings of current systems can be
identified.
• Mistake34: Mistakes in counting or recording amounts are inevitable especially when
there is little use of technology for such task and the cash cycle is not completely closed.
External risks
• Robbery: Lack of a secure and efficient cash handling environment will lead to high risk
of robbery. This problem becomes more prominent when employees are personally
responsible for transport of cash in long distances. Although airport is a rather secure
place, risk of robbery still exists. It is thus necessary to compare solutions with regards to
their risks. 32
• Technical issues: It is important to perform regular maintenance on cash recycling
machines to prevent unexpected breakdowns which could disrupt the cash handling
process. Therefore, agreements should be made with the supplier of cash recycling
machines for required services.
• Delayed services by CiT Company: Coin deliveries and cash pick-ups might be faced with
unpredictable problems. Delays are unlikely, yet possible in this regard.
Other process indicators35
Apart from risks, there are other process indicators that retailers might consider important. These
are:
Start-up float: Depending on the cash handling procedure and ease of access to additional float,
the amounts of start-up float vary. While having more start-up float reduces the need for
exchange during the shift, it may increase the risk of robbery. Another implication of more startup floats is larger volume of cash holdings at the stores and the concomitant interest losses.
52
Interventions: The amounts of start-up float differ across cash handling procedures. In addition,
safety stock is maintained in some and not the others. Thus, during the working shifts there vary
in terms of need to additional floats (i.e. exchanges for other currencies or smaller
denominations of bank notes). Interventions are also possible for emptying full cash boxes (i.e.
during cash pick-ups by CiT company or while skimming seal bags from recycling machines).
When recycling or dispensing machines are used, the interval between interventions is referred
to as machine up-time. 35
Interest losses from un-invested cash, cash holding, and cash in transition: There is a cost
associated with holding liquid assets and this is highest for cash. For a fixed amount this
opportunity cost increases with interest rate. Depending on the amount of cash in transition
retailers undergo an opportunity cost of lost interest.36 Start-up floats and safety stocks
maintained at shops are needed for daily transactions. On the other hand these are the amounts
for holding which retailers undergo a loss of interest. Accordingly, holding excess amounts of
them is undesirable. Other amounts (namely amounts prepared for deposit or pick-up by CiT
company) if withheld for long periods have similar connotations to an even larger extent. Having
said this, despite the differences in frequencyI the collected amounts are deposited at
appropriate intervals to avoid great interest losses. Frequency of making deposits is of
significance.
Transparency of the procedure: One of the indicators of a proper cash handling procedure for
Kappe' and SAR is its transparency. In a transparent process 31
• mistakes in counting are eliminated/ minimized;
• mistakes in recording sales and transactions data can be easily identified;
• exact amounts in different places in the cash chain can be determined;
• online monitoring and streamlining of transactions is possible; and
• it is known which employees are accountable for each task.
Homogeneity of procedures in different shops: Using similar procedures in all shops allows for
rotation of employees with no need for additional learning. It will also contribute to the
transparency of the process and ease of supervision.
5.2.2. Employee requirements
Some of the properties of a suitable cash handling procedure from the perspective of employees
are:
Need for training: The employer is responsible for training of its employees so that they can
carry out their cash handling tasks effectively. As a result, it is in the employer's interest to
compare the need for training in different solutions. 31Learning for employees varies with the
homogeneity of cash handling systems at different shops and the extent of change compared to
current systems.
Scope of responsibility: It should be clear who is in charge of recording of charges/billing,
collecting cash and depositing it, reconciliation, and administration. Clear task delegations are
among the factors that can enhance the transparency of the procedure and solutions should be
I
Note that at Kappe' old system this is done at the end of each shift by individual personnel, whereas at the
new system, the cash recycling machine is skimmed two to three times each week. At SAR, blue seal bags are
picked up by GWK's value transporter on a daily basis.
53
comparable in this regard.31 37 A narrow scope of responsibility allows employees to focus on and
excel in the core tasks with which they are entrusted.
Extent of wrongful accusations and finger pointing 38: A transparent cash handling cycle with
clear responsibilities reduces insinuations. Ease of identification of transgressors adds to the
appeal of a cash handling procedure not only in the eyes of the retailer, but also its employees.
Working conditions' hazards 32: It is among employers' responsibilities to provide a safe place
and systems of work for their employees. Tasks delegated to employees must comply with
safety requirements. One of the factors that can distinguish cash handling procedures from each
other is how much risks the employees are exposed to while carrying out their tasks.
Generally, employees prefer minimal learning for tasks and a narrow scope of responsibility. They
favour processes which are free of wrongful insinuations and involve little risks in carrying out tasks.
5.2.3. Customer requirements
Retailers need to support customers’ desire not only for speed and convenience but also for more
access and control over their cash.18A smooth cash handling procedure allows employees to focus on
their core tasks and provide better services to customers. In such a procedure there will be no/little
need for interventions in transactions to provide change. Moreover, it will guarantee a safe purchase
environment for the customers. Different performance indicators can be used to assess a retailer's
performance with regards to customer service. Some of these customer-centric KPIs are:
•
•
•
•
•
•
•
•
•
Customer GROSS Profit = Customer Sales - Customer Cost of Goods Sold for a period
Customer Lifetime Purchase Value - Monetary value of each customer's life time purchases
from the retailer
Customer Profitability = Customer Sales - (Customer Returns - Customer Cost of Goods Sold
+ Customer Promotion Expenses + Activity-Based Cost of Servicing Customer) for a period
Customer Purchase Freq Count - Count of customer purchases transactions over a period of
time
Customer Purchase Value - Monetary value of each customer purchase during a period with
an average value for all purchases for the period
Customer Reference question - A rating from 0 to 10 that indicates if the customer would
recommend the store.
Customer Sales by Segment - This formula is dependent upon defining customer segments
(based on age, education, lifestyle, income and other factors) and associating individual
customers to specific segments.
Customer Service staffing = Face to face customer service employees count / total
employees count
Visit to Buy Ratio = Sales Transaction Count per period / Visit Count Per Period 39
In the stakeholder analysis customers have been considered as "acquaintances" (low power, low
interest and positive attitude). Nonetheless, it is important for decision makers to serve their
customers efficiently and effectively. 40
Given the nature of this report it is not desirable to expend large attention on some of the KPIs listed
above. It is believed that the following will provide the desired level of insight:
54
Point of Sale waiting time: Customers demand fast services before, during and (in case of
refunds) after payments. This requires proper customer service staffing which implicates that
employees should be involved mostly with sales-related activities rather than cash handling
tasks. 41 Accordingly, it is important to find how much time each employee spends on carrying
out cash handling tasks during his working shift. The remaining time can be dedicated to the
core task of customer service. In this study, it is referred to as availability rate for customer
serviceI. It should be noted that supervisors are liable for administrative activities, not the sales
employees. Therefore, the amount of time spent on administration is excluded in estimating the
availability rate for customer service.
Reversibility of transactions: Till floats should be sufficiently maintained so that customers can
be provided a refund on their cash purchases upon request.
Acceptability of different payment instruments as well as different currencies in cash
payments: As mentioned earlier in the document, several payment methods are accepted at
stores of Kappe' and SAR including cash, debit and credit. Furthermore, the contract with
Schiphol Group obliges the retailers to accept different currencies in payments
Safety and trust: customers favour a safe purchase environment. It is also crucial that
employees are experienced in providing services and make few mistakes in PoS transactions.9
All of the systems currently used as well as the suggestions will allow for reversible transactions, and
use of different payment instruments and currencies. Moreover, given the location of shops there
will be almost no complications with regards to customer safety and trust. Hence, it is unnecessary
to compare different cases with regards to them and the comparison will be done only with
attention to customer service availability rate. This will provide insight into how available the
employees are to offer sales services to customers as opposed to the time they need for cash
handling tasks delegated to them.
5.3. Success criteria
Among the criteria/ performance indicators listed, some are not of particular significance in
assessing the eventual effectiveness of the suggested solutions.
Once the objectives of a project are achieved, it can be claimed that it has been a success.
Assessment is generally done on three criteria: cost, time (schedule) and quality. As suggested by
Freeman and Beale (1992), and Riggs et al. (1992), other less tangible project success criteria should
also be accounted for from the respective standpoint of project participants. 42
The objective is to find alternative solutions that can “enhance the efficiency of cash handling
processes. This can have several facets. In the previous section, the criteria from the perspective of
Kappe’ and SAR, their employees and customers were listed. This report is the result of a study to
address the requirements of Kappe’ and SAR as clients. After discussions with representatives of
both companies four main categories have been identified:
A. Costs (including staff costs, technology costs, bank/ CiT Company costs, rent fees, etc. )
I
1−
!" #$% &' (#)(*&++(,-$("#&.&/0 *+ %'-)0
#)#-2)!.$("#$% )1 *+ %'-)0
$( *+&+$1#
$( *+&+$1#
55
B. Availability rate for customer service (i.e. amount of time in the working shift employees
would have for their core activities considering the time expended on cash handling tasks)
C. Risks and potential security issues involved in a process
D. Ease, transparency and uniformity of the process at different shops
It is possible to provide the desirable insight into suggested alternatives with regards to the success
criteria in two ways:
1. Quantitative and qualitative assessment of alternatives:
In this way, estimates of costs will be accompanies with qualitative assessment of risks,
availability of employees for customer service, and transparency and uniformity. Selection of the
desirable alternative would be done mainly on the basis of costs and with a minor attention for
qualitative attributes of suggested processes.
2. Overall ranking of alternatives using multi-criteria decision making techniques:
In this way, Analytic Hierarchy Process (AHP) methodology will be used. With assistance from
AHP, priorities of each success criterion will be identified for each company. A comparison
between alternatives with regards to each criterion will be done. Finally, an overall assessment
will be provided and thereby the alternatives will be ranked.
Given the prominent significance of costs for Kappe' and SAR at the moment, the first option will be
the basis for selection of an alternative by both companies in this report. However, the second
option allows for a revision of weights assigned to success criteria at a later stage. Therefore,
retailers will be able to verify whether the selected solution is indeed the best in different
circumstances and time periods. Consequently, chapter 8 will be dedicated to use of Analytic
Hierarchy Process (AHP) as a multi-criteria decision making methodology.
5.4. Benchmarks
In chapter 4, the costs of different cost categories in current processes of cash handling at Kappe'
and SAR were calculated. Then by studying the results, the categories with large shares in total costs
were identified. It is important to take these conclusions into consideration when developing
alternative solutions for cash handling. On the other hand, investigation of cash handling processes
used by other retailers is indispensable to developing alternative solutions. In other words, using
different cash handling processes, as a benchmarking tool, is of great value. Therefore, discussions
were held with finance manager security manager or store manager of other retail groups active
either within or outside the airport.
In discussions with other retail groups, insight was gained into advantages and disadvantages of
their cash handling processes. Some of these processes have been considered to be applicable to/
suitable only for specific cases depending on the type and size of business and area of activity.
Overall, the observed/ discussed processes of cash handling can be categorized as organizational and
functional. Figure 18 shows the sub-categories of each.
56
Alternative cash handling
processes
Organizational
Clustering
Technological
Operation of
back Office by
CiT Company
Front Office
Solutions
Drop-in Safes
Air Tubes
Back Office
Solutions
Cash Recyclers
Counting
Machines
Figure 18: Different cash handling processes as benchmarks
These benchmarks are used in different sections in developing alternatives. Below their application
is briefly explained.
1. Organizational practices
a. Clustering:
Clustering refers to cash handling processes in which transactions handled by more than one
employee are collected in a shared seal bag/ drop-in safe/ till. While being closed increases
safety through reducing the risk of robbery and embezzlement, it comes at the cost of a
relatively low transparency of the cash handling process. This is because records of transaction
amounts will not be directly available for each individual employee. In case of cash shrinkage,
such an insight can be provided through additional and random counting of tills/ drop-in safes,
rotating suspicious employees across cash registers and reviewing videos recorded on
surveillance cameras. Clustering is considered appropriate when risk of cash shrinkage is high
and a closed cash handling process can enhance safety. On the other hand, clustering is useful
when the average values of transactions are not significant. In this case, it is unnecessary to have
detailed information on the transactions handled by each individual employee.
Clustering is common among downtown retailers. It will be investigated further on for the case
of SAR.
b. Operation of back office by CiT Company:
Different cash handling processes call for varying levels and types of activities to be carried out
by employees or store managers. Apart from high risk of cash shrinkage, large reliance on staff
for cash handling activities can deter them from focusing on core, sales-related tasks. With
assistance of skilled experts at CiT companies, retailers can select the right cash handling
processes.
57
With growth in type of services offered, many retailers outsource (parts of) their cash handling
activities to CiT companies. Examples have been found among not only downtown retailers, but
also those doing business at the airport. Outsourcing cash handling to G4S can also be an option
for Kappe' and together.
2. Technological practices
a. Front office solutions
• Drop-in safes:
Clustering is a common property of systems where drop-in safes are used. Drop-in safes
allow for closed cash handling process starting at the PoS. They are normally scanned before
employees start using them so that the employees who have shared a safe, can be easily
recognized. This facilitates investigations in case of cash shrinkage. At desired intervals they
are replaced and taken to the back office to be counted and/or picked up by CiT companies.
In this study, application of drop-in safes will be investigated for SAR. Given that uniformity
in cash handling processes is desired and 5 shops of Kappe' have recently adopted the new
system, it is not favourable to study this alternative for Kappe'
•
Air tubes:
Air tube system (pneumatic tube system) is useful because it not only provides a closed cash
handling cycle, but also eliminates the need for employee intervention to replace cash
containers. At desired intervals, containers (or drop-in safes) are vacuumed to the back
office and are prepared to be picked up by CiT Company. When replacing drop-in safes
manually is considered time-consuming and/ or risky, air tubes eliminate such issues.
Air tubes are mostly used by downtown retailers. Such a system calls for a central location as
cash office to which all cash containers can be automatically transferred. Given the limited
area available at Amsterdam Airport Schiphol to retailers, high rent fees and most
importantly uncertain layout planning, it is not possible to implement this alternative at the
moment. However, in the long run, this solution might become feasible.
b. Back office solutions
• Cash recycling machines:
Cash recycling machines have become more popular among retailers in recent years. They
reduce the time spent by employees on cash handling activities. This is especially significant
at the end of shifts because counting the money and reconciliation with records can be
carried out quite fast by the machine. In addition, notes can rotate among employees so
that small denominations (and different currencies) are sufficiently available to a larger
number of them. As a result, the need to additional floats during the working shifts is
eliminated or reduced. Furthermore, with cash recycling machines, the process of cash
handling can become more centralized and thus more easily supervised. It is also
noteworthy that processes will be highly transparent as records of withdrawn and deposited
amounts will be available for each individual employee.
58
Cash recycling machines are already being used by some retail groups at Amsterdam Airport
Schiphol. Kappe's new system, as previously explained, is one example. At a first glance, cash
recycling machines seem to provide the desired properties for cash handling at Kappe' and
SAR. Therefore, installing them will be investigated for the companies separately as well as
together.
•
Counting machines:
Counting machines have been used by many retailers for many years. They can speed up the
counting of cash at the end of working shifts and also identify counterfeit notes.
When reliance on employees for handling cash is high, using counting machines can
contribute to accuracy and speed of the process. Even purchasing such machines with no
other change can enhance the efficiency of the processes. Employees are more in need of
counting machines when large volumes of cash are counted at once. One example is when
tills are shared among employees and counted once a day (rather than using separate tills
for employees). Tills are used in such a way when drop-in safes are installed at the PoS.
Therefore, in the alternative with drop-in safes for SAR, discussed later in this report, using
counting machines has been recommended.
Table 29 provides an overview of the benchmarks and their application in developing alternative
cash handling processes for Kappe' and SAR.
Table 12: Application of benchmarks in developing new cash handling processes
Application in alternatives
Benchmarking tool
Separate for Kappe'
Clustering, drop-in safes and
counting machines
Separate for SAR
Joint
Cash recycling machines
Operation of back-office by CiT
Company
Air tubes
(recommendations)
59
Summation
This chapter started with a stakeholder analysis to clarify the role of different parties and the
extent to which they must be involved in developing new cash handling processes for Kappe'
and SAR. The most critical stakeholders, are considered to be Kappe' and SAR's management,
followed by their employees and customers. Given their interests, criteria for assessment of
cash handling processes were specified from the perspective of each of these groups. The
most significant criteria (i.e. success criteria) are: costs, availability rate of employees for
customer service, risks, and transparency and uniformity of the process).
In the next section of this chapter benchmarks were set by visiting cash handling processes
of other retailers. Technological and organizational changes are expected to bring more
efficient cash handling processes at Kappe' and SAR. The success criteria along with
benchmarks will serve as the basis for developing alternative cash handling processes in
chapter 6. Furthermore, the success criteria will be used in multi-criteria analysis conducted
through AHP methodology in chapter 8.
60
Chapter 6:
Alternative solutions for improving the
efficiency of cash handling
In this section, alternative cash handling processes will be designed based on the benchmarks and
with attention for sources of costs of cash handling investigated in previous chapters. These
alternatives will then be assessed quantitatively (based on costs) and qualitatively (based on the
other success criteria). Figure 19 shows the focus of chapter 6 as part of the research. An overview
of alternatives that are assessed in this chapter is presented in Figure 20.
