Two-Bin Inventory Control – Definition

Cite this article as:"Two-Bin Inventory Control – Definition," in The Business Professor, updated September 19, 2019, last accessed June 6, 2020, https://thebusinessprofessor.com/lesson/two-bin-inventory-control-definition/.

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Two-Bin Inventory Control Definition

The two-bin inventory control is a model or system used in determining when resources or inputs should be restocked or recharged. This system is mostly used in the manufacturing sector. Items in the second bin are used to continue production when the first bin gets depleted. In other words, the first bi is the working bin, and the second serves as a reserve. Sometimes referred to as kanban, this system is used alongside the just-in-time (JIT) method in production processes.

Important Details

  • The two-bin inventory method is a system which manufacturers use in determining if production inputs should be replenished
  • The second bin is mostly used during the waiting period of refilling the first bin
  • This system also keeps a record of inventory using bin and store ledger cards.

A Little More on What is  Two-Bin Inventory Control

Stocks and input management is one of the hassles of a manufacturing firm, as inadequate inventory at crucial times can lead to losses as well as getting ranked below competitors. On the other hand, excess inventory might lead to damage, theft, spoilage, and even sunk costs (when the price falls due to demand). Excess inventory also slows profits, as sales would have to cover the costs of production before raking in profits. The two-bin inventory control targets both issues and proposes a way in which manufacturers would have just the right amount of stocks at the right time. This system is summarised below:

  • The first bin is positioned over the second bin
  • Each bin have a reorder card attached to their bottom
  • Materials are sourced from the bin that is easier to reach first
  • When the first bin becomes empty, the second bin comes into play
  • The first bin will be restocked using the reorder card at its bottom
  • After it is refilled, it will take the initial position of the second bin
  • The process repeats itself till production is complete

Due to its maximisation, this system has gained recognition in top manufacturing industries as well as in hospital inventory control.

Special Application

The two-bin inventory control system is mostly used in small and cheaper production processes, as refilling materials in such operations would be easier, and bulk storage is possible. Higher production processes, on the other hand, make use of the perpetual inventory system. However, it is possible to apply this method to higher production if properly calculated using historical patterns.

The amount of materials to be kept as reserve in the second bin is calculated using:

(Daily Usage Rate x duration of production) + safety stock

The duration of production is widely known as lead time, and it is the amount of time from the beginning to the end of a process.

Illustration of Two-Bin Inventory Control

Firm B is a small producer who uses nails and wood to create pieces of furniture. On most occasions, they also employ screws to work on their furniture. This firm uses approximately 300 units of these screws each month, or 10 per day, with a production time of 48 hours (2 days).

Using our formula above, this company should keep reserve stock of up to 20 screws. However, due to fluctuation, the management chooses to add up to 10% more of screws just in case. This extra 10% is called the safety stock, and it is used when demand for such inputs grow higher and production increases as well. This analysis is generally gotten from their historical data, as stated above.

References for “Two-Bin Inventory Control

https://www.investopedia.com › Business › Corporate Finance & Accounting

https://www.accountingtools.com/articles/two-bin-inventory-control.html

www.businessdictionary.com/definition/two-bin-system.html

Academic research for “Two-Bin Inventory Control

Renewal‐theoretic analysis of a two‐bin inventory control policy, Gaver Jr, D. P. (1959). Renewal‐theoretic analysis of a two‐bin inventory control policy. Naval Research Logistics Quarterly, 6(2), 141-163.

On the Stationary Analysis of Continuous Review (s, S) Inventory Systems with Constant Lead Times, Sahin, I. (1979). On the stationary analysis of continuous review (s, S) inventory systems with constant lead times. Operations Research, 27(4), 717-729.

Inventory management for power transformer spare parts, Suwanasri, T., Suwanasri, C., Waewkaew, N., & Phadungthin, R. (2011, May). Inventory management for power transformer spare parts. In The 8th Electrical Engineering/Electronics, Computer, Telecommunications and Information Technology (ECTI) Association of Thailand-Conference 2011 (pp. 669-672). IEEE.

Revenue and production management in a multi-echelon supply chain, Kabirian, A., Sarfaraz, A., & Rajai, M. (2013, December). Revenue and production management in a multi-echelon supply chain. In 2013 Winter Simulations Conference (WSC)(pp. 3330-3339). IEEE.

Supply chain models and considerations for community-based distribution programs: a program manager’s guide, Hasselberg, E., & Byington, J. (2010). Supply chain models and considerations for community-based distribution programs: a program manager’s guide. Reproductive Health Supplies Coalition, Arlington.

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