Two-bin inventory control is a powerful system for efficient stock management, ensuring timely replenishment of production materials. When the first bin of supplies is emptied, an order is triggered to refill it, while the second bin is used to cover consumption until replenishment arrives. Essentially, the first bin maintains a operational stock, while the second bin contains reserve inventory.
The two-bin inventory control method is sometimes associated with the Kanban system and is a cornerstone of just-in-time (JIT) manufacturing.
Key Takeaways
- Two-bin inventory control incites an automatic replenishment alert when the first bin is empty.
- The system provides a seamless transition by utilizing the second bin until new stock arrives.
- Ideal for small, low-cost items that are inexpensive to store in bulk.
- Employs bin cards and store ledger cards to track inventory levels.
- Helps minimize inventory risks and maintains an optimal stock level to meet demand.
How Two-Bin Inventory Control Works
Effective stock management presents daily challenges for companies. Insufficient inventory risks missing out on sales and losing competitiveness, while excessive stock increases storage costs and potential losses due to spoilage or obsolescence. Two-bin inventory control helps mitigate these issues by ensuring balanced stock levels.
In its simplest form, the process involves:
- Placing the first bin above or in front of the second.
- Including reorder cards at the bottom of both bins.
- Stocking from the readily accessible first bin.
- Using the second bin once the first is depleted.
- Ordering new stock as soon as the first bin is emptied.
- Restocking the first bin upon delivery of new inventory.
This system is vastly adaptable and serves a range of industries, including manufacturing and healthcare.
Special Considerations
Typically used for small or low-value items, the two-bin inventory control system contrasts with the perpetual inventory system, which is more suited for high-value items. Adjustments to the reserve stock quantity in bin two can be made based on historical depletion patterns.
Ensuring that new orders arrive before the second bin is emptied is crucial. The inventory approach often follows the first in, first out (FIFO) method, prioritizing the sale of older stock.
Calculation for Reserve Stock:
(Daily usage rate \ lead time) + safety stock e.g., (100 units/day \* 3 days) + 20 units = 320 units as reserve stock*
An Enhanced Example of Two-Bin Inventory Control
Company X is a boutique manufacturing firm specializing in handcrafted products. They consume varied nuts and bolts, essential fasteners from external suppliers. With a daily consumption of 160 fasteners and a lead time of three days, Company X should stock a reserve bin with at least 480 fasteners (160 units/day \* 3 days).
Experience teaches Company X that demand can fluctuate by up to 20%, prompting them to add extra fasteners as a safeguard. This practice ensures smooth operations even if production demand surges temporarily, keeping their supply chain untangled and efficient.
Related Terms: Kanban, Just-in-Time, Perpetual Inventory, FIFO, Lead Time.