Literature review of cost components of cash handling
Current cash handling processes
Possible areas of
improvement
ABC on sources of costs
Information about
different
technologies
Assessment criteria and benchmarks
Assessment
criteria
Alternative solutions
Selection and implementation
Reassessment of choice
Conclusion and recommendation
Figure 19: Focus of chapter 6
61
Kappe'
Separate
alternatives
SAR
Joint alternatives
1.Using
.Using cash recycling
machines
1. Sharing cash recycling
machines
2. Working with GWK-Travelex
Travelex
2. Sharing cash recycling
machines also with other
retailers
3.. Using cash recycling
machines & working with
GWK-Travelex
3. Outsourcing shared back
office operation to G4S
Separate
alternatives
1. Using cash recycling
machines
2 Working with ABN-AMRO
2.
3. Using cash recycling
machines and working with
ABN-AMRO
4.Using drop-in safes
Figure 20:: Alternative cash handling processes for Kappe' and SAR
6.1. Constraints and requirementsI
In designing alternatives with use of cash recycling machines, the following conditions need to be
satisfied:
1. Independent operation of departure lounges
Independent use of cash recycling machines in lounges is a main step for eliminating the downsides
of shared operations
ions between lounges. In this way less time will be lost for travelling to the cash
office, and lower risk would be faced. It is therefore, crucial to decide on the optimum number of
machine sets separately for lounge 1, lounge 2, and lounges 3 and 4II.
2. Capacity of cash machine
Each cash machine consists of 12 escrows each of which can contain a maximum of 400 bank notes.
The arrangement for the machine currently used at Kappe' is as shown in Table 30.
I
These conditions hold only in alternatives with use of cash recycling machines.
machines
Since there are only 2 shops of Kappe' (SBF and Branded) in lounge 4, there is no need to investigate the
number of machines for these lounges
lounge separately.. The two shops in lounge 4 should work jointly with those of
lounge 3.
II
62
Table 13: Current arrangement of escrows in cash recycling machine of P&C West
Number of escrows
Notes
3
€50
2
€20
1
€10
1
€5
1
€100/€200/€500
1
$1
1
$5
1
$10
1
Other $ notes
The arrangement is equivalent to a capacity of around €120k.Tthe required number of machines
must also be determined such that average daily amounts to be collected in each machine do not
exceed this capacity. Moreover, machines need to be skimmed even if one of the escrows is full.I
Thus, skimming must be done in advance of reaching its maximum capacity.
3. Point of skimming
Not disclosed in this document
4. Frequency of skimming
Given the average daily transactions in each lounge, the number of machines must be determined
such that each needs to be skimmed no more than once a day (i.e. 7 or fewer times each week).
This is important because it prevents
•
•
large amounts of administration for skimming machines each day; and
increase in costs as a result of high skimming wages (High wages are applicable to skimming
on the weekends that happens when a machine needs to be skimmed more than three3
times a week).
6.2. Separate alternatives for Kappe'
In this section, alternative cash handling processes for Kappe' will be introduced and evaluated.
I
This arrangement can be changed if desired.
63
Not disclosed in this document
6.2. Separate alternatives for SAR
6.2.1. Using cash recycling machines (S1)
It is suggested for SAR to start using recycling machines (as Kappe' currently is in lounges 3&4). It is
assumed that SAR will continue to work with GWK-Travelex. Considering the change in the cash
handling process, the amounts of time spent by employees and administrative staff on different
tasks will differ. In addition, the number and location of machines need to be specified. Costs of
different categories are calculated in Appendix 4 and the results are presented briefly in Table 42.
Table 14: ABC for alternative S1
Cost category
Cost (€)
Cost per
transaction
(€)
Cost per Euro
of
transaction
Share in total
costs
Percentage
change
compared to
current
situation
(€)
Staffs' cash handling tasks
156,844
0.09
0.0039
54%
-32%
GWK-Travelex fees
92,000
0.05
0.0023
32%
0%
Technology costs
41,807
0.02
0.0010
14%
-
Total costs
290,651
0.16
0.0072
100%
-10%
The results of ABC show that the enhanced automation in the procedure brought about by cash
recycling machines, reduces the amount of time employees spend on cash handling by 32%. Despite
the investment costs for machines, this can lead to 10% saving on total costs of cash handling.
Handling of each transaction would then cost €0.16.
Qualitative assessment
Figure 24 provides an overview of the changes this solution will cause compared to the system
currently used at SAR.
64
Process KPIs
•Low startup float
•low safety Stock(Due to Recycling)
•Relatively high interest loss
•Low frequency of bank deposits
•High administrtation requirement
•High transparency of the procedure
Implementation Issues
Customer Service
•Need for training the employees to use
the machines
•New administrative tasks have to be
assigned
•Software installation and configuration
will have to be negotiated with
machine producer
98.34%
alternative
S1
Risks(Low)
Employee Satisfaction
•Robbery Risk on the way to work with
withdrawn money and leaving the
work with turnover money for
depositing
•Machine breakdown
•Low scope of responsibility wtih cash
handling
•Little accusation
• Exposure to robbery when taveling
between shops
Figure 21: Qualitative assessment for alternative S1
The detailed risk analysis for this solution can be found in Appendix 3.
6.2.2. Working with ABN-AMRO (S2)
In this alternative, it is assumed that SAR would keep its current processes of cash handling, but start
working with ABN-AMRO instead of GWK-Travelex. Steps of calculation can be found in Appendix 4.
The results of calculations are shown in Table 43.
Table 15: ABC for alternative S2
Cost category
Cost (€)
Cost per
transaction
(€)
Cost per Euro
of
transaction
Share in total
costs
Percentage
change
compared to
current
situation
(€)
Staffs' cash handling tasks
270,848
0.15
0.0067
97%
+18%
ABN-AMRO fees (after
compensation)
7,534
0.00
0.0002
3%
-92%
Total costs (after
compensation)
278,382
0.16
0.0069
100%
-14%
This alternative increases cash handling time of staff by 18% compared to the current system.
However, working with ABN-AMRO can result in a significant cost saving in this category. On the
whole, a cost reduction of 14% can be achieved if SAR signs a contract with ABN-AMRO, even if no
change in procedures is adopted. At these costs, handling of each transaction would then cost €0.16
which is €0.02 lower than the average at SAR's current systems.
65
Qualitative assessment
Figure 25 includes a brief description of qualitative properties of alternative S2.
Customer Service
Process KPIs
98.30%
High End of Shift Activity Costs due to
Manual Counting
Implementation Issues
need for bank visits as opposed to the
current system
High CIT costs
High Transparency
Process
in
Monitoring
alternative
S2
Employee Satisfaction
•Low scope of responsibility wtih cash
handling
•Little accusation
• Exposure to robbery risks when
depositing
Risks(medium)
•Robbery Risk on the way to
the bank for depositing
Figure 22: Qualitative assessment for alternative S2
Detailed risk analysis is shown in Appendix 3.
6.2.3. Using cash recycling machines and working with ABN-AMRO (S3)
SAR can purchase 3 sets of cash recycling machines as proposed in alternative S1 and sign a contract
with ABN-AMRO for depositing the collected amounts. In Appendix 4, calculation of costs is done.
Table 44 depicts the results.
Table 16: ABC for alternative S3
Cost per Euro
of
transaction
(€)
Share in total
costs
Percentage
change
compared to
current
situation
Cost category
Cost (€)
Cost per
transaction
(€)
Staffs' cash handling tasks
159,824
0.09
0.0040
109%
-30%
ABN-AMRO fees (after
compensation)
-55042
-0.03
-0.0014
-38%
-160%
Technology costs
41,807
0.02
0.0010
29%
-
Total costs (after
compensation)
146,589
0.08
0.0036
100%
-54%
By adopting this alternative, the time spent on cash handling by the staff can be reduced by 30%
compared to the current system. Working with ABN-AMRO can result in a significant cost saving as
well. Overall, a cost reduction of 54% can be achieved. In this case, each transaction would cost only
€0.08 which is €0.10 lower than the average at SAR's current systems.
66
Qualitative assessment
Figure 26 includes a brief description of qualitative properties of alternative S3.
Process KPIs
Customer Service
•Lower startup float
•lower safety Stock(Due to Recycling)
•Higher Interest Loss
•Lower frequency of bank deposits
•Higher administrtation requirement
•High transparency of the procedure
98.34%
Implementation Issues
•Need for training the employees on how
to use the machine
•New administrative tasks have to be
assigned
•Software installation and configuration
will have to be negotiated with machine
producer
alternative
S3
Risks(medium-high)
•Robbery Risk on the way to work with
withdrawn money and leaving the work
with turnover money for depositing
•Exposure to risk of robbery while
walking to the bank for depositing the
money in the machine
•Machine breakdown
Employee Satisfaction
•Low scope of responsibility wtih
cash handling
•Little accusation
• Exposed to robbery risks when
depositing risks
Figure 23: Qualitative assessment for alternative S3
6.2.4. Using drop-in
in safes (S4)
It is possible to start using drop--in safes at SAR. For this purpose, safes should be purchased and
installed n cash registers at the beginning of each day. Employees working on the same cash register
on a given day will form a cluster and jointly deposit the collected amounts during the day in the
drop-in safe.
e. At the end of each day, the drop-in
drop in safe will be taken to the back office. After being
counted by counting machines, the safes are prepared for pick-up
pick up by CiT Company and an empty
safe will be installed at each cash register for the next day. Figure 27 depicts the cash handling
process using drop-in safes.
Figure 24: Cash handling process using drop-in safes
67
Calculating costs of cash handling is done in Appendix 4. Table 45 shows the results of ABC for this
alternative.
Table 17: ABC for alternative S4
Share in total
costs
Percentage
change
compared to
current
situation
Cost category
Cost (€)
Cost per
transaction
(€)
Cost per Euro
of
transaction
(€)
Staffs' cash handling tasks
71,104
0.04
0.0018
41%
-69%
GWK-Travelex fees
92,000
0.05
0.0023
54%
0%
Technology & other costs
8,620
0.00
0.0002
5%
-
Sum
171,724
0.10
0.0042
100%
-47%
With around €172k per year, a cost saving of 47% would be achieved and each transaction would
cost around €0.10. Despite the large cost savings, using drop-in safes can have disadvantages
summarized in the qualitative assessment below.
Working with ABN-AMRO:
In case SAR chooses alternative S4 while working with ABN-AMRO instead of GWK-Travelex, Euro
and foreign currencies need to be separated. So the suggestion would be to allocate only one of the
checkout points to payments in foreign currencies. This check out point can have 2 drop in safes: one
for Euro and one for foreign currencies.
Qualitative assessment
Figure 28 includes a brief description of qualitative properties of alternative S4.
68
Process KPIs
Low transparency of the procedure due to big
amount of money accumulated in drop-in
safes & no counting
customer Service:
99.1%
Implementation Issues
A more outdated system
New
administrative
tasksmaintaining&controlling safes-have to
be assigned
Administration tasks might be higher due to
research of cash difference
Mutual trust between CIT company and
employees have to be built
Much less counting time, more time can be
spent on customers
Low investment cost
Alternative
S4
Employee satisfaction:
Risks(High)
Low transparency might lead to high
cash differences in the beginning
likeliness of wrongful accusation due to low
transparency
Figure 25: Qualitative assessment for alternative S4
The flow charts in Appendix 5 shows the process and control scheme for using drop-in safes.
Detailed risk analysis can be found in Appendix 3.
6.3. Joint alternatives for Kappe' and SAR
Apart from individual small and major improvements, the possibility of collaboration in cash
handling and potential cost savings of it are of specific interest to Kappe' and SAR. In order to
achieve a uniform, transparent, fast, reliable and state-of-the-art process, it is plausible to make use
of cash recycling machines similar to the ones currently in use by Kappe' in Lounge 3.
In this section, using cash recycling machines as part of a collaborative cash handling process will be
investigated in three variations:
1. Shared use of cash recycling machines by Kappe’ and SAR
2. Shared use of cash recycling machines by Kappe’, SAR and other retailers at Amsterdam
Airport Schiphol
3. Shared use of cash recycling machines by Kappe' and SAR while outsourcing back office
operations to G4S
Each of these alternatives is assessed separately below. Once assessment is completed, these
alternatives will be compared with the separate alternatives.
69
6.3.1. Shared use of cash recycling machines by Kappe’ and SAR (J1A)
6.3.2. Shared use of cash recycling machines by Kappe’, SAR and other
retailers at Amsterdam Airport Schiphol (J2)
Not disclosed in this document
Results of alternative J1A show that if Kappe' and SAR join forces in using cash recycling machines,
they can save on costs of cash handling. It is also interesting to check whether with other retailers'
collaboration, it is possible to attain further cost reduction. Table 48 shows a general overview of
costs in this case. The detailed calculation of costs of this alternative can be found in Appendix 4.
Table 18: ABC for alternative J2
Cost category
Static expenses
Dynamic expenses
Cost for Kappe'/ SAR (€)
Staffs' cash handling tasks
Equal to alternative J1A
Administration for monitoring finances
Equal to alternative J1A
Administration on machines
Depending on the number of machines
Joint cash office organization
Depending on the number of retailers
ABN-AMRO fees (after compensation)
Depending on the total transactions
Technology costs
Depending on the total transactions
Joint cash office rent
Depending on the number of machines
Total (after compensation)
To be determined using the charts below
Depending on the number of retail groups joining Kappe' and SAR and their annual transactions,
different amounts of cost saving can be achieved by Kappe' and SAR. Charts 6 and 7 show the result
of sensitivity analysis for Kappe' and SAR based on the number of retailers that might join them and
sum of their annual transactions.
70
percentage change in total costs
-47%
-45%
-43%
1 other retailer
2 other retailers
-41%
3 other retailers
-39%
-37%
-35%
sum of annual transactions of retailers joining
Chart 6: ABC for Kappe’ for alternative J2
percentage change in total costs
-47%
-45%
-43%
1 other retailer
2 other retailers
-41%
3 other retailers
-39%
-37%
-35%
sum of annual transactions of retailers joining (€k)
Chart 7: ABC for SAR for alternative J2
The fluctuation in each chart is because with a specific number of retailers joining costs can be
divided among more companies and therefore larger saving is achievable. However, at certain
transaction amounts, more machines would be needed. Purchasing of additional machines leads to a
fall in cost savings. This fall stops once the transactions are sufficiently large to use the available
capacity of the machines.
Each chart can also be compared for different number of retailers joining Kappe' and SAR. It can be
seen that at a given transaction amount, fewer retailers contribute to larger cost reduction. This can
be explained by increased complexity of administration as more retailers become involved in joint
cash handling process which is in turn associated with a rise in costs.
It can be concluded that in alternative J2, the number of retailers joining Kappe' and SAR and their
annual transactions determine the possible cost savings. If both companies can achieve a larger
71
percentage of saving compared to other alternatives, they might find it favourable to scale up the
processes.
Qualitative assessment
Figure 30 includes a brief description of qualitative properties of alternative J2.
Process KPIs
•Less efficient conflict resolving and decision-making
•Higher administration requirement
•Low Frequency of bank deposits in lounges 2 and 3 and a higher frequency
in lounge 1
•Ignorable Safety Stock(Due to Recycling)
•Low Startup float
•Higher Interest Loss
•High transparency of the procedure
Implementation Issues
Risks(Medium)
Administrative conflicts and ambiguities
with decision-making
External cash offices are exposed to
more security risks
The whole turnover and tills in the airport
will be in the hands of employees walking
around
Machine breakdown
Uncertainties in airport might lead to
changes regarding the office
alternative
J2
New administrative tasks-cash office
managers- have to be assigned
Store managers' responsibilities change
Companies need to negotiatie the
distribution of the costs and assigning
of operational tasks
Need for training the employees on
how to use the machine
Software installation and configuration
will have to be negotiated with
machine producer for joint operation
Figure 26: Qualitative assessment for alternative J2
6.3.3. Shared use of cash recycling machines by Kappe’ and SAR while outsourcing
operation of back office to G4S (J3)
As mentioned previously, Kappe' and SAR have an interest in a joint cash handling process and
expect to achieve further cost savings through such a process. In the previous two alternatives, the
costs of cash handling for collaboration between Kappe' and SAR, and other retailers were
estimated. Apart from these alternatives, any possibility of reducing time spent on cash handling by
staff is well received by Kappe' and SAR. To achieve this purpose, it is anticipated that outsourcing
the operation of back office to an external party (i.e. a CiT company) can enhance the efficiency of
cash handling. G4S has recently taken over the back office of one retailer at Amsterdam Airport
Schiphol and is well acquainted with the general requirements of retailers at the airport.
Consequently, G4S was asked to conduct a study on the case of Kappe' and SAR and propose a joint
cash handling process for them.
Based on the provided information regarding cash handling processes and Kappe' and SAR, G4S
compared two options for a new cash handling process: centralized and de-centralized. In Table 49
advantages and disadvantages of these options are listed.
72
Table 19: Options proposed by G4S in alternatve J3
Option 2:
De-centralized
Option 1: Centralized
Options
Advantages
Disadvantages
Lower individual costs
Airport site deposit distance
Central circulation/ recycling of petty cash/
change
Need for centralized and shared rooms
Single/ dual location(s) for servicing by G4S
Dual cash flows results in multiple devices
(notes and coins)
Dual solution covers back-up scenario
Direct deposit facility on store level
No sharing of solution and costs
Less time consuming deposit process (shorter
walking distances)
Higher investment for back office security (by
G4S, and one supervisor from each company)
Costs of multiple CiT services over large area
Disturbance of customers' shopping experience
by CiT
High management and monitoring costs
(change and deposits)
High costs of large number of hardware
Considering the possibility of cost reduction and cash recycling in a centralized cash handling
process, option 1 was selected by G4S to be investigated further.
