The increase in cost of supplies and services is outpacing the increase in revenues at many hospitals. To address this cost increase hospitals are seeking more efficient ways to store and manage vast inventories of medical supplies. A parsimonious and efficient inventory system which we call 2Bin is becoming increasingly popular in North American hospitals. Under the 2Bin system inventory is stored in two equal-sized bins. 2Bin systems are reviewed periodically and empty bins are replenished. In recent years the adoption of RFID technology for 2Bin systems is allowing continuous-time tracking of empty bins, increasing inventory visibility. In this paper we model the 2Bin inventory system under periodic and continuous review. For periodic review we show that the long-run average cost per unit time is quasi-convex, enabling a simple search for the optimal review cycle. For continuous review, we present a semi-Markov decision model, characterize the optimal replenishment policy, and provide a solution approach to obtain the long-run average cost per unit time. Using data obtained from hospitals currently using RFID-enabled 2Bin systems, we estimate the economic benefits of using the best periodic review length (i.e., parameter optimization), and of using a continuous review inventory policy (i.e., policy improvement). We characterize system conditions such as the number of medical supplies used, replenishment costs, stock-out costs, etc. that favor each option, and provide insights to hospital management on system design considerations that favor the use of periodic or continuous review. 
The 2Bin system for controlling medical supplies at point-of-use