how two bin inventory control works
effectively managing stock levels is one of the biggest challenges that companies face not having enough inventory can result in missing out on sales opportunities and losing out to competitors holding too much stock on the other hand increases the possibility of damage spoilage theft and falling victim to shifts in demand it also means higher storage costs and delays recouping money from purchased goods to reinvest in the business the two bin inventory control system is a basic technique used to ensure that companies reduce these risks and always have more or less the right level of stock to meet demand without overdoing it in its simplest form the process can be broken down like this this system is broadly employed across different industries that involve manufacturing operations and is also effective for hospital inventory control special considerationstwo bin inventory control is almost always used for small or low value items that can be easily purchased and stored in bulk in contrast higher value items are subject to the perpetual inventory system moreover depending on historical patterns of variance in the depletion rate of the working stock bin no 1 the amount ordered for the reserve stock bin no 2 can be adjusted it is essential that the new order placed after the first bin is emptied arrives before the second bin is empty otherwise the process does not work as intended the inventory approach used for both bins is first in first out fifo given that the inventory placed in the first bin is also the inventory that is first sold in general the following calculation is used to determine how much inventory to keep in the reserve stock bin daily usage rate lead time safety stockexample of two bin inventory controlcompany a is a small manufacturer that goes through various types of nuts and bolts to piece together its products fasteners are among the many items it orders from outside suppliers it uses roughly 800 of them per week or 160 per day with a lead time the period between the beginning and completion of a production process of three days according to the first calculation above company a s reserve bin should stock at least 480 fasteners however management is also aware that usage levels can sometimes fluctuate by as much as 15 so as a precautionary measure chooses to add some more fasteners to its reserve storage bin this safety stock could come in handy if demand picks up and production rates increase as they have in the past 