In order to install option 1, it is suggested by G4S that CASH360I cash management concept is
implemented by each company separately, but dually managed by G4S. The five major components
of cash360 solution by G4S are depicted in Figure 31.
43
Figure 27: CASH360 solution by G4S
I
A complete list of properties of this solution is included in appendix.
73
For implementation of option 1, two central back office locations must be rented to be used by both
companies. Table 50 shows the number of machines required for each of the offices.
Table 20: required number of machines for each of the two joint offices in alternative J3
Number of cash recycling
machines
Number of coin recycling
machines
Only for Kappe'
1
1
Only for SAR
1
1
For foreign currencies of both Kappe'
and SAR
1
1
Although the deposited amounts by each company can be known, shared deposits would lead to
confusion over the amount left in the machines after skimming. In other words, it is unlikely that the
companies have equal shares in the amounts and denominations left in the machines. Therefore,
despite sharing the back office G4S does not find it advisable for Kappe' and SAR to share the
recycling machines for Euros.
According to overall estimations by G4S, for Kappe' and SAR the current annual costs amount to
around €800k (including internal costs); while by implementing CASH360 through option 1 explained
above, they would be reduced to around €350k (excluding internal costs, processing of foreign
currencies by bank, and back office rent).
6.4. Sensitivity analysis for alternatives
As explained before, costs of activities (start, during, and end of shift and administration) in each of
the current cash handling systems as well as suggested alternatives, have been estimated based on
the unit time spent. The estimates for unit time have been provided as an average by
representatives of Kappe' and SAR.
Given the uncertainty of these numbers, it is useful to do a sensitivity analysis to test the variation in
the cost estimates for different systems. For this purpose, the percentage change in total costs is
calculated for changes in unit time of different cash handling activities. The result is visualized in
charts. In this manner, it can be understood how sensitive the cost estimates are to different cost
drivers. Also, the cash handling systems with large sensitivity to cost drivers can be identified. The
following are the results of sensitivity analysis for the discussed alternatives for Kappe' and SAR.
6.4.1. Sensitivity analysis for Kappe's alternatives
Charts below show the results of sensitivity analysis for different amounts of percentage change for
alternative processes proposed for Kappe'.
As chart 8 shows, in alterative 1 the largest variation can be caused by a change in time required for
administrative tasks.
74
40%
Change in total costs
35%
30%
25%
start of shift
20%
end of shift
15%
distance to machines
10%
administration
all factors
5%
0%
%5
%10 %15 %20
Change in cost driver
%25
Chart 8: Sensitivity analysis for alternative K1
In alternative K2, changes in the administration time for the shops of lounges 1 and 2, and then 3
and 4 can cause the largest variation (Chart 9).
9%
during the shift in lounges
1&2
8%
start of shift in lounges 1&2
7%
Change in total costs
end of shift in lounges 1&2
6%
start of shift in lounges 3&4
5%
end of shift inlounges 3&4
4%
3%
distance to machines in
lounges 3&4
2%
administration in lounges 1&2
1%
administration in lounges 3&4
0%
%5
%10
%15
%20
%25
all factors
Change in cost driver
Chart 9: Sensitivity analysis for alternative K2
In alternative K3, costs are most sensitive to changes in administration time. (Chart 10)
75
16%
Change in total costs
14%
12%
distance to machines
10%
8%
start of shift
6%
end of shift
4%
administration
2%
all factors
0%
%5
%10 %15 %20
Change in cost driver
%25
Chart 10: Sensitivity analysis for alternative K3
In alternative J1A, variations in administration time can cause a larger change in total costs
compared to other cost drivers (Chart 11).
35%
Change in total costs
30%
25%
distance to machines
20%
start of shift
15%
end of shift
10%
administration
5%
all factors
0%
%5
%10
%15
%20
%25
Change in cost driver
Chart 11: Sensitivity analysis for Kappe' for alternative J1A
Chart 12 shows how much the cost estimates would vary in each of the cash handling systems if all
the activity unit times were changed simultaneously (the trend lines corresponding to all factors in
the charts above). As it can be seen alternatives K1 and J1A show the largest total variations.
76
40%
Change in total costs
35%
30%
25%
current system
20%
alternative K1
15%
alternative K2
10%
alternative K3
5%
alternative J1
0%
%5
%10
%15
%20
Change in cost driver
%25
Chart 12: Comparison between sensitivity analysis for different alternatives for Kappe'
In both K1 and J1A, changes in administration unit time are the reason behind a large part of the
variations. This is plausible since use of cash recycling machines for all shops involves high reliance
on administrative staff for controlling and skimming the machines.
6.4.2. Sensitivity analysis for SAR's alternatives
Charts below show the results of sensitivity analysis for different amounts of percentage change for
SAR's alternatives.
In alternative S1, costs can be highly variant with changes in administration unit time (Chart 13).
16%
Change in total costs
14%
12%
distance to machines
10%
8%
start of shift
6%
end of shift
4%
administration
2%
all factors
0%
%5
%10 %15 %20
Change in cost driver
%25
Chart 13: Sensitivity analysis for alternative S1
As shown in Chart 14, in alternative S2 the largest change in costs can be caused by changes in the
time for end of shift activities.
77
30%
Change in total costs
25%
distance to the bank
20%
start of shift
15%
end of shift
10%
administration
5%
during the shift
all factors
0%
%5
%10 %15 %20
Change in cost driver
%25
Chart 14: Sensitivity analysis for alternative S2
If administration unit time changed, the costs would change more in alternative S3 than they would
if other cost drivers were altered (Chart 15).
30%
Change in total costs
25%
20%
distance to machines
15%
start of shift
end of shift
10%
administration
5%
all factors
0%
%5
%10 %15 %20
Change in cost driver
%25
Chart 15: Sensitivity analysis for alternative S3
In alternative S4, the largest variation can be caused by a change in time required for administrative
tasks. (Chart 16)
78
45%
Change in total costs
40%
35%
30%
during the shift
25%
start of shift
20%
end of shift
15%
administration
10%
all factors
5%
0%
%5
%10
%15
%20
Change in cost driver
%25
Chart 16: Sensitivity analysis for alternative S4
As chart 17 shows, if administration unit time changes in alternative J1A, the costs will vary more
than they would with changes in other cost drivers.
35%
Change in total costs
30%
25%
distance to machines
20%
start of shift
15%
end of shift
10%
administration
5%
all factors
0%
%5
%10 %15 %20
Change in cost driver
%25
Chart 17: Sensitivity analysis for SAR for alternative J1A
Chart 18 shows how much the cost estimates would vary in each of the cash handling systems if all
the activity unit times were changed simultaneously. As it can be seen alternative S4 (use of drop-in
safes) is in the lead with the largest variations followed by alternatives J1A and S3.
79
45%
Change in total costs
40%
35%
30%
current system
25%
alternative S1
20%
alternative S2
15%
alternative S3
10%
alternative S4
5%
alternative J1
0%
%5
%10
%15
%20
%25
Change in cost driver
Chart 18: Comparison between sensitivity analysis for different alternatives for SAR
In all three of alternatives S4, J1A and S3, the most sensitivity is observed in administration time. For
use of drop-in safes in alternative S4 this can be attributed to low transparency of the process and
accordingly the large need for investigation on clusters. On the other hand, for alternatives S3 and
J1A, the reason is the important role of administrative staff in maintaining cash and coin recycling
machines.
80
Summation
In this chapter new cash handling procedures were proposed. They were categorized as:
Separate alternatives for Kappe'
• Using cash recycling machines at Kappe' (K1)
• Working with GWK-Travelex (K2)
• Cash recycling machines and working with GWK-Travelex (K3)
Separate alternatives for SAR
• Using cash recycling machines (S1)
• Working with ABN-AMRO (S2)
• Using cash recycling machines and working with ABN-AMRO (S3)
• Using drop-in safes (S4)
Joint alternatives for Kappe' and SAR
• Shared use of cash recycling machines by Kappe’ and SAR (J1A)
• Shared use of cash recycling machines by Kappe’ and SAR and other retailers (J2)
• Operation of back office by external party (J3)
For Kappe', alternatives K1 and J1A with respectively 50% and 43% cost saving and for
SAR, alternatives S3, S4, and J1A with respectively 54%, 47% and 43% cost saving have
been estimated to be the least costly alternatives.
After evaluation of the alternatives, sensitivity of costs to different cost drivers was tested.
Among alternatives for Kappe', total costs in K1 and J1A have shown to be most sensitive
to changes in cost drivers; and administration unit time is the reason behind it. For SAR,
the largest sensitivity was observed in alternatives S4, J1A and S3. In alternative S4 this can
be attributed to low transparency of the while in alternatives S3 and J1A, the reason is the
important role of administrative staff in maintaining cash and coin recycling
Chapter 7 will be dedicated to selecting the proper alternative from those proposed in this
chapter and explaining the implementation steps.
81
Chapter 7:
Selection and implementation
Assessment criteria for cash handling processes were elaborated in chapter 5. In chapter 6
alternative solutions for cash handling at Kappe' and SAR were developed and analyzed
quantitatively and qualitatively. This chapter is dedicated to comparing the proposed alternatives
based on the desired criteria in order to select the favourable one. Once the proper alternative(s)
are chosen by representatives of Kappe' and SAR implementation guidelines will be provided. Figure
32 shows the focus of chapter 7 as part of the research.
Literature review of cost components of cash handling
Current cash handling processes
ABC on sources of costs
Assessment criteria and benchmarks
Success
criteria
Alternative solutions
Selection and implementation
Discussion with Kappe'
& SAR, ,
Lewin's change model
Favourable alternative(s),
implementation
guidelines
Reassessment of choice
Conclusion and recommendation
Figure 28: Focus of chapter 7
1.1. Selection
In the previous sections, different alternatives were proposed to enhance the efficiency of cash
handling processes at Kappe' and SAR. These alternatives differ not only in terms of costs, but also
involved risks, availability of employees for customer service, and transparency of the process. For
instance while using drop-in safes has the lowest cost for SAR, it is a rather ambiguous process due
to clustering of employees. The final selection of alternatives by Kappe' and SAR has been done
based, mainly, on total costs of cash handlingI. Other success criteria have been accounted for only
modestly. Charts 19 and 20 show the total costs of different alternatives for Kappe' and SAR.
I
Total costs of cash handling= staff costs + fees paid to bank/ Cit company +machine costs (+rent of joint cash
office)
82
370,697
335,286
Alternative K1
181,217
158,633
Alternative K2
Alternative K3
Alternative J1A
Total costs (€)
Chart 19: Total costs of different alternatives for Kappe'
290,651
278,382
Alternative S1
171,724
182,420
146,589
Alternative S2
Alternative S3
Alternative S4
Alternative J1A
Total costs (€)
Chart 20: Total costs of different alternatives for SAR
As it can be seen in Charts 19 and 20, the least costly alternatives are K1 for Kappe' and S3 for SAR
(using cash recycling machines separately), followed by J1A (joint collaboration in using cash
recycling machines). Despite large cost savings in alternative S4 (using drop-in safes), due to low
transparency of the process, it is not considered a suitable choice by SAR. Alternative J2 is
disregarded by both companies since there is no indication of other retailers' willingness to join
Kappe' and SAR. Furthermore, as shown in analyses, it is expected to cause administrative
complications and little/no additional cost savings. Alternative J3 imposes costs of renting of two
separate back offices without the possibility of sharing all machines to reduce technology costs.
Moreover, rent fees and internal costs (staff costs) are excluded from the calculations. Therefore,
there is no clear estimate of the total costs to be incurred by Kappe' and SAR.
Given the total costs and the aforementioned reasons, the final decision has to be made between
the separate and joint alternatives with application of cash recycling machines (i.e. selection of K1 by
Kappe' and S3 by SAR as opposed to selection of J1A by both companies). Before implementation is
done, it is a good idea to once again the number of machines as determined before. These are
revised in Table 51.
83
Table 21: Comparing number of recycling machines in alternatives K1, S3, and J1A
Separate alternative
Kappe' (K1)
SAR (S3)
Joint alternative for
Kappe' and SAR (J1A)
Loune1
1
1
1
Lounge 2
1
1
2
Lounges 3&4
1
1
2
As it can be seen, collaboration in lounges 2, 3 and 4 would be done with the same total number of
machines as when cash handling is done separately by Kappe' and SAR. Therefore, the technology
costs would be equal irrespective of the selected alternative. On the other hand, in the joint
alternative, additional costs of a joint cash office would be incurred and administrative tasks would
become more complex. With attention for pros and cons of a joint alternative managers of Kappe'
and SAR have decided to adopt the separate solution for lounges 2, 3 and 4.
In lounge 1, if the companies worked separately each would need to pay for one machine whereas in
a joint cash handling process only 1 machine would suffice. Hence, technology costs for lounge 1
would be lower in the joint alternative. However, working together requires sharing a cash office
and dividing administrative tasks which would in turn result in lower transparency. Therefore, a
choice needs to be made between:
1. Joint use of cash recycling machines in lounge 1 and separate use of cash recycling machines
in the other lounges
2. Separate use of cash recycling machines in lounge 1 as well as the other lounges
The following calculations are an effort to find the answer to this question.
1.1.1. Joint use of cash recycling machines in lounge 1 and separate use
of cash recycling machines in the other lounges (J1BI)
In this lounge Kappe’ and SAR have 31% and 69% of transactions respectively. Therefore, joint costsII
should be divided accordingly. Table 52 shows costs of different categories and total costs for this
case.
I
Note that J1B is similar to J1A in terms of number of cash recycling machines in each lounge, but differs in the
sense that it suggests collaboration in cash handling only in lounge 1.
II
Joint costs include wages paid of cash office manager, ABN-AMRO fees, machine costs, and joint cash office
rent.
84
Table 22: Joint use of cash recycling machines in lounge 1
Kappe’
Cost category
Cost driver
Cost (€)
Cost driver
amount/
number
Cost (€)
2,640
66,405
1,854
60,577
Euro seal bags
391
1,271
871
2,831
Foreign seal bags
270
878
602
1,957
Technology costs
Number of
machines
1 shared
3,923
1 shared
8,727
Joint cash office rent
Shared office
area (sq. m)
12
2,233
12
4,967
Staffs' cash handling tasks
ABN-AMRO fees (excluding
coin orders and
compensation)
Cost driver
amount/
number
Annual time
(hours per year)
SAR
Total (excluding coin orders
and compensation)
74,710
79,059
As shown in separate alternatives for Kappe’ and SAR, if the two companies start working separately
in lounges 2 and 3, each of them needs one set of recycling machines in each lounge. Table 53
shows the cost drivers in this case.
Table 23: Separate use of cash recycling machines in the lounges 2 and 3
Cost category
Staffs' cash handling tasks
Cost driver
Cost driver amount/
number
Kappe’
SAR
Annual time (hours per
year)
5,013
3,223
ABN-AMRO fees (excluding coin orders and
compensation)
Euro seal bags
1,825
599
Foreign seal bags
1,262
414
Technology costs
Number of machines
2 separate
2 separate
Joint cash office rent
Shared office area (sq.
m)
-
-
Costs for Kappe' and SAR have been calculated and presented in Table 54 and Table 55, respectively.
85
Table 24: ABC for Kappe’ for alternative J1B
cost per Euro
of
transaction
(€)
share in total
costs
Percentage
change
compared to
current
situation
Cost category
Cost (€)
cost per
transaction
(€)
Staffs' cash handling tasks
197,729
0.28
0.0277
136%
-31%
ABN-AMRO fees (after
compensation)
-87,361
-0.12
-0.0122
-60%
-2081%
Technology costs
33,080
0.05
0.0046
23%
36%
Joint cash office rent
2,233
0.00
0.0003
2%
2233
Total (after compensation)
145,681
0.20
0.0204
100%
-54%
Share in total
costs
Percentage
change
compared to
current
situation
I
Table 25: ABC for SAR for alternative J1B
Cost category
Cost (€)
Cost per
transaction
(€)
Cost per Euro
of
transaction
(€)
Staffs' cash handling tasks
164,001
0.09
0.0041
111%
-28%
ABN-AMRO fees (after
compensation)
-59,121
-0.03
-0.0015
-40%
-164%
Technology costs
37,884
0.02
0.0009
26%
Joint cash office rent
4,967
0.00
0.0001
3%
Total (after compensation)
147,732
0.08
0.0037
100%
II
-54%
1.1.2. Comparison between J1B, and K1 and S3
Table 56 allows a comparison between total costs of separate alternatives and joint only in lounge 1
for Kappe' and SAR.
Table 26: Comparison between J1B, and K1 and S3
Costs for Kappe’(€)
Cost category
I
II
Costs for SAR(€)
Alternative
J1B
Alternative
K1
Alternative
J1B
Alternative
S3
Staffs' cash handling tasks
197,729
204,184
164,001
159,824
ABN-AMRO fees (after compensation)
-87,361
-87,358
-59,121
-55,042
Machines
33,080
41,807
37,884
41,807
Joint cash office rent
2,233
-
4,967
-
Total costs (after compensation)
145,681
158,633
147,732
146,589
Including coin orders
Including coin orders
86
As it can be seen in the table above, inequality of share of companies in transactions in lounge 1
results in different levels of cost saving for Kappe' and SAR (€12,952 more saving for Kappe'
compared to K1 as opposed to €1,1143 less saving for SAR compared to S3). Hence, if the basis for
cost distribution between companies is share in total transactions, alternative J1B might be favoured
by Kappe', but not SAR. It should be noted that the companies can reach an agreement on this issue
(e.g. Kappe' compensates SAR for lower saving through J1B). However, this alternative results in
differences in processes in lounges (i.e. joint cash handling in lounge 1 and separate in other
lounges). Consequently, Kappe' and SAR prefer not to select this alternative to avoid such a
discrepancy. Moreover, due to complications of administration in a joint process it is recommended
for Kappe' and SAR to work separately in lounge 1 similar to the other lounges.
