Definition: The Three-Bin System is like a two-bin system, wherein the third bin of inventory is reserved with the supplier. In other words, a manufacturing firm keeps a stock of inventory in two bins, and at the same time, the supplier of the inventory will keep one bin reserved at his location.
The Three-bin is built on the concept of Kanban system, a system used by the Japanese manufacturers, who regulate the supply of the components through the use of a card, displaying the set of specifications and instructions. This card is shown by the work centres when they wish to draw inventory from the supply bins.
All the three bins, one at the shop floor, another at the back store and the third bin at the supplier’s location are well equipped with a Kanban card, to track the movement of inventory.
Once the inventory is used from the bin placed on the shop floor, it gets replenished from the bin stored back store. Later the bin in the back store is sent to the supplier to get it replenished from the inventory reserved with the supplier. Then, the supplier will manufacture more inventory to fill the empty bin placed with him.
Thus, the three-bin system is followed to have a secured flow of inventories throughout the production of the finished goods.