What is Two Bin System in Inventory Management?
Two bin system in inventory management represents an inventory control system where the first bin is used to supply current demand. The second bin is used for satisfying demand during the replenishment period. The first bin is the working bin, and the second serves as a reserve bin.
Two bin system is a practice that is applied to regulate and restore the component 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.
Let us write advantages of the twin bin system:
Two bin system advantages
- Two bin system regulations are a practice used to regulate and restore the raw materials consumed as input in the manufacturing processes.
- Once the component from the 1st bin drains, purchase of the component is made. Meanwhile, components from the 2nd bin are used.
- 2 bin practice is utilized for minor components and with a lesser value that can be reserved in quantity.
- 2 bin system minimizes the possibility that materials run out of stock.
- Store sheets and Bin sheets are referred to keep track of 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, which in turn leads to giving up on sales. In addition, maintaining stock more than required can lead to misconducting 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 2 bin system regulations are a general strategy practiced by the organizations to make sure that the company maintains an accurate amount of material needed. Not minimum or maximum, but all that is needed.
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 bins.
- The needed component should be taken from the 1st bin till it gets empty.
- Once the 1st bin is drained, take it from the 2nd bin.
- The maintenance sheet is referred to place an order.
- As you receive the placed 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 where 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 creates a dispatch of more materials in a predefined quantity.
Factors to be considered
2 bin system regulations are utilized for minor components or ones with lower costing and those easily available in the market and can be reserved in quantity. And expensive components are dealt with by a perpetual inventory system.
Generally, orders for restoring inventories for bin 2 can also be placed based on track record, and the reduction rate noted from previous years.
It should be kept in mind that the order placed for the 1st bin is received before completing the 2nd bin. If not, the process will not be applicable. As the stock conserved in the 1st bin is used first, the access for both of them should be the same as FIFO (first in, first out).
Hence, this practice is applied to count the stock requirement and the actual stock needed.
Two bin system example
Organization A is the umbrella manufacturer that produces 500 umbrella units where the daily usage rate is 100 umbrella units and lead time is 3 days. The Reserve storage bin contains 300 umbrellas to cover 3 days lead time. Company A uses 75 additional umbrella units in a reserve storage bin and uses a 25% safety stock allowance.
Company A has 500 umbrella units
The daily usage rate is 100 units
Lead time 3 days
25 safety stock allowance
(Daily Usage Rate x duration of production) + safety stock = 100 x 3 + 25% = 300 + (300×0.25)= 300 + 75 = 375
The total reserve stock is 375 units.