Question

In the text (wiki this if it is no longer in the text), the "red-line method" refers to

a. The policy of drawing a red line around certain neighborhoods on a map and then refusing to sell on credit to people who live within those areas.

b. Restrictions imposed by companies which insure credit risks.

c. The use, in Dun & Bradstreet's reports, of a red line to show the maximum amount of credit which should be extended to a given customer; companies using this limit when they screen customers' orders are said to be using the "red-line method."

d. A method of controlling inventories by drawing a red line on the inside of a bin.

e. A method of controlling receivables by drawing a red line on invoices of companies that are expected to pay late.

Answer 1

d. A method of controlling inventories by drawing a red line on the inside of a bin.

It is an inventory maintaining system. You need to draw a red line around the walls of your stock room. And keep the inventory inside the line. When the inventory falls below the red line, you need to reorder. And when the new inventory arrives, the new materials will be placed at the bottom of the stack and the older stock is piled on top of it. It is very effective if the correct reorder point is found.