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Minimizing Interest Loss for YNB

Yeager National Bank uses aggressive credit card marketing and collects $600,000 in daily payments. It takes 1+ days for payments to reach the bank, costing interest income. To reduce this time, 4 new regional collection centers are proposed. An integer linear programming model minimizes daily interest loss by determining: 1) the number and locations of collection centers to open, and 2) how to allocate customers to centers and regions. The objective is to minimize lost interest across allocation variables for each possible center-region combination. Constraints ensure each region receives one center and centers are only allocated if opened.

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Rishu Verma
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68 views4 pages

Minimizing Interest Loss for YNB

Yeager National Bank uses aggressive credit card marketing and collects $600,000 in daily payments. It takes 1+ days for payments to reach the bank, costing interest income. To reduce this time, 4 new regional collection centers are proposed. An integer linear programming model minimizes daily interest loss by determining: 1) the number and locations of collection centers to open, and 2) how to allocate customers to centers and regions. The objective is to minimize lost interest across allocation variables for each possible center-region combination. Constraints ensure each region receives one center and centers are only allocated if opened.

Uploaded by

Rishu Verma
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

CASE DESCRIPTION

•  Aggressive mail promotion with low introductory


interest rates is used by Yeager National Bank
• There is a large base of credit card customers
for Yeager National Bank
• Daily payments are sent by all customers to
corporate office at Charlotte, NC​
• Average daily collections are $600000.​
• It has been estimated by YNB that it makes about
15% on its fund (profit)​
• It takes more than 1 day for payments to reach the
bank wallet and hence the bank losses that
many days worth of interest income. e.g. if it takes 5
days for a payment to be credited to a bank account,
5 days worth of interest income is lost since the
payment is processed for some days​
• To reduce these processing days to reduce the
amount of interest income 4 new locations have
been proposed to set up regional collection centers
• Customers  are divided into 4 groups and they will
directly pay to these collection centers
BINARY INTEGER LINEAR PROGRAMMING MODEL

Objective : Decision Variables:


Minimizing the daily interest loss by examining P: 1 if a lockbox is constructed in Phoenix or else 0
1) No of lockboxes to be opened S : 1 if a lockbox is constructed in Salt Lake City or else 0​
2) Which lockboxes to be opened A : 1 if a lockbox is constructed in Atlanta or else 0​
3) Region-wise allocation of lockboxes B : 1 if a lockbox is constructed in Boston or else 0​
NWP: 1 if Phoenix is allocated to the Northwest region or else 0
NWS: 1 if Salt Lake City is allocated to the Northwest region or else
0
NWA: 1 if Atlanta is allocated to the Northwest region or else 0
NWB: 1 if Boston is allocated to the Northwest region or else 0
Objection Function : SWP: 1 if Phoenix is allocated to the Southwest region or else 0
SWS: 1 if Salt Lake City is allocated to the Southwest region or else
0
48*NWP + 24*NWS + 48*NWA + 48*NWB SWA: 1 if Atlanta is allocated to the Southwest region or else 0
+ 27*SWP + 40.5*SWS + 54*SWA + SWB: 1 if Boston is allocated to the Southwest region or else 0
81*SWB + 112.5*CP + 67.5*CS + 67.5*CA + CP: 1 if Phoenix is allocated to the Central region or else 0
90*CB +135*NEP + 108*NES + 81*NEA + CS: 1 if Salt Lake City is allocated to the Central region or else 0
CA: 1 if Atlanta is allocated to the Central region or else 0
54*NEB +60*SEP + 90*SES + 30*SEA +
CB: 1 if Boston is allocated to the Central region or else 0
45*SEB NEP: 1 if Phoenix is allocated to the Northeast region or else 0
NES: 1 if Salt Lake City is allocated to the Northeast region or else 0
NEA: 1 if Atlanta is allocated to the Northeast region or else 0
NEB: 1 if Boston is allocated to the Northeast region or else 0
SEP: 1 if Phoenix is allocated to the Southeast region or else 0
SES: 1 if Salt Lake City is allocated to the Southeast region or else 0
CONSTRAINTS

Each region will be allocated one lockbox Regions will not be allocated any lockbox unless is constructed
NWP + NWS + NWA + NWB = 1; NWP-P<=0;
SWP + SWS + SWA + SWB = 1; NWS-S<=0 ;
CP + CS + CA + CB =1; NWA-A<=0;
NEP + NES + NEA + NEB =1; NWB-B<=0;
SEP + SES + SEA + SEB =1; SWP-P<=0;
SWS-S<=0 ;
SWA-A<=0;
SWB-B<=0;
IF k is the number of lockboxes that is CP-P<=0;
decided to be constructed CS-S<=0 ;
CA-A<=0 ;
P+S+A+B= 2 CB-B<=0;
NEP-P<=0;
NES-S<=0 ;
NEA-A<=0;
NEB-B<=0;
SEP-P<=0;
SES-S<=0 ;
SEA-A<=0;
SEB-B<=0;

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