1.2. Implementation
Change is a common thread among companies. New solutions or procedures once assessed are
compared and the appropriate one is selected based on the relevant criteria. The next step would be
implementation of the chosen solution. The ultimate success of these solutions is indebted to proper
change management and a structured implementation plan. This holds also for the cash handling
solutions selected by Kappe' and SAR. The purpose of this section is to provide general guidelines for
implementation of the selected alternatives. It can be used by Kappe' and SAR to compare their
approaches to implementation with Change Model and trace the potential deficiencies. This
cornerstone model was developed in the 1940s by Kurt Lewin for managing organizational changes.6
It states that successful implementation of a change involves three steps:
1. Unfreeze: discarding (unlearning) old behaviours and methods, and destabilizing
(unfreezing) the existing quasi-stationary equilibriums to create motivation and preparation
for change
2. Change (or moving): identifying, evaluating, and adopting a new solution
3. Refreeze: stabilizing a new quasi-stationary equilibrium to safeguard the new solution from
regression 44
Shifting from the current systems to the new one in these steps can reduce potential resistance,
conflict, or failure. A number of activities need to be carried out in each step. These are explained
below.
Unfreeze
Preparing the organization and the involved staff for breaking the status quo is a necessary
prerequisite for introducing a new solution. In this regard, Kotter and Klein emphasized the
importance of creation of a sense of urgency and communication of plans. Therefore, it is needed to
pay attention to different stakeholders.
Given their criticality the stakeholders should be involved in the process (see Appendix 2). Support of
Schiphol Group needs to be ascertained. In addition, employees and store supervisors need to be
informed of the upcoming change in the cash handling process. Explaining the advantages of the
new system compared to the current system will reduce resistance to change by creating an
emotionally calm environment for employees.45
87
Informing ABN-AMRO and GWK Travelex of the effect of changes in advance of implementation, can
provide sufficient time for negotiations which may result in even more cost savings than estimated
for separate alternatives for Kappe' and SAR. Overall, re-examining the current procedures helps
"effectively create a (controlled) crisis, which in turn can build a strong motivation to seek out a new
equilibrium".6
Change
Once a sense of urgency for change is created and the status quo is destabilized, the required
measures can be taken to adopt the new solution. These measures are as follows.
1. Prepare the infrastructure: Any hardware used in the current systems which is not needed for
the new system needs to be decided upon and prepared for removal. The provider of new
hardware and software needs to be contacted so that agreement is reached and purchasing
arrangements are made.
2. Coordinate with the organizations involved in implementation: Communication with staffs
initiated in the unfreezing step, needs to be continued. Moreover, arrangements need to be
made with ABN-AMRO about the frequency of delivery of change, and provision of reports of
deposited amounts.
3. Implement initial training: It is required for both employees and supervisors to attend general
coaching sessions with major instructions. As the infrastructure is being prepared for
installation, supervisors should also be trained about the new procedures and their tasks with
regards to ordering and handling change, monitoring transactions of employees, skimming the
machines and investigating discrepancies.
4. Install the production solution, convert the data, and Perform final verification in production:
Unnecessary hardware must be removed from the cash offices. Then purchased cash recycling
machines should be placed in the selected locations in each lounge. Required arrangements for
the cash machine should be made. For instance with attention for the share of each currency in
transactions of each lounge, the escrows on the machines must be organized. After that,
software needs to be configured and prepared for use. In case of differences in data formats,
they should be converted to suit the new system.
5. Implement new processes and procedures: Once installation, data conversion and verification is
finalized the new system can be rolled out. It is possible for Kappe' and especially SAR to start
using the new system firstly in only one lounge. After confidence is achieved in proper
functioning, the implementation can be completed by rolling out the solution in the other
lounges as well.
6. Implement on-the-site training: Apart from general training sessions and training of supervisors,
it is important to familiarized employees with using cash recycling machines. This can be done by
having a supervisor assist individual employees in withdrawing and depositing money at the
start and end of their shifts for a proper period of time (depending on the number of employees
and their speed of learning).
Employees should be taught to cooperate with each other. One example is in providing
additional change during the shifts. Employees can contact someone who is going to start
working shortly to take along their needed change. In this way, they can save time, and the
availability rate for customer service will be improved.
88
Refreeze
Once the change has been completed, it is crucial to monitor the functioning of the solution. It must
be ensured
d that the change is internalized and incorporated into everyday business.46 As a part of
monitoring, on-the-site
site training should be continued until it can be claimed with certainty that all
employees know how to use the machines.
machines. At that point, this training can be stopped.
It is of major importance to sustain the new system of cash handling by establishing feedback loops.
The new process should be constantly re-evaluated
re evaluated and necessary improvements should be made
through
Providing (and later revising) procedural guidelines for
• Carrying out cash handling activities at different times during the day
• Handling technical issues such as machine breakdowns
• Maintaining the security of procedures and dealing with robbery and cash shrinkage
• documentation of collections and deposits, and tracking of cash
• Segregation of duties for clarity in roles and responsibilities to achieve a transparent 47 (see
Table 85 for division of tasks)
Establishing proper ways and channels of communication
communicat
between
Employees with each other
• Employees and store supervisor
• Store supervisor and the bank
• Store supervisor and company officials (department of finance and/or security)
The implementation steps are summarized in Figure 33. The system will operate as shown in
Figures 12 and 13 in chapter 3.
Unfreeze
•determine what needs
to change
•communicate the
change and create a
sense of urgency
•seek support of
stakeholders
Change
•Prepare the
infrastructure
•Coordinate with
different parties
•Implement initial
training
•Install the solution, and
convert the data,
•verify proper functining
and roll out the solution
•Implement on-the-site
training
Refreeze
•sustain
sustain the changes
•continue
continue providing
support to the staff
•create
create feedbakc loops
•re-examine
examine the process
constantly for
opportunities of
improvement
Figure 29: Implementation steps
89
Summation
In this chapter, the cash handling processes proposed in chapter 6 were compared and the
selection among them was made based, mainly, on total costs. The alternative selected by
both Kappe' and SAR was independent use of cash recycling machines and signing a contract
with ABN-AMRO. The implementation steps were explained using Lewin's change model in
order to successfully prepare for, adopt and maintain an efficient process.
Chapter 8 will focus on testing the prudence of the selected processes.
90
Chapter 8:
Reassessment of choices
This chapter will be dedicated to the final research question to be answered which is "How might
Kappe' and SAR's choice of alternative change in the future?" This question consists of two subquestions:
•
•
How would the alternatives be ranked for Kappe' and SAR with a multi-criteria decision
making approach?
How would the trends in share of cash as a payment instrument influence Kappe' and SAR's
decision with regards to the suitable alternative?
To answer the first sub-question AHP methodology will be used to find the best cash handling
process for Kappe' and SAR. The results will then be compared with the alternatives selected by
Kappe' and SAR to be selected as discussed in chapter 6.
Answering the second sub-question requires looking at expected trends in cash payments.
Investigation of these trends, as mentioned previously, is not part of this research and has been
done in another research done in parallel. However, the outcomes of that research will be used as
an input to test the impact of cash trends on costs of cash handling in the proposed alternatives. In
this manner, it can be decided whether the selected alternatives would remain favourable in the
coming years.
Figure 34 shows the focus of chapter 8 as part of the research.
Literature review of cost components of cash handling
Current cash handling processes
ABC on sources of costs
Assessment criteria and benchmarks
Success
criteria
Alternative solutions
Selection and implementation
Prudence of
selected
alternatives
in the long term
Reassessment of choices
Opinions on
importance of
criteria, trends in
cash payments
Conclusion and recommendation
Figure 30: Focus of chapter 8
91
8.1. Multi-Criteria Decision Making: an AHP methodology
"Multi-criteria decision making (MCDM) refers to making decisions in the presence of multiple,
usually conflicting, criteria".2 One of the methods used in MCDM is Analytic Hierarchy Process (AHP).
AHP was developed by Saaty in 1970th. In this method, numerical pair-wise comparisons between
criteria are used to derive the priority vector. The different alternatives are then assessed on the
criteria and finally an overall ranking of them is attained.3 This approach "organizes tangible and
intangible factors in a systematic way, and provides a structured yet relatively simple solution to the
decision-making problems".4 5
Multi-Criteria Evaluation has been considered a fundamental step in many rational decision making
processes. Such an evaluation will provide insight into strengths, weaknesses and overall utility of
different options.
8.1.1. Applications of AHP
Due to the inherent trade-off between different factors decision making in environmental projects is
complex and intractable. The process entails accounting for several criteria some of which cannot be
easily quantified. Conflicts in stakeholders' preferences might also arise. Research in the area of
multi-criteria decision analysis (MCDA) has led to practical methods for applying scientific decision
theoretical approaches to complex multi-criteria problems. Some of the applications of AHP as a
MCDA tool, has been in prioritization of alternatives and selection of remedial technologies.48
AHP has been used to structure and clarify "the relations and importance between human
performance improvement and the style of management". It helps assess relevant criteria critically
and logically to assist in making sensible decisions.49 It has also been applied in determining the
relative weights of evaluation criteria in a multi-criteria decision making (MCDM) approach to assess
the mobile phone options in respect to the users' preferences order.50 Furthermore, there is
evidence of application of AHP for selecting a multi-media authorization system (MAS) by identifying
and rankig of products with attention for perspective og group members.51
Albeit Kappe' and SAR are mainly concerned with costs of cash handling, they also have an interest
in some other criteria. Recall from chapter 4 the success criteria derived:
A.
B.
C.
D.
Costs
Available time for core activities of employees
Risks and potential security issues involved in a process
Ease, transparency and uniformity of the process at different shops
Considering the involvement of several parties in the decision making process and its strategic
significance, a Multi-Criteria Decision Making method allows Kappe' and SAR to revise prioritizing
judgments at a later stage and update their decisions as new circumstances arise.
Generally, a Multi-Criteria Evaluation consists of
•
•
multiple alternatives (alternative solutions for cash handling in the study at hand)
multiple criteria (criteria of importance for different stakeholders in the case at hand as
discussed before),and
92
•
multiple evaluators (different people directly involved in the cash handling processes of
Kappe’ and SAR or appointed as supervisors). 52
Here, Analytic Hierarchy Process (AHP) will be used as in order to incorporate the four success
criteria into the decision making process for Kappe' and SAR.
8.1.2. AHP methodology: calculation steps
Step 1: The decision problem is decomposed into a hierarchy with a goal on top, criteria (and subcriteria if any)at the levels, and decision alternatives at the bottom. The criteria are shown in figure
and briefly explained below.
A. costs
Costs used in multi-criteria assessment are non-staff costs (i.e. they include bank/ CiT Company fees,
technology costs, and rent costs of joint cash office, if any, while they exclude employee and
administrative wages). Availability rate for customer service is calculated based on the amount of
time employees spend on cash handling tasks. Accordingly, using the corresponding costs in the first
criteria would result in conflict of criteria.2 Furthermore, the total working hours of staff remain the
same irrespective of the internal costsI. This means the total employee wages (for all tasks including
cash handling and sales tasks) would be equal in the current systems and suggested alternatives and
employee costs are not an additional expense category in general. It is needless to say that the goal
of efficiency of cash handling is highly reliant on lower costs.
B. Availability rate for customer service
For each alternative, availability rate for customer service is equal to
1−
averagetimespentoncashhandlingtasksbyeachemployeeineachshift
totalworkingtimeofeachemployeeineachshift
The larger the availability rate for customer service, the better the alternative is with regards to the
second success criteria.
C. Risks
To quantify the risks as part of the AHP methodology, the risk assessment of alternatives have been
used. Numbers 1,2 and 3 have been assigned to risk ratings of L (Low), M (Medium), and H (High) for
each of the risks in a given alternative. Then an average of these numbers has been used as the
overall risk of the alternative to be used as the input for AHP methodology. A larger risk number has
a negative implication.
D. Transparency and uniformity
In a transparent cash handling process, tasks and roles are clearly defined, the amounts handled can
be known for each individual employee, and there are little possibilities for cash shrinkage. If the
same cash handling process is used for all stores of one company, it is possible to rotate the
employees across stores without having them undergo additional training to work in different
I
Internal costs of cash handling are the costs incurred due to the time spent on cash handling tasks by
employees and administrative staff.
93
systems. Given the level of transparency and uniformity of suggested alternatives, numbers 1, 2 and
3 are assigned to them. A larger number is a representative of a better solution in terms of the
fourth success criteria.
Step 2: A pair wise comparison between the criteria is done between the criteria using Saaty's ninepoint scaleI. The decision matrixII can be completed based on these numbers. The pair-wise
comparison should be done also for the next level of criteria (if any). For the complete descrption of
Saaty's scale see Appendix 6.
Step 3: The weights for the criteria (and sub-criteria) should be calculated as explained in Appendix
6.
Step 4: The inconsistency index should be calculated using
CI =
λmax − N
N−1
This shows how consistent the decision maker's judgments in the evaluations are. A CI close to zero
indicates a consistent assessment. If CI is smaller than 0.1 AHP results are considered consistent.
Consistency ratio is equal to
CR =
CI
CI;
CIR is the corresponding index of consistency for random judgements shown in the second row of
Figure 35. The upper row is the order of the random matrix.
Figure 31 :CIR
49
A higher consistency ratio reflects the randomness in and thereby untrustworthiness of the
assessment and calls for reconsideration of assessment.
Step 5: Similarly, pair-wise comparisons need to be carried out for alternatives with respect to each
criteria and the corresponding consistency ratios must be calculated.
Step 6: The product of local weight of each individual alternative with respect to each criteria must
be calculated and then summed up with the other product results. In this manner, the overall
ranking of alternatives can be attained.49
The comparison matrix has been completed by a person from each company to reflect the priorities.
This would be the input for the AHP model to derive the weights for criteria A, B, C and D from the
perspective of each company.
I
In Saaty's nine-point scale Numbers 1 to 9 are used to indicate the intensity of importance of one criterion
over another.
II
Decision matrix is an n*n matrix in which n is the number of criteria
94
Once developed, each alternative will be assessed on the four major criteria. Then, the assigned
weights will be used to compare the alternatives for each company with regard to each criterion and
also on the whole.
Note that in the case at hand, in order to select the most efficient cash handling alternative as the
goal of the hierarchy, criteria A and C must be at their minimum while criteria B and D need to be at
a maximum. Thus, negative signs need to be used for A and C in overall calculations.2
8.1.3. Reassessment of Kappe's choice based on AHP results
Table 57 provides an overview of different alternatives proposed for Kappe’.
Table 27: Overview of different alternatives for Kappe’
A
B
C
D
Alternative K1
-45,551
97.92%
1.8
3
Alternative K2
116,597
96.38%
1.2
2
Alternative K3
133,997
97.92%
1.5
3
Alternative J1A
-33,876
97.82%
1.8
3
Table 58 shows the pair-wise comparisons of criteria done by a representative of Kappe'.
Table 28: Pair-wise comparison of criteria for Kappe'
I
A
B
C
D
A
1
6
5
5
B
1/6
1
2
3
C
1/5
1/2
1
1
D
1/5
1/3
1
1
Using AHP algorithm, Eigen vectors for alternatives can be calculated which lead to weights shown in
Table 59. The consistency ratio is an acceptable 8%.
Table 29: AHP results for Kappe’
A
B
C
D
Total
Ranking
Assigned weights
0.63
0.18
0.10
0.09
-
-
Alternative K1
-0.2661
0.2511
0.2857
0.2727
0.20882
1
Alternative K2
0.6812
0.2471
0.1905
0.1818
-0.38735
3
Alternative K3
0.7828
0.2511
0.2381
0.2727
-0.44726
4
Alternative J1A
-0.1979
0.2508
0.2857
0.2727
0.165799
2
I
The number in each cell represents the importance of corresponding row over the corresponding column. If
the corresponding row is less significant the inverse number should be used.
95
Conclusion
By looking at the ranking of alternatives, it can be seen that alternative K1 (using 3 cash recycling
machines and working with ABN-AMRO) is the best choice for Kappe' with attention for not only
costs, but also availability rate of employees for customer service, risks and transparency of the
process. This evidence substantiates the properness of the alternative selected by Kappe' to be
implemented.
8.1.4. Reassessment of SAR's choice based on AHP results
Table 60 provides an overview of different alternatives proposed for SAR.
Table 30: Overview of different alternatives proposed for SAR
A
B
C
D
Alternative S1
133,807
98.34%
1.4
3
Alternative S2
7,534
93.30%
1.5
3
Alternative S3
-13,235
98.34%
1.8
3
Alternative S4
100,620
99.12%
1.5
1
Alternative J1A
-1,560
97.82%
1.8
3
Table 61 shows the pair-wise comparisons of criteria done by a representative of SAR.
Table 31: Pair-wise comparison of criteria for SAR
A
B
C
D
A
1
5
8
9
B
1/5
1
5
3
C
1/8
1/5
1
1/3
D
1/9
1/3
3
1
Eigen vectors for alternatives and then weights have been calculated and are shown in Table 62. The
consistency ratio is 8% which is an acceptable number.
