Two-Bin Inventory Control

Two-bin inventory control is a simple stock management technique that helps ensure a steady supply of items while minimizing excess inventory. It’s commonly used for small, low-value, high-turnover parts and supplies.

What it is

The system uses two physical or logical “bins” for each stocked item:
– Bin 1 (working stock): the accessible supply used in daily operations.
– Bin 2 (reserve stock): the backup supply that replaces Bin 1 when it is depleted.

When Bin 1 is emptied, an order is placed to replenish it and Bin 2 is moved into service. The process repeats when the new stock arrives. This approach is sometimes called kanban and is closely associated with just-in-time (JIT) inventory practices.

How it works (step-by-step)

1. Place Bin 1 in a readily accessible location and Bin 2 behind or beneath it.
2. Attach a reorder card (or trigger) to indicate when Bin 1 is empty.
3. Use stock from Bin 1 until it is exhausted.
4. Move Bin 2 into the Bin 1 position and immediately place a replenishment order for the emptied bin.
5. When the ordered stock arrives, refill the empty bin and resume normal use.

Key advantages and limitations

Advantages
– Very simple and low-cost to implement.
– Reduces stockouts for frequently used, low-cost items.
– Easy to understand and operate without complex software.

Limitations
– Best suited for small, low-value items; not ideal for high-value or slow-turning stock.
– Requires predictable usage rates and reliable lead times.
– If orders don’t arrive before the reserve bin is depleted, stockouts occur.
– Less effective when demand variability or lead-time variability is high.

Operational considerations

• Inventory rotation is typically FIFO (first in, first out).
• Reserve quantities can be adjusted based on historical usage variability.
• Recordkeeping (e.g., bin cards or simple ledger entries) helps track consumption and trigger orders.
• Calculate reserve needs to ensure orders arrive before reserve depletion.

Sizing the reserve bin

A common sizing formula:
Reserve stock = (Daily usage rate × Lead time) + Safety stock

Example:
– Daily usage = 160 units
– Lead time = 3 days
– Reserve needed = 160 × 3 = 480 units
– If expected variability warrants a 15% safety margin: 480 × 0.15 = 72 → Total reserve = 552 units

Example in practice

A small manufacturer that uses fasteners may consume 800 per week (160 per day). With a three-day lead time, the reserve bin should hold at least 480 fasteners. Adding safety stock to cover demand fluctuations increases the reserve to around 552 fasteners, protecting production if usage spikes or deliveries are slightly delayed.

When to use

Two-bin control is effective when:
– Items are low-cost and easy to store in bulk.
– Usage is relatively steady and predictable.
– Lead times are short and suppliers are reliable.

For high-value or complex inventory, perpetual or computerized inventory systems are generally more appropriate.