How does a two-bin inventory system signal when stock should be replenished?

In the context of operations research, the two-bin inventory system—also known as the min-max system—signals a need for replenishment based on the depletion of a specific portion of stock.1

The system utilizes two distinct bins, which may be physical containers or logical records on paper. The first bin is designated to supply current demand, while the second bin is reserved to satisfy demand during the lead time required for replenishment. When the inventory in the first bin is completely exhausted, it serves as the trigger to initiate an order for a predetermined quantity of stock.1

This method is a form of continuous review, though it can be modified to incorporate cyclical reviews or specific reorder levels depending on the needs of the production system. By separating stock into these two categories, the system helps managers balance the costs associated with holding inventory against the costs of potential shortages.1