Table 32: AHP results for SAR
A
B
C
D
Total
ranking
Assigned weights
0.66
0.20
0.05
0.09
-
-
Alternative S1
-0.3645
0.2815
-0.2961
0.3514
-0.1675
5
Alternative S2
-0.2273
0.2246
-0.2443
0.2703
-0.0930
4
Alternative S3
-0.1988
0.1707
-0.1888
0.1892
-0.0895
3
Alternative S4
-0.1462
0.1636
-0.1221
0.1081
-0.0602
2
Alternative J1A
-0.0631
0.1596
-0.1487
0.0811
-0.0099
1
Conclusion
By looking at the ranking of alternatives, it can be seen that joint cash handling and then use of dropin safes are the first and second preferred alternatives. This indicates that these alternatives might
96
have been preferred by SAR if all the criteria were accounted for in choosing between alternatives.
Kappe's preference for separate cash handling process and the complications of joint cash handling
justifies the fact that SAR did not select a joint cash handling process. On the other hand, although
using drop-in safes imposes relatively low costs, it is a rather old fashioned process with lower
transparency than favoured by SAR. Consequently, it can be claimed that selection of alternative 3
(using 3 cash recycling machines and working with ABN-AMRO) is the right decision.
8.2. Cash trends and their effect on selection of the proper alternative
By looking at quantitative cost estimates and qualitative analyses of different alternatives, K1 and S3
(using 3 cash recycling machines and working with ABN-AMRO) were selected by representatives of
Kappe' and SAR to be implemented. However, changes in some factors in the future might call for a
revision of decision made. In other words, the selected solutions might no longer be considered
suitable in the future.
One inevitable change is the trend in use of cash as a payment method by customers. Since use of
electronic payment methods has been becoming more common among people, there is uncertainty
whether the selected solution would be still considered appropriate in the coming years.
To ensure the properness of the method, it is firstly required to forecast the trends in cash
payments. An increasing trend, justifies large investments in cash handling to achieve more
efficiency, while in case of a decreasing trend it might be wiser to make more incremental
improvements in the processes. Also, the effect of trends on the costs pattern over the coming years
should be taken into consideration to ascertain that the change in cash payments will not lead to
more cost efficiency of a different alternative after a few years. For this purpose, the costs of
different alternatives in the coming years should be estimated based the cash trends. A comparison
between these costs clarifies whether the selected solution would be still considered suitable if the
use of cash changes.
8.2.1. Reassessment of Kappe's choice based on cash trends
The forecasts of cash payments for Kappe' are shown in Chart 21. I
I
This has been done in a separate thesis done by Baris Ozkale.
97
6,000,000
5,000,000
4,000,000
Actual
3,000,000
Forecast
Linear (Forecast)
2,000,000
1,000,000
2008
2008
2008
2009
2009
2010
2010
2010
2011
2011
2012
2012
2013
2013
2013
2014
2014
2015
2015
2015
2016
2016
2017
2017
0
Chart 21: Forecast of trends in cash payments for Kappe’
53
As it can be seen, the trend for use of cash at Kappe' is a growing one. The cost pools that may be
affected by the increase in use of cash include time required for cash handling and administration,
and fees paid to ABN-AMRO or GWK-Travelex. Table 63 shows the cost pools that would be affected
in each alternative if use of cash changes according to chart.
Table 33: Impact of trends in cash payments on cost categories for Kappe’
Current system
Alternative K1
Alternative K2
Alternative K3
Alternative J1A
start
end
during
administration
fees
Based on the possible changes in cost categories costs of different alternatives have been estimated
for the coming years. Table 64 shows the estimations for the total costs of proposed alternatives.
Table 34: Costs of different alternatives for Kappe’ with the impact of trends in cash payments
Year
2013
2014
2015
2016
2017
Cost of alternative (€)
Current system
Alternative K1
Alternative K2
Alternative K3
Alternative J1A
315,513
320,922
326,218
331,162
335,892
158,633
154,462
150,369
146,562
142,882
370,697
412,882
422,128
430,741
439,001
335,286
342,778
346,971
350,860
354,584
181,217
176,452
171,776
167,427
163,223
98
Chart 22 depicts the trends in cash payments and the concomitant changes in costs of different
alternative processes for Kappe'.
500,000
450,000
400,000
350,000
current system
300,000
1K
250,000
2K
200,000
3K
150,000
joint alternative
100,000
50,000
0
2013
2014
2015
2016
2017
Chart 22: Costs of different alternatives for Kappe’ with the impact of trends in cash payments
Conclusion
Chart shows that not only alternative K1 (i.e. separate use of 3 cash recycling machines) is less costly
than the other alternatives, it will remain the least costly alternative for Kappe' in the coming years.
This can be mainly attributed to the growth in the amount of foreign currencies as a result of rising
cash trends which would be followed by a larger compensation received from ABN-AMRO. The
magnitude of growth in compensation would compensate for the increase in costs of administration
(due to more skimming) and costs of seal bags (caused by more deposited seal bags).
A comparison between costs of S3 with other alternatives shows that while the expected increase in
The forecasted trend for use of cash is expected to enlarge the costs of alternatives K2 and K3 and
the current system. Costs for the joint alternative will fall at a rate close to that of alternative K1.
However, this alternative will still be more costly for Kappe' in the next few years. It can be
concluded that given the trends in cash payments, the selected alternative by Kappe' is a sensible
choice.
99
8.2.2. Reassessment of SAR's choice based on cash trends
The forecasts of cash payments for SAR are shown in Chart 23. I
6,000,000
5,000,000
4,000,000
3,000,000
Forecast
Linear (Forecast)
2,000,000
1,000,000
2008
2008
2008
2009
2009
2009
2010
2010
2010
2011
2011
2011
2012
2012
2012
2013
2013
2013
2014
2014
2014
2015
2015
2015
2016
2016
2016
2017
2017
2017
0
Chart 23: Forecast of trends in cash payments for SAR
53
As it can be seen, the use of cash at SAR is expected to grow in the coming years. The increase in use
of cash can affect some of the cost pools of different alternatives namely time required for cash
handling and fees paid to ABN-AMRO or GWK-Travelex. In Table 65, the cost pools that would be
affected in each alternative are indicated with a check mark.
Table 35: Impact of trends in cash payments on cost categories for SAR
Current
system
Alternative
S1
Alternative
S2
Alternative
S3
Alternative
S4
Alternative
J1A
start
end
during
administration
fees
With attention for the change in cost categories in different alternatives, their costs have been
estimated for the coming years. Table 66 shows the expected change in the total costs of proposed
alternatives as a result of trends in cash payments.
I
Similar to Kappe', this has been done in a separate thesis done by Baris Ozkale.
100
Table 36: Costs of different alternatives for SAR with the impact of trends in cash payments
Cost of alternative (€)
Year
Current
system
Alternative S1
Alternative S2
Alternative S3
Alternative S4
Alternative
J1A
2013
321,952
327,573
333,580
339,991
346,830
290,651
292,919
295,233
297,754
300,488
278,382
278,393
278,406
278,419
278,434
146,589
145,514
144,360
143,121
141,823
171,724
173,502
175,403
177,431
179,594
182,420
181,082
179,646
178,105
176,489
2014
2015
2016
2017
The trends in cash payments and the concomitant changes in costs of different alternative processes
for SAR are depicted in Chart 24.
400,000
350,000
300,000
current system
250,000
1S
200,000
2S
3S
150,000
drop-in safe
100,000
joint alternative
50,000
0
2013
2014
2015
2016
2017
Chart 24: Costs of different alternatives for SAR with the impact of trends in cash payments
Conclusion
As it can be seen for alternative S3 not only the total cost is lower than the other alternatives at the
moment, but also it is going to decrease despite the growth in cash payments. This can be explained
by paying attention to the effect of cash trends especially on the amount of foreign currencies. The
increase in use of cash is expected to increase the foreign currencies deposited and this in turn
would result in a higher compensation received from ABN-AMRO. This compensation would offset
the increase in costs of administration (due to more skimming) and costs of seal bags (caused by
more deposited seal bags).
A comparison between costs of S3 with other alternatives shows that while the expected increase in
use of cash leads to a growing fall, the costs of other alternatives would rise or remain constant.
Therefore, it can be concluded that given the expected trend in cash payments, alternative S3 is still
the proper choice for SAR. It can be concluded that alternative S3 (the selected alternative by SAR) is
a prudent choice considering the trends in cash payments.
101
Summation
In this chapter two tools were used to re-evaluate the cash handling processes selected by
Kappe' and SAR. Firstly, Analytic Hierarchy Process helped rank the alternatives proposed in
chapter 6 and compare the top processes with Kappe' and SAR's choice. The results
confirmed the selection of alternative K1 for Kappe'. For SAR, it was found that alternatives
J1A and S4 might be preferred over the selected alternative (S3). However, given the
administrative complications of J1A and the low transparency of alternative S4, it is justifiable
that alternative S3 has been selected for implementation.
In the next step, based on forecasts of customers' cash payments in the coming years, it was
tested whether the trends in these payments, would justify the application of a different cash
handling process for each retailer than that currently selected for implementation. The
findings of both tools have confirmed that a sensible decision has been made by Kappe' and
SAR with regards to the proper cash handling process to be adopted.
102
Chapter 9:
Conclusions, recommendations, and
reflection
This section consists of the overall conclusions and recommendations which follow from the
research. The conclusions of this research summarized the findings to provide an answer to the
research questions specified in the first chapter. Recommendations focus on possibilities of further
research on cash handling processes at Amsterdam Airport Schiphol. Finally, the approach and
methodologies used will be revised and their effectiveness in answering the research questions will
be evaluated. Figure 36 shows the focus of chapter 9 as the final part of the research.
Literature review of cost components of cash handling
Current cash handling processes
ABC on sources of costs
Assessment criteria and benchmarks
Alternative solutions
Selection and implementation
Reassessment of choice
Conclusion and recommendation
Figure 32: Focus of chapter 9
9.1. Conclusion
In this research current cash handling processes at Kappe' and SAR were investigated and the
sources of costs were identified. In Kappe's old system, due to significant reliance on staff for cash
handling, this category has a share of 84% in total costs. In Kappe's new system thanks to use of cash
recycling machines less time needs to expended by staff on cash handling tasks In addition the
number of seal bags and fees paid to ABN-AMRO is reduced (note that because of compensation by
ABN-AMRO fees paid are negative). The total costs of cash handling for Kappe' are €316k which is
equivalent to €0.0078 per Euro transaction. At SAR, similar to Kappe's old system, manual cash
handling results in a 71% share of staff in cash handling and a total cost of €322k. This corresponds
to €0.0080 per Euro of transaction.
In the next step of the research, success criteria were derived based on stakeholders' interests and
criticality of involvement. These include: costs, availability of employees for customer service, risks,
and transparency ad uniformity in the cash handling process. In addition, organizational and
103
technological benchmarks were defined by observing successful cash handling processes of other
retailers.
Using the acquired insight, alternative cash handling processes were developed and compared. Since
Kappe' and SAR have a major interest in cost savings, they have decided to, separately, use one set
of cash recycling machines in each lounge (alternatives K1 and S3). Implementation of these
alternatives is expected to lead to 50% cost saving for Kappe' (total cost of €159k) and 54% cost
saving for SAR (total cost of €147k). The possibility of a joint cash handling process was assessed in
three alternatives (J1, J2, and J3). However, they are not considered favourable by representatives of
Kappe' and SAR. The reasons for this included additional costs imposed on companies (including
joint cash office costs and wages of cash office manager), organizational complications, uncertainty
about other retailers' willingness to join, and ambiguity of total costs.
As mentioned above, the selection was done almost merely based on cost estimates of different
cash handling processes. Therefore, it was essential to revise the choices with attention for
important factors and test their effect. To this purpose, firstly Analytic Hierarchy Process was used to
find the ultimate best alternative for each company. The results confirmed Kappe's choice of
alternative K1 (using cash recycling machines independently from SAR). As for SAR, alternatives S4
(using drop-in safes) and J1A (joint cash handling) were the first two recommendable alternatives.
However, due respectively, to ambiguity and complication of these processes, it is justifiable for SAR
to have opted alternative S3 (using cash recycling machines independently from Kappe').
The other factor that demanded reassessment of choices was the trends in customer cash payments
and their effects on the total costs of cash handling processes. Costs of the proposed alternatives
under the expected circumstances were estimated. They indicated that for both Kappe' and SAR, the
selected processes (K1 and S3) are the least costly and will remain so in the coming years. This
confirms that choices are plausible not only at this time, but also in the long run.
9.2. Recommendation
It is possible for the priority of success criteria (or even the criteria themselves) to change with time
or under different circumstances. In addition, it might be required to account for new criteria in
assessment of alternatives. Multi-criteria analysis provides such an opportunity and in such cases,
needs to be revised. If the results justify adoption of cash handling procedures other than those
selected, Kappe' and SAR should reconsider their choices.
It must be noted that there is a large need to change in cash transactions in the retail sector. By
applying smart pricing strategies, this need can be reduced. On the other hand, given the speed and
accuracy of electronic payments it is advisable for retailers to have a preference for non-cash
payments. However, cash is still a popular form of payment among customers and they should be
incentivized by retailers to make more used of cashless payment instruments. Special offers and
discount on purchases can be helpful in this regard.
Application of pneumatic tube systems by some retailers has proved useful and it is expected to
bring further cost savings for Kappe' and SAR as well. However, implementation of such a system
requires agreement between retailers at Amsterdam Airport Schiphol for a joint cash handling
process. In Appendix 7 this system and its costs are explained.
104
9.3. Reflection
As the starting point of the research, insight into the factors behind costs of cash handling was
required. Using available literature on sources of costs provided a general understanding of the
issue. For a more detailed picture of the costs in the current situation at Kappe' and SAR, it was
needed to identify their major cost categories. Total cost of cash handling consists of several
categories, and the project should be divided to discrete quantifiable units. To this end, ABC was
utilized which proved a successful choice of method.
In the next step, effective cash handling processes of other retailers were investigated to be used as
benchmarks. These complemented the comprehension of the current situation. Accordingly, new
cash handling procedures were proposed to meet the criteria of interest for Kappe' and SAR.
Since selection of the proper alternative was made based merely on total costs, it was considered
useful to test the robustness of the decisions using a Multi-Criteria Decision Analysis technique.
Given its previous applications in ranking and prioritization of alternatives, Analytic Hierarchy
Process was opted. This method was suitable also because it allows for using judgment of company
executives along with the underlying information. More importantly, it is easily possible to add
criteria or modify the pair wise comparisons between them as new circumstances arise.
Another measure for testing the prudence of selected alternatives was application of trends in cash
payments. Using these trends as input aided in estimating the potential changes in total costs of
different alternatives proposed for cash handling. The outcome provided further confidence in the
choices made by Kappe' and SAR for alternatives K1 and S3 and the chances of their success.
105
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Appendices
Appendix 1: Fundamentals of machine depreciation
Determinants of depreciation
Depreciation expenses of the recycling machines (like other similar assets) depend on:
1. Actual cost of asset: costs of an asset include all costs incurred for acquiring it. The decision on
number of machines will directly influence the expenses. Purchasing fewer machines results in
faster depreciation of them and therefore quicker replacement requirements. The number of
machines available for use in each period has an impact on up-front investments. Nevertheless,
the total investment in machines in a specific period will remain unchanged unless the price of a
machine was to rise.I However, having one machine has a number of disadvantages despite
lower upfront investments (e.g. longer waiting time for employees, and more risk of disruption
in the processes in case of a breakdown). These downsides will be discussed later in assessment
of risks.
2. Estimated salvage (residual or scrap) value of the asset: The salvage value is the estimated
amount that will be recovered at the point of selling the asset, discarding, or exchanging it for a
new asset at the end of its useful service life. Since, the salvage value in the current systems has
been excluded, we will now assume that the savage value of machines to be acquired will be 0
so that the comparison between suggested solution and current systems is more accurate.
3. Estimated useful life of the machine: useful life depends on
a. The intensity of use: The way a machine is put in to use has an impact on its useful life. For
instance using a machine at higher speed and shorter intervals (continuous operations) can
result in shorter useful life. Depending on the number of machines to be bought for each
lounge, intensity of use may vary. If machines are used as frequently as they are now in
Kappe's new system, they will be depreciated over 5 years. For other cases, the machine will
be depreciated faster/ more slowly and in the long term might need to be replaced with
another machine.
b. The standard of maintenance: Regular maintenance checks and servicing help preserve a
machine for a longer period of time. Similar to the current annual maintenance fees paid by
Kappe' shops in lounges 3&4, each set of machines will result in €2850 of maintenance costs
each year. If machines are used more often, more maintenance might be required, but since
maintenance costs are paid yearly, additional maintenance (required in case a machine is
used more intensively) will not be followed by any additional costs. In other words, for
simplification, it is assumed that intensity of use will not affect the maintenance costs paid.
I
A machine worth c today will be worth c/(1+r)^n in n years. This price in n years is as costly as price c today.
Therefore, as long as the price of a machine doesn't increase, the average annual costs for the machine will be
equal regardless of the number of machines owned at a time. Also, note that it is unlikely for the price of the
machine to rise since more state-of-the-art technologies will be introduced on the market by the time a
specific model of recycling machines becomes obsolete.
111
c. The replacement policy of the management: management might decide to replace a
machine after a period shorter than its expected physical life for different reasons such as
out-datedness or decreased operating speed.54 Useful life of recycling machines used in
calculations is 5 years. This is presumed 7 years for reconciliation software. Updating
agreements can be reached with the supplying company and will be provided in this period.
Therefore it can be claimed that replacement will be done only after the useful lives of
machines are over.
