So, what exactly is inventory management? At its core, it oversees and controls the flow of goods and materials into and out of business. This includes everything from purchasing and storage to tracking and analysis.
But why is inventory management so important? For one, it directly impacts a company’s bottom line. Poor inventory management can lead to overstocking, understocking, spoilage, and obsolescence, affecting profits. On the other hand, streamlined inventory processes can improve cash flow, reduce waste, and increase profitability.
Not only that, but effective inventory management can also enhance customer satisfaction and retention. By ensuring that products are always in stock and ready to ship, businesses can meet customer demand and reduce the risk of lost sales. Additionally, accurate inventory tracking can minimize errors and improve order accuracy, leading to happier customers and fewer returns.
With the rise of e-commerce and consumers’ increasing demands for fast and reliable shipping, inventory management has never been more critical. Studies have shown that businesses with robust inventory management systems are more likely to succeed in today’s competitive marketplace.
What is a Two Bin System in Inventory Management?
In inventory management, a two-bin system represents an inventory control system in which one bin is used while the other is reserved. The second bin is used to satisfy demand during the replenishment period. The first bin is the working bin, and the second is the reserve bin.
A two-bin system is a practice that is applied to regulate and restore the components or raw materials utilized in the manufacturing process. Once the element from 1st bin is out of stock, another order to repair it is placed. Therefore, the 2nd bin should have enough quantity to supply till the established order is received. Hence, 1st bin provides minimal inventory for processes, and 2nd bin is stored as a backup material. 2 bin system regulation is also known as kanban. This is because it firmly collaborates with the JIT (just-in-time) technique of the production process.
The Two Bin System characteristics
- Concept of Two-Bin System: The Two-Bin System is a method of managing stock to minimize inventory levels and avoid stockouts. The idea is to have two inventory bins, one in use and the other reserved.
- Bin Structure: The system uses two physical or virtual bins for each inventory item. The first bin is the working bin, and the second is the reserve bin.
- Inventory Usage: The inventory in the first bin is used until it is empty. After all the inventory from the first bin is used, inventory consumption continues with the second bin, and a reorder is issued for the first bin.
- Reordering Process: Once the first bin is empty, a purchase order is placed to refill it. The quantity ordered is usually the same as the original quantity.
- Continuity of Supply: The reserve bin ensures that inventory is always available, even when the working bin is being replenished. This eliminates the possibility of stockout inventory Levels: The quantity in each bin is set based on the lead time for replenishing stock and the usage rate. This system ensures that inventory is minimized while avoiding stockostockoutsmated Systems: Some modern two-bin systems use computerized sensors to detect when a bin is empty and automatically place a reorder. This can further improve efficiency and minimize the risk of human error.
- Applicability: The Two Bin System is most useful for inexpensive items with steady demand. It may not be as effective for expensive items, fluctuating demand, or unpredictable lead times.
- Benefits: The benefits of the Two Bin System include reduced risk of stockostockoutsced inventory levels, simplified inventory management, and potentially automated reordering.
- Limitations: The system requires accurate usage and lead time data. It also depends on reliable supply chains, as delays in restocking can lead to stock stockouts, so it’s not suitable for all types of inventory.
Two bin system advantages
- Two-bin system regulations regulate and restore the raw materials consumed as input in manufacturing processes.
- Once the component from the first bin drains, it is purchased. Meanwhile, components from the second bin are used.
- Two-bin practice is utilized for minor components with a lesser value that can be reserved in quantity.
- A two-bin system minimizes the possibility that materials run out of stock.
- Store sheets and Bin sheets are used to track the stored items.
The materials amount to be kept as reserve in the second bin can be calculated using the following formula:
(Daily Usage Rate x duration of production) + safety stock.
Two bin system regulations
Two-bin system regulations are a practice used to regulate and restore the raw materials consumed as input in the manufacturing processes. Efficient management of inventories is a challenging task, and many organizations find it difficult. And its reaction affects the production process, leading to giving up on sales. In addition, maintaining stock more than required can lead to misconduct activities such as damaging products, shoplifting, etc. Because of over-storing, you also invest more than needed and block your money for a while.
The two-bin system regulations are a general strategy practiced by organizations to ensure the company maintains an exact amount of material needed—no minimum or maximum, but all that is required.
The two-bin process can be sequenced as below:
- Keep the 1st bin in the front line and the 2nd bin behind it.
- A sheet to keep track should be kept under the containers.
- The needed component should be taken from the 1st bin until it empties.
- Once the 1st bin is drained, take it from the 2nd bin.
- The maintenance sheet is referred to as placing an order.
- As you receive the established order, the cycle is repeated.
Many manufacturing units adopt this practice. It also proves to be helpful in hospitals for controlling inventories.
Three-bin system inventory control
The three-bin system inventory control represents a manufacturing control system in which one bin of materials is placed on the factory floor to be processed for production, one bin is located at the factory store level, and one is on the supplier’s premises.
This system is similar to the two-bin system, but now we have an empty bin that dispenses more materials in a predefined quantity.
Two-bin System Example
Consider a practical example of a two-bin inventory management system for a local grocery store that sells apples. We’ll make some assumptions for simplicity:
- The grocery store deals, on average, 100 apples a day.
- It takes three days for an Apple order to arrive from the supplier once it is placed.
- The grocery store operates seven days a week. Therefore, they must have 300 apples (100 apples per day * 3 days) on hand to ensure they don’t run out before the next shipment arrives. This is the reorder point.
- They keep an extra one day’s worth of sales for safety stock or 100 apples.
- Therefore, the total stock in each bin is 400 apples (300 for regular operations + 100 for safety stock).
Now, let’s explain how the two-bin inventory system would work:
- Bin A and Bin B each start with 400 apples.
- The grocery store starts selling apples from Bin A.
- When all the apples from Bin A have been sold, the store switches to selling apples from Bin B. At this point, Bin A is empty, triggering a reorder from the supplier.
- The store places an order for 400 apples. These are expected to arrive in 3 days.
- Apples from Bin B will be sold over the next three days. When the shipment of apples arrives, they are put in Bin A.
- The store continues selling the remaining apples from Bin B. When Bin B is empty, they return to Bin A, which is complete, and place a new order to refill Bin B.
This cycle continues, with the store switching between Bin A and B and placing a reorder every time a bin empties. This ensures they always have stock to cover the lead time (the time between placing an order and receiving it) and some safety stock.
The beauty of this system is its simplicity: an empty bin is a visual trigger to place an order, and no sophisticated tracking system is needed.
Conclusion
The two-bin system is a practical and efficient method for managing inventory. It reduces stock stockouts, improves inventory turnover, and minimizes the costs involved in inventory management. With the two-bin system, companies can gain a better understanding of their inventory requirements, which helps optimize the ordering process and reduce manual intervention. Additionally, the system allows for better inventory control by providing real-time visibility and insight into stock levels and usage patterns.
This, in turn, helps businesses to make informed decisions about inventory replenishment, reduce lead time, and minimize the risk of stock obsolescence. Furthermore, the two-bin system helps improve overall efficiency and productivity by eliminating time and resource waste from unnecessary inventory handling.
After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management.
At Nimblefreelancer.com, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification.
Read more on Daniel Smith's biography page.
Contact Daniel: daniel@nimblefreelancer.com