Case 4: Pacific National Bank

Case Background

Pacific National Bank is a medium-sized bank with 21 branches. It did not operate its own automated teller machines (ATM) and contracted an outsource for such operation until recently. However, ninety percent (90%) of the ATM customers are non-Pacific credit cards which do not improve the bank’s business. To address the issue, the Operations Vice-President Maria Perez thought of broadening the mix of banking services with its own machines into its own data-processing network.

Pacific National Bank aims for the 24-hour ATM service to cater to customers’ banking needs beyond the bank’s operating hours, thereby resulting to an increase in their market share. Aside from expanding the market, ATM operations should also yield substantial cost advantages. An example of which is the reduction on labor costs. Fewer human tellers would be required and cost per transaction would therefore be reduced.

A test was conducted at their Greenhills branch wherein customers were recruited to sign up for a Pacific ATM card. Residents within the area were also given an incentive to open for free a checking account as they signed up for the card. Results of customers’ arrival times were recorded, and it shows the following data:

Customer Arrivals at Greenhills Office(Before ATM Installation)

PeriodDaily Average

Number of Arrivals

(1) Monday – Friday 10 A.M. – 12 P.M. 155(2) Monday – Friday 12 – 1 P.M. 242(3) Monday – Friday 1 – 3 P.M. 290(4) Friday 3 – 6 P.M. 554

The bank opens at 10 A.M. and closes at 3 P.M., except on Fridays, when it closes at 6 P.M. Past study shows that, over each period, customers arrive randomly at a stable mean rate, so the assumption of a Poisson process is valid. The mean time required to complete customer transactions is two minutes, and the individual service times have a frequency distribution with a pronounced positive skew, so an exponential distribution is a reasonable approximation to reality.

All tellers work part-time and paid P50 per bank hour. Experience shows that soon after customers suffer delays from teller access, there would be a significant drop-off in clientele. The supplier of the ATM equipment claims that other banks of comparable size have experienced a 30% diversion of clients to the ATM, which produced a further 2% expansion of overall client transactions – all absorbed by the ATM, half of it transacted outside regular banking hours. The supplier also maintains that the ATM traffic is fairly uniform, except between 11 P.M. and 6 A.M., when it is negligible. Ms. Perez believes that the ATM busy-period arrivals will constitute a single Poisson process.

Industry experience is that the mean service time at an ATM is one-half minute, with an exponential distribution serving as an adequate approximation to the unknown positively skewed unimodal distribution that actually applies. Ms. Perez believes that, once the ATM is installed, the Greenhills human tellers will be left with a greater proportion of the more involved and lengthy transactions, raising their mean service time to 2.5 minutes.