Depreciation method
The method used for calculating depreciation is straight line depreciation. In this method it is
assumed that "the asset will lose an equal amount of value each year". Therefore, annual
depreciation is calculated as:
annualdepreciation =
'<!*+& '!$* =&-" -< )1#+ && #
&#$%# ,<& 1<--$1 )1#+ && #
112
Appendix 2: Stakeholder analysis
Table 67 shows the complete stakeholder analysis and Table 68 shows the stakeholder types.
Table 37: Stakeholders analysis-complete
Stakeholder
Interest
Employees
Customers
Other retailers
Bank/
CiT company
Criticality
Power
Interest
Attitude
Stakeholder
type
reduce the total costs of cash handling
reduce the amount of time spent by staff
on non-core activities
reduce the risks involved in the process
improve performance
work with other retailers to benefit from
economies of scale
production
****
high
high
+
savior
•
•
•
spend less time on non-core activities
undergo minimum amount of training
have safe working conditions
Production
*
low
low to
medium
+/-
friend/
acquaintance
•
•
•
reduced waiting time
safe purchases
acceptability of different payment
instruments and currencies
N/A
*
low
low
+
acquaintance
•
•
Kappe' & SAR
management
Power
position
•
•
•
•
get better contract terms by cooperating
with Kappe' and SAR
•
•
•
maximize profit
have fewer unplanned services
reduce frequency of change delivery and
cash pick-ups
enhance the security of the process
•
production
production
**
high
N/A
low/hig
h
low
low
+
sleeping giant
+
acquaintance/
sleeping giant
Involvement
pay attention to the
stakeholder, harness their
support and maintain it
keep informed and maintain
their support
no action-keep informed if
needed
raise awareness about the
potential contributions of
the project and seek
positive input
keep informed of desired
changes-motivate to
contribute to the project
113
Schiphol Group
•
•
•
maximize profit
meet customers' requirements
ensure a safe work environment
diffuse
****
high
high
+
savior
pay attention t the
stakeholder, harness their
support and maintain it
Table 38: Stakeholder types
Type
Power
Interest
Attitude
Saviour
+
+
+
Friend
-
+
+
Sleeping giant
+
-
+
Acquaintance
-
-
+
Saboteur
+
+
-
Irritant
-
+
-
Time bomb
+
-
-
Trip wire
-
-
-
114
Appendix 3: Risk analyses
Tables 69 to 79 show the risk analysis for different cash handling processes discussed and Table 80 shows the risk impact matrix.
I
embezzlement while
composing cash advance and
turnover deposit
end of
shift
cash
shrinkage
mistake while composing
cash advance and turnover
deposit
cash
shrinkage
mistakes in exchanging
denominations/currencies
delay in delivery of change
money by GWK
responsible
party
cause
employee
employee's
dishonesty
end of
shift
employee
fatigue,
distractions
during
shift
supervisor
fatigue,
distractions
N/A
GWK value
transporter
external
factors (e.g.
traffic)
effect (who may be harmed)
Employees will need to spend
additional time to recount the
amounts.
There may not be sufficient change.
control measures
reduce employee
contact with cash
eliminate
counting by all
individuals
increase
supervision in
counting room
purchase a
counting
machine
eliminate
counting (even if
only for part of
the money)
Have an
agreement with
GWK about the
latest time by
which change
needs to be
rating
position
in the
chain
cash
shrinkage
cash
insufficiency
I
identified risks
impact
category
probability
Table 39: Risk analysis for current system for SAR
L
L
L
1
M
VLL
L
1
VL
VL
L
1
VL
L
L
1
Average risk rating to be used in AHP is 1.
115
delivered.
I
I
position
in the
chain
mistakes in counting start-up
float in seal bags
start of
shift
responsible
party
cause
effect (who may be
harmed)
control measures
rating
identified risks
impact
cash shrinkage
category
probability
Table 40: Risk analysis for Kappe's old system
employee
fatigue,
distractions
additional counting
time
dispute in
reconciliation
buy a counting machine
eliminate double counting
M
VLL
L
1
VLL
L
L
1
discourage fraud by
increasing the transparency
of the procedure
eliminate double counting
embezzlement while counting
the start-up float
start of
shift
employee
employee's
dishonesty
dispute in
reconciliation
mistakes while using the coin
machine
start of /
during
shift
employee
fatigue,
distractions
dispute in
reconciliation
N/A
VL
VL
L
1
mistakes exchanges for
denominations/currencies
during
shift
employee
store
manager
fatigue,
distractions
insufficiency of change
dispute in
reconciliation
maintain a safety stock
VL
VL
L
1
Average risk rating to be used in AHP is 1.1.
116
embezzlement in exchanges for
denominations/currencies
mistakes in counting
transactions amount
during
shift
end of
shift
employee
store
manager
employee
employee's
dishonesty
insufficiency of change
dispute in
reconciliation
Discourage such actions by
informing of severity of
consequences for staff
involved
maintain a safety stock
maintain a safety stock at the
shops to eliminate the need
for bank visits
fatigue,
distractions
dispute in
reconciliation
need for tracking the
dispute
buy a counting machine
leave (part of) counting to
third parties i.e. count only
sufficient amount for start-up
floats
employee
employee's
dishonesty
dispute in
reconciliation
need for tracking the
dispute
end of
shift
employee
fatigue,
distractions
additional time for
checking
embezzlement while taking seal
bags to the bank
end of
shift
employee
employee's
dishonesty
loss of invoices by ABN or
mistakes in reports
N/A
ABN-AMRO
mistakes by
bank staff
embezzlement while counting
transactions amount
end of
shift
mistakes in entering records to
reconciliation software
bank reports will not
be reconciled with the
amounts recorded.
VL
LM
L
1
M
L
L
1
L
L
L
1
seek assistance from shift
supervisor, offer training for
employees, adopt a userfriendly interface
L
VL
L
1
leave to third parties
limit the number of trusted
employees for the task
L
L
L
1
Discussions will take place
between Kappe' and the bank
to find the reason.
VL
M
L
1
discourage fraud by
increasing the transparency
of the procedure
leave (part of) counting to
third parties i.e. count only
sufficient amount for start-up
floats
117
robbery
robbery while travelling to and
from bank
robbery while taking seal bags
to the bank
during
shift
end of
shift
employee
insufficiency of
safety
measures
dispute in
reconciliation
employees may be
injured
reduce number of visits
select more secure times for
depositing
VL
M
L
1
employee
insufficiency of
safety
measures
money will be stolen
employees may be
injured
leave to third parties
keep the seal bags in the
store safe and postpone
depositing to more secure
periods
VL
H
M
2
I
I
variable
cause
employee
employee's
dishonesty
supplier
company
insufficiency of
maintenance
measures,
improper choice of
machine
effect (who may be
harmed)
employeed won't be
able to
withdraw/deposit
money
reconciliation cannot
be completed
treatment
control measures
rating
during shift
responsible
party
impact
machine breakdown
time of
occurrence
probability
category
embezzlement between
withdrawing start-up float
from the machine and
depositing the
transactions amount
technical issues
identified risks
cash shrinkage
Table 41: Risk analysis for Kappe's new system
mitigate
frequently check the
reconciliation software
for transactions data
and reconcile with sales
records
L
L
L
1
transfer
have the supplier carry
out regular
maintenance for the
machines
VL
MH
M
2
Average risk rating to be used in AHP is 1.8.
118
category
identified risks
embezzlement between
withdrawing start-up float
from the machine and
depositing the transactions
amount
I
supervisor
insufficiency of
safety measures
mitigate
VL
MH
M
2
mitigate
select the location of
the machines based on
distance to bank
deposit machines
VL
VH
M
2
control measures
frequently check the
reconciliation software for
transactions data and
reconcile with sales
records
L
L
L
I
cash
shrinkage
Table 42: Risk analysis for alternative K1
variable
insufficiency of
safety measures
purchase more
machines to reduce the
traveling distance,
reduce the number of
required visits
rating
robbery during depositing
the money collected on
the machine at the bank
employee
money will be stolen
employees may be
injured
impact
start of
shift/ end of
shift
probability
robbery
robbery on the way to the
work place after
withdrawing start-up
floats from the machine
or
on the way to P&C West
to deposit the
transactions amount
position in
the chain
during
shift
responsible
party
employee
cause
employee's
dishonesty
effect (who may be
harmed)
1
Average risk rating to be used in AHP is 1.8.
119
machine breakdown
I
variable
supervisor
insufficiency of safety
measures
supplier
company
insufficiency of
maintenance
measures, improper
choice of machine
money will be stolen
employees may be
injured
employees won't be
able to
withdraw/deposit
money
reconciliation cannot
be completed
purchase more machines
to reduce the traveling
distance, reduce the
number of required visits
VL
MH
M
2
select the location of the
machines based on
distance to bank deposit
machines
VL
VH
M
2
have the supplier carry
out regular maintenance
for the machines
VL
MH
M
2
I
identified risks
time of
occurance
responsible
party
cause
effect (who may
be harmed)
treatment
control
measures
rating
category
Table 43: Risk analysis for alternative K2
variable
employee
insufficiency of safety
measures
impact
technical issues
robbery during depositing
the money collected on the
machine at the bank
start of
shift/ end
of shift
probability
robbery
robbery on the way to the
work place after withdrawing
start-up floats from the
machine or
on the way to P&C West to
deposit the transactions
amount
Average risk rating to be used in AHP is 1.2.
120
cash shrinkage
Lounges 1 and 2
mistakes in counting startup float in seal bags
start of
shift
employee
fatigue,
distractions
additional
counting time
dispute in
reconciliation
mitigate
avoid
buy a counting
machine
eliminate
double
counting
M
VL-L
L
1
VL-L
L
L
1
embezzelment while
counting the start-up float
start of
shift
employee
employee's
dishonesty
dispute in
reconciliation
mitigate
avoid
discourage
fraud by
increasing the
transparency
of the
procedure
eliminate
double
counting
mistakes while using the
coin machine
start of
shift/
during
shift
employee
fatigue,
distractions
dispute in
reconciliation
accept
N/A
VL
VL
L
1
mistakes exchanges for
denominations/currencies
during
shift
employee
store
manager
fatigue,
distractions
insufficiency of
change
dispute in
reconciliation
avoid
maintain a
safety stock
VL
VL
L
1
121
embezzelment in
exchanges for
denominations/currencies
mistakes in counting
transactions amount
during
shift
end of
shift
employee
store
manager
employee
employee's
dishonesty
fatigue,
distractions
insufficiency of
change
dispute in
reconciliation
dispute in
reconciliation
need for tracking
the dispute
mitigate
avoid
disincentivize
such actions by
informing of
severity of
consequences
for staff
involved
maintain a
safety stock
maintain a
safety stock at
the shops to
elimiate the
need for bank
visits
VL
L-M
L
1
mitigate
buy a counting
machine
leave (part of)
couting to
third parties
i.e. count only
sufficient
amount fot
start-up floats
M
L
L
1
122
embezzelment while
counting transactions
amount
cash shrinkage
mistakes in entering
records to reconciliation
software
loss of invoices by GWK or
mistakes in reports
end of
shift
end of
shift
N/A
employee
employee
ABN-AMRO
employee's
dishonesty
fatigue,
distractions
mistakes by
bank staff
dispute in
reconciliation
need for tracking
the dispute
additional time
for checking
bank reports will
not be reconciled
with the amounts
recorded.
mitigate
discourage
fraud by
increasing the
transparency
of the
procedure
leave (part of)
couting to
third parties
i.e. count only
sufficient
amount fot
start-up floats
L
L
L
1
mitigate
seek assistance
from shift
supervisor,
offer training
for employees,
adopt a userfriendly
interface
L
VL
L
1
mitigate
discussions will
take place
between
Kappe' and the
bank to find
the reason.
VL
M
L
1
123
cash insufficiency
cash shrinkage
robbery
Lounges 3 and 4
delay in delivery of change
money by GWK
embezzlement between
withdrawing start-up float
from the machine and
depositing the transactions
amount
robbery on the way to the
work place after
withdrawing start-up floats
from the machine or
on the way to P&C West to
deposit the transactions
amount
N/A
during
shift
start of
shift/ end
of shift
GWK value
transporter
employee
employee
external
factors (e.g.
traffic)
there may not be
sfficient change.
employee's
dishonesty
insufficiency
of safety
measures
money will be
stolen
employees may
be injured
mitigate
have an
agreeement
with GWK
about the
latest time by
which change
needs to be
delivered.
VL
L
L
1
mitigate
frequently
check the
reconciliation
software for
transactions
data and
reconcile with
sales records
L
L
L
1
mitigate
purchase more
machines to
reduce the
traveling
distance,
reduce the
number of
required visits
VL
M-H
M
2
124
transfer
VL
M-H
M
2
during
shift
robbery on the way to the work
place after withdrawing start-up
floats from the machine or
on the way to P&C West to
deposit the transactions amount
start of
shift/ end
of shift
responsible
party
employee
employee
cause
effect (who may
be harmed)
employee's
dishonesty
insufficiency of
safety measures
money will be
stolen
employees may
be injured
treatment
control measures
rating
cash
shrinkage
embezzlement between
withdrawing start-up float from
the machine and depositing the
transactions amount
time of
occurance
impact
category
identified risks
I
supplier
company
have the
supplier carry
out regular
maintenance
for the
machines
I
robbery
Table 44: Risk analysis for alternative K3
variable
employeed won't
be able to
withdraw/deposit
money
reconciliation
cannot be
completed
probability
technical issues
machine breakdown
insufficiency
of
maintenance
measures,
improper
choice of
machine
mitigate
frequently check the
reconciliation software
for transactions data
and reconcile with sales
records
L
L
L
1
mitigate
purchase more
machines to reduce the
traveling distance,
reduce the number of
required visits
VL
MH
M
2
Average risk rating to be used in AHP is 1.5.
125
GWK value
transporter
external factors
(e.g. traffic)
position
in the
chain
responsible
party
cause
there may not be
sfficient change.
VL
MH
M
mitigate
have an agreeement
with GWK about the
latest time by which
change needs to be
delivered.
VL
L
L
treatment
control measures
rating
N/A
transfer
have the supplier carry
out regular
maintenance for the
machines
impact
delay in delivery of change
money by GWK
mitigate
frequently check the
reconciliation
software for
transactions data
and reconcile with
sales records
L
L
L
2
1
category
I
identified risks
cash shrinkage
Table 45: Risk analysis for alternative S1
I
variable
employeed won't
be able to
withdraw/deposit
money
reconciliation
cannot be
completed
probability
technical issues
cash
insufficiency
machine breakdown
supplier
company
insufficiency of
maintenance
measures,
improper choice
of machine
embezzlement between
withdrawing start-up float from
the machine and depositing the
transactions amount
during
shift
employee
employee's
dishonesty
effect (who may be
harmed)
1
Average risk rating to be used in AHP is 1.4.
126
cash insufficiency
technical issues
robbery
mistakes in exchanging
denominations/currencies
robbery on the way to the work
place after withdrawing start-up
floats from the machine or
on the way to P&C West to
deposit the transactions amount
machine breakdown
delay in delivery of change money
by GWK
during
shift
start of
shift/ end
of shift
variable
N/A
supervisor
fatigue,
distractions
mitigate
employee
insufficiency of
safety measures
money will be stolen
employees may be
injured
supplier
company
insufficiency of
maintenance
measures,
improper choice
of machine
employees won't be
able to
withdraw/deposit
money
reconciliation cannot
be completed
GWK value
transporter
external factors
(e.g. traffic)
There may not be
sufficient change.
VL
VL
L
1
mitigate
purchase more
machines to reduce
the travelling
distance, reduce the
number of required
visits
VL
MH
M
2
transfer
have the supplier
carry out regular
maintenance for the
machines
VL
MH
M
2
mitigate
have an agreement
with GWK about the
latest time by which
change needs to be
delivered.
VL
L
L
1
127
robbery
cash shrinkage
embezzlement while composing
cash advance and turnover deposit
I
position
in the
chain
end of
shift
responsible
party
employee
cause
employee's
dishonesty
mistake while composing cash
advance and turnover deposit
end of
shift
employee
fatigue,
distractions
mistakes in exchanging
denominations/currencies
during
shift
supervisor
fatigue,
distractions
supervisor
insufficiency of
safety
measures
robbery during depositing the
money collected on the machine
at the bank
variable
effect (who may be
harmed)
employees will need
to spend additional
time to recount the
amounts.
mitigate
control measures
rating
identified risks
impact
I
probability
category
Table 46: Risk analysis for alternative S2
reduce employee
contact with cash
eliminate counting by
all individuals
increase supervision in
counting room
L
L
L
1
purchase a counting
machine
eliminate counting
(even if only for part of
the money)
M
VLL
L
1
VL
VL
L
1
VL
VH
H
3
select the location of
the machines based on
distance to bank
deposit machines
Average risk rating to be used in AHP is 1.5.
128
I
position
in the
chain
responsible
party
cause
effect (who may be
harmed)
treatment
control measures
rating
identified risks
impact
I
probability
technical issues
robbery
cash shrinkage
category
Table 47: Risk analysis for alternative S3
frequently check the
reconciliation
software for
transactions data and
reconcile with sales
records
L
L
L
1
VL
VL
L
1
mitigate
purchase more
machines to reduce
the travelling
distance, reduce the
number of required
visits
VL
MH
M
2
transfer
have the supplier
carry out regular
maintenance for the
machines
VL
MH
M
2
embezzlement between
withdrawing start-up float from
the machine and depositing the
transactions amount
during
shift
employee
employee's
dishonesty
mitigate
mistakes in exchanging
denominations/currencies
during
shift
supervisor
fatigue,
distractions
mitigate
robbery on the way to the work
place after withdrawing start-up
floats from the machine or
on the way to P&C West to
deposit the transactions amount
machine breakdown
start of
shift/ end
of shift
variable
employee
insufficiency of
safety measures
money will be stolen
employees may be
injured
supplier
company
insufficiency of
maintenance
measures,
improper choice
of machine
employees won't be
able to
withdraw/deposit
money
reconciliation cannot
be completed
Average risk rating to be used in AHP is 1.8.
