What is a work in progress (WIP)?

Learn more
The term ‘WIP’, generally refers to semi-finished productions that are yet to reach the state of being a ‘finished good’. Work-in-progress is a word that is frequently used in manufacturing contexts when talking about supply chain, manufacturing, financial and logistics operations and more. It does not only mean half-way-processed inventories; it refers to labour costs, raw material costs and overhead manufacturing costs that are invested in the production process at different stages. The WIP of an organisation is recorded in financial books as a current asset because they are a part of the capitalisation of company money and resources. However, in lean manufacturing, extra WIP is considered a foreshadowing element to wastages since it is caused by inefficient supply chain and manufacturing process management. Today we will be focusing on understanding the entirety of WIP and how to eventfully manage it to streamline your company’s manufacturing operative efforts.

How to calculate WIP?

WIP is traditionally minimised as much as possible before closing financial books for a fiscal year since it is necessary (and is also the standard protocol) because estimating the rate of completion of a product is a complicated process. It is difficult for accountants to generate an accurate cost to a WIP item based on its condition since many WIP items can be at different stages of the product life cycle, and in enterprise-level companies, there will be items adding up to 1000s of stock amounts, which is all the same reason why it is vital for a company to discern how to calculate the WIP balance to record the transactional information in their books precisely. The WIP inventory formula that is used by manufacturing companies is:

Beginning WIP Inventory + Manufacturing Costs - COGM = Ending WIP Inventory (Amount recorded in the books)

The 3 components that are used in the WIP inventory formula is explained below:

  1. Beginning WIP Inventory – refers to the WIP balance carried from the most recently passed fiscal year’s financial reports.
  2. Manufacturing Costs – this term embodies the compiled amount of all the manufacturing costs incurred in the particular financial year
  3. COGM or Cost of Manufactured Products – Total costs expensed to produce the total finished products.

Too much WIP?

As mentioned above WIP refers to products that are in the process of undergoing a transformation from being segregated raw materials to being well-intact finished goods. So how can over-existence of WIP items affect a company? Practically, having unfinished matters to tend to can be detrimental to any person or company. It is the same logic in manufacturing companies. Having a lot of WIP inventory signifies the company has limitations in meeting demands and streamlining the supply chains at large. From the perspective of a production theory, the act of minimising the rate of WIP inventory in a business cannot be emphasised enough. Having WIP piled up in the factories is sure to clutter the production processes and the probability of resulting in defective goods is higher. Having the lowest WIP investments can be effortlessly addressed as the cornerstone of the well-renowned JIT system used in Lean Manufacturing. Controlling WIP inventory can be exerted by placing inventory buffers in front of well-throttled workstations in the manufacturing zones to ensure smooth production flows.

How can you minimise Manufacturing WIP?

Many companies continuously strive to control the closing balances of WIP every year since it allows the manufacturing custodians to allocate the highest amount of work to remain excellent during every status of the product life cycle. Additionally, diminishing the WIP limits of a company would impact the company on many other levels, like:

  • In promoting the processes to be higher in liquidity,
  • To unlock better cash flows with transparent and precise financial information,
  • Enhancing customer services with the timely meeting of the demand requirements,
  • In reaching the highest limits in labour productivity,
  • Companies will be able to foretell manufacturing limitations and resolve them proactively,
  • In capturing KPIs and advancing line efficiencies and more.

So how can you aid in keeping your WIP limits at its lowest? Here are some briefed remedial actions that you can follow to keep your WIP balances at a humble limit.

  1. Keeping track of the WIP inventory levels by mapping patterns to understand the lowest possible levels can assist you in determining the desired WIP balances. This way, you can set targets according to the business’ level of performance and even forecast the WIP levels based on historical data.
  2. The manufacturing teams of the company must share their propensities at different levels. This way it would be easier to schedule process activities according to the capacities of the manufacturing workstations.
  3. Redesigning workstation posts according to the availability and matching talents. For instance, you can select the best operators who are specialised in certain tasks to enable the workflows to be executed smoothly.
  4. You can welcome strategies like ‘JIT Production approach’ and other efficient theoretical and practical measures to understand and execute manufacturing processes comprehensively.

Technological aids for better WIP management

Optimising the workspaces is a crucial action that can have a higher impact on reducing WIP levels, especially now that our businesses are residing in the new age driven by hi-tech solutions and innovation. The manufacturing firm’s decision-makers can invest in better machinery, technological solutions, and develop the workforce skills as required to directly impact in controlling WIP levels. In this context, technology -as always- plays an immense role. One of the most noteworthy technological solutions that you must be familiar with is WIP software solutions that foster WIP managers, books and accounting tools to automate the process of WIP maintaining end-to-end. These cloud-friendly, integrative software solutions can enable a suite of solutions that consolidates all hectic tasks in controlling WIP limits and operations into one all-inclusive solution. They house eminent visualisation powers via interactive dashboards and user-friendly interfaces to keep your manufacturing managers updated about every WIP-related task happening or is about to happen on the plant-floor in real-time. There are other solutions like Training Management Systems that mitigate your efforts in upskilling your corporate human resources to work better, with lesser idle time and retain their dedication in meeting your organisation’s goals. Connect with the Tigernix’s support crew for more information on this regard.

Last but not least, understanding what WIP is and how surplus WIP limits can hinder your company’s manufacturing efficiency and effectiveness is crucial to sustain and remain unshaken in the disruptive manufacturing industry. We hope that our article has provided you with a head start to understand your company’s WIP inventories can be competently managed and minimised to meet excellent manufacturing standards. We hope we helped you start your journey towards perfection by being armed with minimal WIP limits to reach your organisational goals in a better and more agile manner.

Recent Posts