What is two-bin inventory control?
Two-compartment inventory control is a system used to determine when items or materials used in production need to be replenished. When the items in the first bin are used up, an order is placed to refill or replace them. The second bin is then expected to hold enough items to last until the order from the first bin arrives. In short, the first bin has a minimum working stock and the second bin holds the reserve stock or remaining material.
The two-bucket inventory control method is also sometimes referred to as kanban, which is strongly associated with the just-in-time (JIT) method of a manufacturing process.
Key points to remember
- Two-compartment inventory control is a system used to determine when items or materials used in production need to be replenished.
- When the items in the first bin run out, an order is placed to replace them. While waiting, items from the second tray are used.
- Two-bin inventory control is almost always used for small or low-value items that can be easily purchased and stored in bulk.
- Stock cards and store cards are used to record inventory.
- The two-compartment inventory control system ensures businesses reduce inventory risk and always have the right level of stock to meet demand.
How Two Bin Inventory Control Works
Effectively managing inventory levels is one of the biggest challenges businesses face. Not getting enough inventory can lead to lost sales opportunities and lost competitors. Holding too much stock, on the other hand, increases the risk of damage, spoilage, theft and falling victim to changes in demand. It also means higher storage costs and delays in recovering money from purchased goods for reinvestment in the business.
The two-bin inventory control system is a basic technique used to ensure businesses reduce these risks and always have, more or less, the right level of inventory to meet demand without overdoing it.
In its simplest form, the process can be broken down like this:
- The first tray is placed above or in front of the second tray.
- A replenishment card is placed at the bottom of both bins.
- The stock is taken from the first, more accessible bin.
- When the first tray is empty, it is replaced by the second tray.
- The replenishment card is used to replenish the first bin.
- When the ordered stock arrives, it is placed in the empty bin and the process repeats.
This system is widely used in different industries that involve manufacturing operations and is also effective for hospital inventory control.
Special Considerations
Two-bin inventory control is almost always used for small or low-value items that can be easily purchased and stored in bulk. In contrast, higher value items are subject to the perpetual inventory system.
Moreover, based on historical patterns of variance in the depletion rate of working stock (tray #1), order quantity for reserve stock (tray #2) can be adjusted.
It is essential that the new order placed after the first bin is emptied arrives before the second bin is empty, otherwise the process does not work as expected. The inventory approach used for both bins is first-in, first-out (FIFO), since the stock placed in the first bin is also the stock that is sold first.
In general, the following calculation is used to determine the amount of stock to keep in the reserve bin:
(Daily utilization rate * lead time) + safety stock
Two Bin Inventory Control Example
Company A is a small manufacturer that uses different types of nuts and bolts to assemble its products. Fasteners are among the many items she orders from outside suppliers. She uses about 800 a week, or 160 a day, with a lead time, ie the period between the start and the end of a production process, of three days.
Based on the first calculation above, Company A’s spare bin should store at least 480 fasteners. However, management is also aware that usage levels can sometimes fluctuate by up to 15%, so as a precautionary measure they choose to add additional fixings to their reserve storage bin. This safety stock could come in handy if demand picks up and production rates increase, as they have in the past.