129
I
embezzlement
during the
transactions of all
shifts
mitigate
VL
VH
H
3
I
time of
occurance
during the
shift
responsible
party
employees
cause
effect (who may
be harmed)
employees'
dishonesty
mistakes in counting
start of the
day
employees,
supervisor
fatigue,
distractions
dispute in
reconciliation
need for tracking
the dispute
break down of
coin/cash counting
machines
start of the
day
supervisor,
supplier
company
jams, absence
of
maintenance
lengthened
counting
processes
treatment
control measures
rating
identified risks
supervisor
select the location of
the machines based
on distance to bank
deposit machines
impact
technical
issues
cash shrinkage
category
Table 48: Risk analysis for alternative S4
variable
insufficiency of
safety measures
probability
robbery
robbery during depositing the
money collected on the machine
at the bank
mitigate
installing surveilance
cameras, regular
reconcilliation of accounts
for clusters of employees
to discourage fraud
M
L
L
1
mitigate
with supervision, use of
mahcines and double
countings the mistakes
can be reduced
VL
L
L
1
mitigate
preserve the machines in
a proper state by regular
maintenance
L
L
L
1
Average risk rating to be used in AHP is 1.5.
130
I
unforeseen
changes with
regards to shared
offices (relocation,
change in size,
unavailability)
process type
mitigate
VH
H
H
3
I
Time of
occurence
Responsible
party
Schiphol
Group
Cause
restructuring of the
shops' locations
Effect
new shared office may not
be available or may not be
in a central position for all
shops, Kappe' and SAR
might need to approve of
sharing their own back
office space, Kappe' and
SAR might decide to start
working separately
treatment
Control Measures
Rating
Identified risks
supervisor
Impact
Administrative,
Organizational
category
Table 49: Risk analysis for alternative J1
any
difficulty in finding
the responsible
person in case of
cash shrinkage
Probability
amibiguity
unclarity of
responsible person
for cash shrinkage
due to the clustering
system
install cameras
dis-incentivize employees
from embezzlement by
rotating them frequently
and defining severe
consequences for cash
shrinkage
accept
Use average estimates
to determine the
variables dependent on
the location of shared
offices
M
M
M
2
Average risk rating to be used in AHP is 1.8.
131
complication of
administrative
collaboration
between Kappe'
and SAR
changes in
managerial board or
strategies of
companies, dispute
over sharing of costs
and responsibilities,
changes in the joint
cash office,
supervisors from Kappe'
and SAR and cash office
manager need to spend
additional time to resolve
arising issues, Kappe' and
SAR might decide to stop
working together
mitigate
reconciliation
conflict
sharing of seal bags
between Kappe' and
SAR
disagreement between
Kappe' and SAR over their
share in deposits
transfer
differences in daily
Euro and Foreign
currency transactions
in different lounges
machines in different
lounges need to be
skimmed in different
intervals
each machine might need
to be skimmed at varying
times (e.g. 1.5 days)
cash shrinkage
irregularities in
skimming
schedules
I
embezzlement
between
withdrawing startup float from the
machine and
depositing the
transactions
amount
during
shift
employee
employee's
dishonesty
organize a coordination
committee consisting of
cash office manager, a
supervisor from SAR
and one from Kappe' to
communicate the issues
with the company and
have some autonomy in
making decisions when
required.
have clear task
delegation for
administrative staff
reach agreements
beforehand over how
such conflicts will be
handled
LM
MH
MI
H
23
LM
LM
LMI
12
mitigate
check the remaining
capacity of machines at
different intervals and
base skimming intervals
on experience as well as
suggested schedules.
LM
L
L
1
mitigate
frequently check the
reconciliation software
for transactions data
and reconcile with sales
records
L
L
L
1
There can be a higher risk if other retailers join Kappe' and SAR.
132
separation of cash
office from shops
and sharing between
large number of
employees
Security
Insecurity and
exposure
robbery on the
way to the work
place after
withdrawing startup floats from the
machine or
on the way to P&C
West to deposit
the transactions
amount
technical issues
robbery during
depositing the
money collected
on the machine at
the bank
machine
breakdown
start of
shift/ end
of shift
employee
insufficiency of
safety measures
variable
cash office
manager
insufficiency of
safety measures
variable
supplier
company
insufficiency of
maintenance
measures, improper
choice of machine
at the start and end of
shifts many employees will
be entering and leaving the
office holding cash and it
could attract the attention
of thieves and provide an
opportunity for them
ideally use a shared
back office rather than
a separate office
L
M
M
2
purchase more
machines to reduce the
traveling distance,
reduce the number of
required visits
VL
MH
M
2
mitigate
select the location of
the machines based on
distance to bank
deposit machines
VL
VH
mitigate
have the supplier carry
out regular
maintenance for the
machines
VLL
MH
mitigate
money will be stolen
employees may be injured
employees won't be able to
withdraw/deposit money
reconciliation cannot be
completed
H
M
3
2
133
Table 50: Risk impact matrix
Very High
(VH)
High
Probability
High (H)
Medium (M)
Medium
Low (L)
Low
Very Low
(VL)
Very Low
(VL)
Low (L)
Medium (M)
High (H)
Very High
(VH)
Impact
134
Appendix 4: Calculation of costs for alternative processes
6.5. Separate alternatives for Kappe'
Not disclosed in this document
6.6. Separate alternatives for SAR
6.6.1. Using cash recycling machines (S1)
Determining the number of machine sets
It is required to purchase 3 setsI of recycling machines. Similar to Kappe's case, having one set of
machines in lounges 1, 2 and 3 is also an effort to reduce distances travelled by the staff for
withdrawing and depositing money. It will also eliminate the need for travelling between lounges
which can take additional time.
Given the annual amount of transactions at SAR and Kappe' and using Kappe's experience with
regards to the frequency of skimming and capacity of recycling machines, the following calculations
have been done to estimate the number of machines to be purchased by SAR.
It is desirable to avoid skimming more than once a day. This must be true both in the low season and
in the high season. In addition, if more than 3 times of skimming is needed each week, it would need
to be done during the weekend for which administrative wages are twice as much. Calculations
included later in the text, will show that having 3 sets of cash recycling machines will satisfy this
condition as well.
Location of machine sets
The machines should be installed in shops Centraal, Zuid and West. Each set of machines will be used
by the other shops of SAR in the same lounge as well. Table 91 shows the shops in which cash
recycling machines should be installed.
I
Each set is one cash recycling machine and one coin recycling machine
135
Table 51: Location of three cash three recycling machines at SAR
Lounge
Location of cash recycling machines
Other shops using the same machine
1
Zuid
Whiskey & Cigars
Confect L1
2
Centraal
3
West
FS&C
ConfectL3
The choice about the three locations has been made based on:
relatively central position in the lounge and proximity to the bank
larger amount of transactions compared to the other stores in the lounge
Skimming the machines
Table 92 shows the transactions divided by lounge and season for SAR and also calculations for
required number of skimming done based on these values.
Table 52: Skimming for alternative S1
Lounge
1
2
3
high
season
low season
high
season
low season
high
season
low season
Total transactions (€)
9,212,006
6,693,399
7,177,073
6,381,144
6,293,835
4,660,369
amount in the machine
at the time of skimming
in that period
76,000
89,000
76,000
89,000
76,000
89,000
Frequency of skimming
in the corresponding
period
121
75
94
72
83
52
Weekly frequency of
skimming per machine
4-5
3
3-4
2-3
3
2
It can be seen in Table 92 that with one set of machines in each lounge, both in the high season and
the low season, skimming will not need to be done more than once a day. Therefore, the desired
condition can be met and it can be concluded that 3 machines would be sufficient for SAR's shops. It
should be emphasized that having fewer machines would call for travelling between lounges and
thereby impose additional internal costs.
Costs
Employee and administration costs
Table 93 shows the amounts of time for different cash handling tasks and the number of staff
working at each store.
136
Table 53: Time for employee tasks for three cash recycling machines at SAR
Lounge
1
2
3
a
b
c
d
e
f
store
distance to
the
nearest
machine's
location
(min per
shift)
time for
preparing
start-up
float (min
per shift)
time for
end of
shift
activities
(min per
shift)
number of
shifts per
day
Start of
shift
I
activities
(min per
day)
End of shift
II
activities
(min per
day)
Zuid
0
1
5
10
10
50
Whiskey &
Cigars
1
1
5
3
6
18
Confect L1
1
1
5
3
6
18
Centraal
0
1
5
10
10
50
West
0
1
5
10
10
50
FS&C
3
1
5
3
12
24
ConfectL3
1
1
5
3
6
18
42
60
228
Sum
As mentioned before, if one machine needs to be skimmed more than three times a week, this needs
to be done on the weekends. A total of 497 times skimming is required on a yearly basis. Of this
number, 433 times would be done on week days (with a normal wage of €32 per hour for
administration) and the other 64 times would be done on the weekends (with a high wage of €60 per
hour for administration).
Since SAR will continue to outsource transfer of cash from shops to its bank account to GWKTravelex, cash machines will need to be skimmed by administrative staff of SAR at proper intervals.
GWK will visit to pick up the seal bags when needed. Therefore, similar to separate alternative K3,
each time of skimming would take around 20 minutes. Therefore, skimming would take 21 hours in
the weekends and 144 hours on the week days, on an annual basis.
Table 94 shows calculations for administrative tasks. Figures are derived from SAR's current system
and Kappe's new system in which cash machines are used.
I
e=(a+b)*d
II
f=(a+c)*d
137
Table 54: Administration costs for alternative S1
Administrative task
Annual time
(hour per year)
Annual cost
(€ per year)
High wage skimming
21
1,260
Normal wage skimming
144
4,608
Research on discrepancies
209
6,688
financial administration
886
28,352
maintaining and control coin machines
638
20,416
ordering and handling coins
281
8,992
maintaining bulk cash advance/ check of safety stock
content
183
5,856
246* 3 machines
23,616
3,1100
99,788
maintenance cash machine
Sum
Costs of different cash handling tasks of employees are shown in Table 95.
Table 55: Employee costs for alternative S1
Daily time (min per day)
Annual time (hour per
year)
Annual cost (€ per year)
Start of the shift
60
365
11,680
During the shift
II
activities
5
31
992
End of the shift
228
1,387
44,384
3,1100
99,788
Administration
Sum
I
156,844
GWK-Travelex fees
SAR would need to pay the same amount to GWK-Travelex as it does in the current system since the
contract is based on the total value of deposits. Therefore, fees would be still €92,000.
Technology costs
The costs of machines will include costs of purchasing 3 sets of machines (3 cash recycling and 3 coins
recycling). As calculated in separate alternative K1, the cost would be €41,807 per year.
I
Equals annual time*hourly wage
Since SAR has decided to continue to maintain safety stock at its shops, time for providing additional float
during the shift would be equal to current system.
II
138
Total costs
The results of calculations are presented briefly in Table 96.
Table 56: ABC for alternative S1
Cost category
Cost (€)
Cost per
transaction
(€)
Cost per Euro
of
transaction
Share in total
costs
Percentage
change
compared to
current
situation
(€)
Staffs' cash handling tasks
156,844
0.09
0.0039
54%
-32%
GWK-Travelex fees
92,000
0.05
0.0023
32%
0%
Technology costs
41,807
0.02
0.0010
14%
-
Total
290,651
0.16
0.0072
100%
-10%
6.6.2. Working with ABN-AMRO (S2)
Costs
Employee and administration costs
Start of shift
At the beginning of shift, each employee would take their red seal bags from the safe similar to the
current system. Therefore, the amount of time spent on start of shift activities would be 767 hours
per year as it is in the current system.
During the shift
Similar to the current system if additional change is required, employees can use the safety stock in
the back office. Therefore, amount of time spent on during the shift activities would remain equal to
the current system (i.e. 31 hours per year).
End of shift
In addition to tasks carried out by employees at the end of shifts in the current system, they would
need to go to the bank to deposit their seal bags. This means 42 visits per day each of which would
take an average of 5 minutes. Therefore, time for end of shift activities would be 1278I hours more
than it is in the current system of SAR (5110 hours per year). Total time for administration would be
6388 hours per year.
Administration
There would be no particular change in administrative tasks if SAR starts working with ABN-AMRO.
Thus, administration would be around 1278 hours per year.
I
5 (min per visit)*42 (visits per day)*365 (day per year)/60 (min per hour)=1278
139
ABN-AMRO fees
The bank requires currencies to be deposited separately. Therefore, each day 42 Euro and about 21
foreign seal bagsI would be taken to the bank by employees each day (15,330 and 7,665 seal bags per
year, respectively). A compensation of 2% is expected to be provided by ABN-AMRO for foreign
currencies. (Table 97)
Table 57: Number of seal bags for alternative S2
Number per year
Annual cost (€ per year)
Euro seal bags
15,330
49,823
Foreign seal bags
7,665
24,911
Coin orders
-
7,000
Compensation
74,200
Sum
7,534
Total costs
The results of calculations are presented briefly in Table 98.
Table 58: ABC for alternative S2
Cost category
Cost (€)
Cost per
transaction
(€)
Cost per
Euro of
transaction
Share in
total costs
Percentage
change
compared
to current
situation
(€)
Staffs' cash handling tasks
270,848
0.15
0.0067
97%
+18%
ABN-AMRO fees (after
compensation)
7,534
0.00
0.0002
3%
-92%
Total (after compensation)
278,382
0.16
0.0069
100%
-14%
6.6.3. Using cash recycling machines and working with ABN-AMRO (S3)
Costs
Employee and administration costs
The amount of time spent on cash handling by employees at the start of, during, and end of their
shifts would be 365, 31 and 1387 hours per year, respectively. This is equal to what was calculated
for alternative S1 (using cash recycling machines).
Time required for administrative tasks would be equal to alternative S1 except for skimming of
machines. In this case, skimming would take 30 minutes each time since after preparing seal bags,
they need to be deposited at ABN-AMRO machines by the supervisor.
I
The amount of foreign currencies is much lower than Euros. Thus, it is sufficient to have one seal bag for
foreign currencies after each shift (3shifts per day) at each shop (7 shops) that is a total of 21 foreign seal bags
per day.
140
Similar to alternative S1, a total of 497 times skimming is required on a yearly basis Of this number,
433 times would be done on week days ( 216.5 hours per year) and the other 64 times would be
done on the weekends (32 hours per year).
Table 99 shows annual time and cost of administration.
Table 59: Administration costs for alternative S3
Administrative task
Annual time
(hour per year)
Annual cost
(€ per year)
High wage skimming
32
1,920
Normal wage skimming
216.5
6,928
Research on discrepancies
209
6,688
financial administration
886
28,352
maintaining and control coin machines
638
20,416
ordering and handling coins
281
8,992
maintaining bulk cash advance/ check of safety stock
content
183
5,856
246* 3 machines
23,616
3,184
102,768
maintenance cash machine
Sum
Costs of different cash handling tasks of employees are shown in Table 100.
Table 60: Employee costs for alternative S3
Daily time (min per day)
Annual time (hour per
year)
Annual cost (€ per year)
Start of the shift
60
365
11,680
During the shift
II
activities
5
31
992
End of the shift
228
1,387
44,384
3,184
102,768
Administration
Sum
I
159,824
ABN-AMRO fees
The number of seal bags has been calculated based on the number of seal bags calculated for
alternative K1 and by comparing the value of transactions at different lounges.
Number of seal bags= numberofsealbagsforKappe? ∗
-< )1#!(&*#$)(&1)!@A;
-< )1#!(&*#$)(&1)!B'' C
Table 101 shows the calculated number of seal bags.
I
Equals annual time*hourly wage
Since SAR has decided to continue to maintain safety stock at its shops, time for providing additional float
during the shift would be equal to current system.
II
141
Table 61: Number of seal bags for alternative S3
Euro seal bags
Foreign seal bags
Alternative K1
2,217
1,532
Alternative S3
2,212
1,529
Therefore, by installing cash recycling machines also in lounges 1 and 2, in total 2217 Euro seal bags
and 1532 foreign currency seal bags will be deposited at ABN-AMRO. A compensation of 2% of value
of foreign currencies in Euros will be provided to Kappe'.I
Table 102 shows the fees that need to be paid to ABN-AMRO.
Table 62: ABN-AMRO fees for alternative S3
Number per year
Annual cost (€ per year)
Euro seal bags
2,212
7,189
Foreign seal bags
1,529
4,969
Coin orders
-
7,000
Compensation
74,200
Sum
-55,042
Technology costs
Similar to alternative 1, technology costs would be €41,807
Total costs
The results of calculations are presented briefly in Table 103.
