What Is Two-Bin Inventory Control?
Let me explain the two-bin inventory control system—it's a practical technique I see companies using to keep their stock levels just right for meeting demand without running into shortages or excesses.
In this setup, you place an order to replenish the first bin once its items are used up in production. You keep a second bin ready with enough stock to transfer over and cover needs until the new order arrives. The first bin holds your minimum working stock, while the second acts as your reserve.
You might hear this method called kanban, which ties closely to just-in-time (JIT) manufacturing processes.
Key Takeaways
From my perspective, two-bin inventory control works best for small or low-value items that you can easily buy and store in bulk. You use bin cards and store ledger cards to track everything accurately.
Overall, this system helps you cut down on inventory risks and ensures you always have the stock you need to satisfy demand.
How Two-Bin Inventory Control Works
Managing stock levels effectively is one of the toughest parts of running a business, as I've observed. If you don't have enough inventory, you miss sales and lose to competitors. But if you hold too much, you risk damage, spoilage, theft, demand shifts, higher storage costs, and delays in turning goods into cash for reinvestment.
That's where the two-bin system comes in—it's a simple way to balance these risks and keep stock levels appropriate for demand. Let me walk you through the basics.
The Basic Process
- Place the first bin on top or in front of the second bin.
- Put a reorder card at the bottom of both bins.
- Take stock from the accessible first bin.
- When the first bin empties, replace it with the second bin.
- Use the reorder card to order restock for the first bin.
- Once the ordered stock arrives, place it in the empty bin and repeat the cycle.
How Two-Bin Inventory Control Works (Continued)
You'll find this system widely used in manufacturing industries and even in hospital inventory management for its effectiveness.
Special Considerations
Remember, two-bin control is typically for small or low-value items that are easy to purchase and store in large quantities. For higher-value items, you should use a perpetual inventory system instead.
You can adjust the reserve stock in the second bin based on historical variations in how quickly the working stock depletes. It's critical that your new order arrives before the second bin runs out, or the system fails. Both bins follow the first-in, first-out (FIFO) method, meaning the stock you put in first is the stock you use first.
To figure out how much to keep in the reserve bin, use this calculation: (daily usage rate * lead time) + safety stock.
Example of Two-Bin Inventory Control
Consider Company A, a small manufacturer that assembles products using various nuts and bolts from suppliers. They use about 800 fasteners per week, or 160 per day, with a lead time of three days.
Using the calculation, their reserve bin needs at least 480 fasteners. But management knows usage can fluctuate by up to 15%, so they add extra safety stock to handle potential increases in demand or production rates, based on past experiences.
Other articles for you
Nonmonetary assets are company holdings that lack precise dollar values, aren't easily convertible to cash, and include items like equipment and patents, differing from monetary assets which can be quickly turned into fixed cash amounts.
Underwithholding means not withholding enough taxes from your income, which can lead to owing money and penalties when filing your tax return.
Hyperdeflation is a rare economic phenomenon involving rapid and extreme decreases in prices, increasing currency's purchasing power, with Bitcoin as a potential modern example.
The Great Society was President Lyndon B
A risk profile evaluates the risks individuals or companies face and their capacity to handle them in investments or operations.
The paradox of thrift explains how increased personal savings during a recession can harm the overall economy by reducing spending and demand.
This text provides a biographical overview of Mark Zuckerberg, detailing his founding of Facebook, his wealth, philanthropy, and controversies involving data privacy.
Overextension in finance means having more debt than one can afford to repay, often leading to risks for borrowers and lenders alike.
Special Economic Zones are designated areas with favorable regulations to attract foreign investment and boost economic growth.
The right of rescission lets borrowers cancel specific home loans within three days without questions or penalties.