We certainly have managed to make many things overly complicated during recent years. For example, we have invested great sums of money in complex computer systems designed to tell us when to order parts. Often these systems take months to implement, do not perform as promised and generate a great deal of frustration throughout the organization.
As an alternative to a complex system, I want to remind you of a simple, yet effective, system for replenishing your inventory. I am talking about the two-bin system of reordering parts, which often gets overlooked in our zeal to computerize everything. The two-bin system works well for ordering everything from certain product inventory items (those that have a relatively stable usage, now and in the foreseeable future) to consumable supplies, including office products.
The two-bin system is exactly that—a system that requires two storage containers. The containers will each hold a predetermined quantity of the same material. The quantities may be the same, or one may hold a larger quantity than the other.
Quite simply, the two-bin system works as follows.
Two bins of items are created.
- The first bin is stacked on top of, or in front of, the second bin.
- A reorder card is placed on the bottom of each bin.
- Material is drawn from the first (or most accessible) bin only.
- When the first bin is empty, it is exchanged with the second bin.
- The reorder card is used to replace items in the first bin.
- Material is then drawn from the second bin while waiting for receipt of the material on order.
- When the new material arrives, it is placed in the empty bin, and the reorder card is returned to its proper place in the bin.
- The procedure is continued, with material being selected from one bin until it is depleted. The material is then replenished through use of the reordering card.
As long as the quantity of the material in each bin is the same, you can continue to deplete one bin, place the order for the replenishment amount, then deplete the second bin, and so forth. However, if the second bin has a smaller quantity of material than the first bin (there may be an advantage in doing this if the material is expensive and you do not want to have a high volume of material in stock when issuing a replacement order), then the quantity in the second bin (called the reorder point quantity) must be sufficient to cover the time required to receive the material (ordering lead time).
For example, if it takes 2 weeks to receive new material, then the second bin must contain at least a 2-week supply of that material. When the new material comes in, someone must withdraw a sufficient amount of material to replenish the reorder point quantity in the second bin, then place the balance of the received material into the first bin. Users will then withdraw material from that bin.
The two-bin system is a simple procedure, mainly because we are not relying on a computer to tell us when to order. Instead, we are relying on our own eyes. Training is necessary to ensure that warehouse personnel know to reorder material when one bin is empty. Not doing training will likely lead to unanticipated stockouts.
The risk of stockouts can also be reduced through periodic audits of the items in the warehouse. Such audits can, for example, discover instances in which only one bin contains material, yet both reorder cards are still visible. In such cases, some type of action needs to be taken immediately to avoid a stockout.
The only analysis required in the two-bin system is the reorder point quantity to be placed in the second bin. Most companies are overly conservative with this quantity because they are fearful of running out of stock. As a result, they set this reorder point quantity too high, so material arrives before it is actually needed.
However, it is easy to periodically review the reorder point quantities and adjust when necessary. The easiest way to do this is to count the number of items remaining in the second bin when the new items arrive. If the remaining quantity exceeds a few days' supply and vendor deliveries are relatively consistent, the reorder point quantity should be reduced. Do this by reducing the quantity of material in the second bin.
The two-bin system is easy to implement and maintain, and it is typically just as effective as any complex computer driven system used to reorder parts.