Table 63: ABC for alternative S3
I
Share in
total costs
Percentage
change
compared
to current
situation
Cost category
Cost (€)
Cost per
transaction
(€)
Cost per
Euro of
transaction
(€)
Staffs' cash handling tasks
159,824
0.09
0.0040
109%
-30%
ABN-AMRO fees (after
compensation)
-55,042
-0.03
-0.0014
-38%
-160%
Technology costs
41,807
0.02
0.0010
29%
-
Total (after compensation)
146,589
0.08
0.0036
100%
-54%
Compensation = €3,709,987*2%=€74,200
142
6.6.4. Using drop-in safes (S4)
Costs
Employee and administration costs
Start of the day
The money in the till should be counted at the beginning of every day with a counting machine (to
make sure there is sufficient change, if not provide it from the safety stock basin). Amounts must be
entered in the computer. This would take 7 minutes per day per cash register (15 cash registers in
total). Therefore the total time for start of the shift tasks of employees would be equal to:
7*15*365/60=639 hours per year
During each shift
Since a safety stock basin is maintained at SAR's shops, providing additional change can be done
easily similar to the current situation and the estimate of 31 hours per year can be used as an
estimate.
End of the day
Drop-in safes need to be taken to the back office and empty ones should be placed at the cash
registers for the following day. This would take about 3 minutes per day for each cash registerI,
therefore in total:
3*15*365/60= 274 hours per year
Administration
Financial Administration(Every day reconciling the money in the safe with employees who worked in
the shift) is assumed to be 1.5 hours per day for all stores, (approximately one-third as costly as the
current system if there are no cash differences because they will reconcile per drop-in safe instead of
per employee and we assumed it takes the same amount of time per each single reconciliation, but if
there are cash differences clusters need to be checked since figures are not available per employee)
Counting of the till can be assumed to be 2 hours per day given the information collected for Kappe's
Etos shop using drop-in safes.II Table104 shows the costs of cash handling activities of staff.
Table 64: Employee costs for alternative S4
Cost pool
Time (hours per year)
Cost (€ per year)
Start of day
639
20,448
During each shift
31
992
End of day
274
8,768
Administration
1,278
40,896
Sum
71,104
I
There are a total of 15 cash registers in SAR's stores.
At Etos there are 2 cash registers and cash difference is spotted once or twice a week(2*7=14 reconciliations)
We assume there will be more (3-4 )cash differences every day in SAR’s system because there are 15 cash
registers in SAR’s system and there are larger amounts in their tills than Etos
II
143
GWK-Travelex fees
As the fees are charged based on annual transactions, they would be equal to the current situation.
Technology and other costs
Costs of investment are calculated in Table 105.
Table 65: Investments for alternative S4
I
Number
Unit price (€)
Total price (€)
Depreciation
period (years)
Annual cost
(€ per year)
45
500
22,500
3
7,500
III
7
300
2,100
5
420
IV
7
500
3,500
5
700
Number of drop-in safes
II
coin counting machine
cash counting machine
Sum
8,620
Table 106 shows the results of ABC for alternative S4.
Table 66: ABC for alternative S4
Cost per Euro
of
transaction
(€)
Share in total
costs
Percentage
change
compared to
current
situation
Cost category
Cost (€)
Cost per
transaction
(€)
Staffs' cash handling tasks
71,104
0.04
0.0018
41%
-69%
GWK-Travelex fees
92,000
0.05
0.0023
54%
0%
Investments
8,620
0.00
0.0002
5%
-
Total
171,724
0.10
0.0042
100%
-47%
I
Equals Total price/ depreciation period
Number of drop-in safes per cash register (including reserves)* number of cash registers=3*15
III
One machine per shop
IV
One machine per shop
II
144
6.7. Joint alternatives for Kappe' and SAR
6.7.1. Shared use of cash recycling machines by Kappe’ and SAR (J1A)
Not disclosed in this document
6.7.2. Shared use of cash recycling machines by Kappe’, SAR and other retailers at
Amsterdam Airport Schiphol (J2)
Some of the cost pools will not be affected in case other retailers join Kappe' and SAR in cash
handling. These are below referred to as static expenses. On the other hand, there are cost pools
that would change depending on the number of retailers joining and their annual transactions. These
can be regarded as dynamic expenses.
Costs
1. Static expenses
Static expenses include:
Start of the shift activities: The amount of time spent by each retailer on start of shift activities is
the sum of the distance to cash office and about 1 min per employee for preparing till float.
Similar to the joint alternative, a central position for cash office can be assumed. Thus, it can be
claimed that total time spent on start of shift activities by employees of Kappe' and SAR will not
change significantly with joining of other retailers.
During the shift activities: similar to other cases where Kappe' uses cash recycling machines, in
case additional change is needed employees would contact those who will start their shifts
shortly. Therefore, it can be assumed that time for during the shift activities, is negligible. Due to
availability of safety stock at SAR, the amount of time for preparing additional floats would be
still as it was in other cases.
End of shift activities: The amount of time spent by each retailer on end of shift activities is the
sum of the distance to cash office added to about 5 min per employee for depositing money and
entering the transactions into a computer. Given the central location of cash offices, the total
time spent on end of shift activities by employees of Kappe' and SAR will remain unchanged with
joining of other retailers.
Administration for monitoring finances: Time required for reconciliation of transactions and
research on discrepancies depends on the transactions of the companies and their number of
145
employees.ITherefore, time expended on monitoring finances would remain equal to joint
alternative for Kappe' and SAR.
2. Dynamic expenses
Dynamic expenses will be divided among companies based on their share in total annual transactions
in a joint cash handling process. These costs are explained below.
Administration
• Administration on machines: Depending on the number of machines, total
administration on them would rise and so would the costs for Kappe' and SAR.
• Joint cash office organization: In case more retailers collaborate with Kappe' and SAR in
cash handling, more coordination is required between the companies.
Fees paid to ABN-AMRO: An increase in total annual transactions, results in larger number of
seal bags handed over to the bank. Compensation offered by the bank to Kappe' and SAR would
remain intact though.
Technology costs: With the increase in annual transactions by joining of other retailers, the costs
of purchasing machines and configuring software would rise.
Rent of joint cash office: As the number of machine sets increases, larger surface area is required
for cash offices and the rent fee rises.
Below calculations for dynamic expenses are included.
Costs of Administration on machines
Time for administration on machines for each retailer includes ordering and handling coins (281 and
1,148 hours per year respectively) added to skimming time.
To determine the number of skimming required, the following formula can be used separately for the
weekdays and weekends.
Numberofskimmingafterjoiningofotherretailers
= averagenumberofskimmingpermachineinjointalternative ∗ numberofmachines
Joint cash office organization
For administration of each joint cash office 5 hour per week is needed if only Kappe' and SAR work
together. It can be assumed that with each other retailer joining them, an addition al 2 hours per
week would be required for each cash office. Therefore, the total costs of joint cash office
organization can be calculated using the formula below.
administrationofjointcashofEice
= F5 + 2 ∗ numberofotherretailersjoiningKappe? andSARKII ∗ 52III ∗ 3IV
I
The process of cash handling is also important. However, since it is not changing compared to joint alternative
1, this factor can be disreg
II
Hours per week per lounge
III
Weeks per year
IV
Lounges
146
Fees paid to ABN-AMRO
The total number of seal bags can be calculated by using:
Numberofsealbags =
numberofsealbagsforjointalternative ∗
totalannualtransactionsforKappe? , SARandotherretailers
totalannualtransactionsforKappe? andSAR
Technology costs
Depending on the number of machine sets, technology costs change. To estimate the number of
machines the following formulas have been used:
Averagetransactionhandeledbyeachmachineinjointalternative
totalannualtransactionsforKappe? andSAR 80,919,230
=
=
= 16,183,846
numberofmachinesinjointalternative
5
Numberofmachines =
totalannualtransactionsforKappe? , SARandotherretailers
Averagetransactionhandeledbyeachmachineinjointalternative
Technology costs can be calculated using Table 128 below once the number of machines is decided
upon.
Table 67: Technology costs for alternative J2
cost pool
basic cost (€)
Factoring number
coin change machine
3,200
Number of machines
maintenance of coin change machine
250
Number of machines
maintenance of cash machine
2,100
Number of machines
cash machine
6,600
Number of machines
software costs
3,857
Number of retailers
Sum
12,150*number of machines+3,857*number of retailers
I
Rent of joint cash office
The rent of the joint cash offices would be:
Totalrent(€peryear) = 12sq. mpermachine ∗ numberofmachines ∗ €600peryearpersq. m
Total costs
Depending on the number of retail groups joining Kappe' and SAR and their annual transactions,
different amounts of cost saving can be achieved by Kappe' and SAR. Table 129 summarizes the cost
scheme.
I
Including Kappe' and SAR
147
Table 68: Costs in alternative J2
Cost category
Static expenses
Dynamic expenses
Cost for Kappe'/ SAR (€)
Staffs' cash handling tasks
Equal to alternative J1A
Administration for monitoring finances
Equal to alternative J1A
Administration on machines
Depending on the number of machines
Joint cash office organization
Depending on the number of retailers
ABN-AMRO fees (after compensation)
Depending on the total transactions
Technology costs
Depending on the total transactions
Joint cash office rent
Depending on the number of machines
Total (after compensation)
To be determined using sensitivity
analysis charts
148
Appendix 5: Flowcharts and additional information on alternatives
Alternative S1
Figure 33: Flowchart for use of drop-in safes
149
Figure 34: Scheme of control for use of drop-in safes
150
Alternative J1
Figure 35: Flowchart for alternative J1
151
Figure 36: Scheme of control for alternative J1
152
Division of Tasks
In the new organizational structure, there will be new administrative tasks to be considered. Each cash office needs to be managed by someone trusted by
both companies. The three cash office managers will be responsible for skimming the machines, resolving any kind of conflicts in the office, communicating
with the bank about two companies’ deposits and ensuring the security of the office. The responsibilities of those currently functioning as store managers
in either company might change a bit. Table 130 depicts the proposed division of tasks for the joint cash handling alternative compared to the current
systems.
Table 69: Division of tasks among Kappe' and SAR's employees for alternative J1A
sending transactions report to the
bank (share of each retailer in the
deposits)
checking the balance in the machine
and skimming at appropriate intervals
employees
SAR
cash office
manager
supervisor
Joint
employees
x
x
shift
supervisor
depositing collected amounts in the
machine
Kappe'
employees
x
supervisor
withdrawing start-up float
SAR
store
manager
Task
employees
Kappe'
Joint solution
x
x
x
x
(shift)super
visor
Current systems
x
x
x
153
placing coin orders and refilling the
coin machines
x
x
x
x
resolving disruptions in the process
x
x
x
x
resolving conflicts between Kappe' ,
SAR and ABN in reconciliations
x
reconciling transactions and
reconsidering if needed after receiving
bank report
x
x
security of the office (e.g. checking
camera videos)
x
x
x
x
x
x
x
x
154
Alternative J3
6.7.3. Shared use of cash recycling machines by Kappe’ and SAR while outsourcing operation of back office to G4S (J3)
Table 131 shows the properties of CASH-360 solution and fugure 41 shows the process of cash handling as proposed by G4S.
Table 70: Properties of CASH-360 solution
In-store
technology
IT
Security/HSSE
People and
processes
External and
internal security
policy and
protocols (antirobbery and
burglary, antifraud)
Cash handling
device
Machine
interfaces with
CiT companies
Secure storage
(vaults, high
security locks)
Machine
software
including
licensing
Machine
interfaces with
bank/ cash
processing
companies
Insurance policy
compliance
Training (on site
and HQ's)
PoS and ERP
interfacing
Security (HSSE)
policy
compliance
Delivery and
installation
Technology
agnostic plug
and play
infrastructure
Easy auditing
Stores'
operations
hours' process
continuity
Disturbance
monitoring and
maintenance
Continuous
updates
In-store security
measurements
Process
description
including back-
End-to-end cash
process design
Cash
management
Finance and
administration
Easy to manage
Business case
Future proof
CiT and bank fit
technology and
process
Closed
reconciliation
Single point of
contact
No upfront
investment
Flexing costs
Money
collection and
delivery service
to / from device
ERP compliant
Online
management to
all technology
and related
services
Transparent
cost structure
Scalable (instore and
international)
Ordering cash
and change
(notes and
coins)
Track and trace
(from store to
bank account)
Electronic
ordering
Flexing costs
Corporate social
responsible
adaptive to new
future
technology
Transparent and
easy-to-audit
invoicing
HQ independent
ordering
process
including
authorization
procedures
Guaranteed
lower total cost
of ownership
Supports noncash
developments
Closed petty
cash process
One stop shop
Accounting
software
integration
155
(help desk and
on site)
Preventive
maintenance
Adjustable to
multiple store
types
Spare part
management
up procedures
Efficient user
interface
Preventive
security
measures
Secure IT
infrastructure
(clear) liabilities
Flexible IT
design
Fully screened
G4S employees
Cash cycle
optimization
process
Single process,
multi-store
solutions
Continuous user
training
Non-cash
valuables
reconciliation
process
Customized
management
reporting
Real time
insights
Effective
customer
service center
156
Figure 37: Flowchart for alternative J3
157
Appendix 6: AHP
Table 132 shows Saaty's scale for completing comparison matrix in AH.
Table 71: The fundametal scale for AHP
Intensity of importance on an
absolute scale
Definition
1
Equal importance
3
Moderate importance of one over
another
5
Essential or strong importance
7
Very strong importance
9
Extreme importance
2, 4, 6, 8
Reciprocals
Rationals
Intermediate values between the
two adjacent judgements
If activity i has one of the above
numbers assigned to it when
compared with j, then j has the
reciprocal value when compared to
i
Ratios arising from the scale
Explanation
Two activities contribute equally to
the objective
Experience and judgement favour
one activity over another
Experience and judgement strongly
favour one activity over another
An activity is strongly favoured and
its dominance demonstrated in
practice
The evidence favouring one activity
over another is of the highest
possible order of affirmation
When compromise is needed
If consistency were to be forced by
obtaining n numerical values to
span the matrix
Calculation steps for weights in AHP methodology
Consider [Ax = λmaxx] where
A is the comparison matrix of size n*n, for n criteria.
x is the Eigenvector of size n*1
λmax is the Eigenvalue, λmax ∈ℜ > n.
Take the squared power of matrix A, i.e., A2=A.A
Find the row sums of A2 and normalize this array to find E0.
Set A:=A2
1. Take the squared power of matrix A, i.e., A2=A.A
2. Find the row sums of A2 and normalize this array to find E1.
3. Find D= E1 - E0.
158
4. IF the elements of D are close to zero, then X= E1, STOP.
ELSE set A:=A2 , set E0:=E1 and go to Step 1.
159
Appendix 7: Pneumatic tube system
A pneumatic tube system is a distribution network which allows for rapid transport of goods through
tubes of different sizes and lengths. The system operates with the suction or compression created by
a blower unit.63 The goods transported via such a system include cash, small Parts, documents, blood
Specimens, laboratory samples, packing slips, keys, tools, mail .etc.64
Among the applications of pneumatic tube system is cash handling in retail. In this way, cash can be
transported to a secure cash center via a closed network which can eliminate traveling requirements
for staff. The following are some of the benefits of this system.
• Safety: Continuous removal of excess money from check out points leads to
o Maximum security for customers and staff
o Prevention of criminal access
• Efficiency:
o Reduced cash supply at cash registers
o Faster reconciliation of receipts
o Optimized cash logistics
o Reduced labor costs63
The ideal pneumatic system for cash handling is one that allows two way operations. A central
location at the airport must be selected. The cash registers at different stores should be connected
with this central location. Cash collected during transactions can be collected in containers (each
having unique bar codes) and transferred the central cash office at appropriate intervals. In addition,
change can also be provided through this system when required, resulting in lower cash holdings on
premises. Figures 42 and 43 shows a two-way system that is considered to be useful at Amsterdam
Airport Schiphol if all/ major retailers collaborate in cash handling.
Figure 38: Two-way pneumatic tube system
160
Figure 39: Two-way pneumatic tube system; point to multiple points and vice versa
65
Costs
Using a pneumatic tube system for cash handling at Amsterdam Airport Schiphol can reduce
expensive costs of security systems, CiT costs, investment costs, labor costs and the overall back
office costs.66 Below some costs have been calculates for Kappe' and SAR.
Separate costs
Kappe':
Staff costsI: € 48k
Administration costsII: 3470 hour per year*30 € per hour =€ 104k
Number of containers: 3 Containers per day per shopIII*12 shops*365 days= 13,140 container per
year
Bank fees: 13,140 containers per year*3.25 € per container = € 43k per year + € 7k coin orders –
€107k compensation = €-57k
SAR:
Staff costs: €23k
Administration costs: 1278 hour per year* € 32 per hour = € 41k
Number of containers: 3 Containers per day per shop*7 shops*365 days= 7,665 container per year
Bank fees: 7665 container per year*€3.25 per container =€ 25k per year + €7 k coin orders – €74k
compensation =€ -43k
Shared costs:
Central location rent: 30 sq. mIV*600 euro per year per sq. m = € 18k per year
Investment= depends on the needs, number of workstations, system layout, and additional features
demanded.67
Sum excluding investment in tube system would be € 104k for Kappe' and € 30k for SAR.
The total costs cannot be estimated with the available data on the internet. Investment costs can be
calculated by providing the required information to a supplier of pneumatic tube systems for a cost
estimate. It is also possible to make estimates by knowing costs to other retailers who have installed
I
Calculated based on http://www.airlinkint.com/Calculate
Estimated based on estimations for alternative S4
III
It is assumed that one container is used for each shift at each store and then transported through the tube to
the central cash office.
IV
It is assumed that a surface are of 30 square meters would be needed for the central locations.
II
161
the system and comparing the case at hand with them. If more retailers join Kappe' and SAR, these
costs along with rent of cash office would be shared.
162
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