WIP (Work in Progress)

WIP is a commonly used abbreviation in manufacturing meaning ‘Work in Progress’ or ‘Work in Process.’ WIP encompasses inventory between raw materials and a finished product. Works in progress are also Items or products that have yet to be delivered or payment has yet to be received. WIPs can also be considered items that have been received at the factory but have not been delivered to the customer.

What is WIP?

Once raw materials have gone through any type of value-adding process, they are considered as a work in progress. In manufacturing, WIP is considered a type of inventory and should be closely kept track of. Having excess inventory is considered a waste because unfinished products can tie up cash for periods of time and take up valuable space in a facility.

Ultimately, keeping WIPs moving through the manufacturing process will affect the bottom line. If a facility is on a path to getting Lean, it's important to map out the flow of materials to get a better understanding of WIP.

How does work-in-progress work?

In production and supply chain management, the function of a WIP is to ensure the completion of a product from a raw state to a finished product that can be advertised as merchandise to an interested customer or merchant. 

What is the difference between works-in-progress and finished goods?

To differentiate between ‘works in progress’ from ‘finished goods’ is to observe the inventor’s stage of completion in respect to its total inventory. While WIP is considered as the initial stage in comparison to finished goods which is the final stage of an inventory life cycle. 

Work-in-Progress vs. Work-in-Process

The manufacturing sector refers to products that are incomplete for a short period of time as a “Work in process’. These goods have a monetary value to the company which are in the stages of manufacturing as they are neither raw materials nor finished goods.

In contrast, “Work in progress,” refers to a broader range of products which require a significant time to reach completion such as construction projects. 

Works-in-Progress vs. Finished Goods

‘Work in progress’ refers to larger time-consuming projects which require additional work before they can be sold. Such as software projects which require the development of new features and must be evaluated through trial and error. 

On the other hand, finished goods is a manufacturing term used to refer to the products which are ready for sale. These items are referred to as “merchandise” of the company once the sale has been completed and the cost has been procured by the company. 

The importance of work in progress

For industries and larger companies, the incorporation of a WIP inventory is essential to maintaining a smooth running business. The purpose of the inventory is to help companies stay well informed about the consumption of resources in the production process and to efficiently manage costing. 

Ideally, WIP inventories allow companies to manage the production of products and maximize profit without the accumulation of surplus raw materials. 

How to Calculate Work in Progress (WIP)

To calculate the work in progress, industries will have to calculate the respective sum of the costs with the respective sum of the costs that are involved in the manufacturing process. The costing process is to be calculated from the  procurement of raw materials, to labor costs and the percentage of the total factory overhead.

There are three stages of a manufacturing process that can be classified into:

Raw Materials

The initial stage of the manufacturing process includes purchasing raw materials which will be later developed and modeled. 

Work In Progress (WIP)

After obtaining raw materials, they enter a process of being manufactured into finished products which can be sold later on. This process can be time consuming depending on the product type. 

Finished Goods

In this stage, the products have reached their final designation and are ready for sale. 

Benefits of Managing WIP

There are multiple advantages that WIP inventories provide that companies can use as an asset to maintain an account of the production costs to maximize efficiency. 

Resource Optimization:

A WIP inventory enables companies to stay on track and remain updated on the status of their products and efficiently calculate the required amount of raw materials. 

Cash Flow Management: 

An organization can maintain a healthy cash flow management by the incorporation of a WIP inventory. By assessing the specific amount of capital required within the manufacturing process, companies can manage and allocate funds to other business areas. 

Reduced Lead Times:

By exercising the function of WIP inventory management effectively, managers can carefully assess and manage the costs and minimize the time taken from the facility to the customer. 

Facility managers can work closely with the manufacturing team to exercise control in the needed areas to predict and identify potential bottlenecks and handle them effectively. 

Reducing Levels of WIP: 

A manager can identify areas that WIP is held up or delayed by conducting a bottleneck analysis. Conducting this analysis will help to identify areas with bottlenecks—spots in the process that are often backed up —and find solutions to steady the workflow.

Facilities can eliminate bottlenecks by adjusting the flow, simplifying the process, adding staff, or reducing production. Implementing one or more of these solutions can keep manufacturing inventory moving swiftly from raw materials, to work in progress, to a finished product.

Using work-in-progress limits

In a fast paced work environment, it is essential that products undergo their final stage with no errors or hold ups. Work in progress (WIP) limits the maximum amount of workflow designated to the manufacturing process. 

Establishing work in progress (WIP) limits is to enhance the efficiency of the manufacturing process and to ensure that there is no overflow of tasks. While it is vital to maintain the workflow in the development of products, problems and issues can arise which require immediate attention. This creates a disruption or a bottleneck which can disrupt the consistency of the workflow. 

What Should a WIP Report Include?

WIP reports consist of a detailed outline of the status of a manufacturing product. 

Common WIP Report Mistakes to Avoid

WIP reports are a printed layout of the manufacturing process in addition to the minor costing details associated with the process. The data present in the report can be a guideline to ensure the project undergoes completion. 

Essentially, an accurate representation of the manufacturing process must be reflected in the report to address situations efficiently. Here, are some common errors to avoid:

Not tracking committed costs:

Inability to track committed costs such as employee wages, raw material or subcontractor costs leads to an inaccurate WIP report. In order to ensure your projects are not taking more than you can afford, such costs need to be maintained. 

Entering figures incorrectly:

Incorrect figures in the WIP report can greatly impact your data and calculations, it is important to recheck and eliminate the potential human error which can cause long term damage in the funding of the project. 

Not running regular WIP reports:

Maintaining a routinely updated WIP report reflects the progress of the workflow and how far the project is until completion. Unable to maintain a regular report can cause ignorance about bottlenecks and the depletion of funds.

Delayed tracking of expenses and costs:

You can incur loss and damage to your future projects, if you do not report the expenses and costs in real time. If there is no account mentioning the details of a particular expenditure, you may exhaust your resources and put future projects at risk. 

Stay On Track with WIP:

A WIP is a step in the process of chain in supply management that can allow you to manage and assess your product and manufacturing process in a feasible manner. It provides you the upper hand to remain one step ahead allowing you to make cost effective and precise decisions.

Reducing Levels of WIP

A manager can identify areas that WIP is held up or delayed is by conducting a bottleneck analysis. Conducting this analysis will help to identify areas with bottlenecks—spots in the process that are often backed up —and find solutions to steady the workflow.

Facilities can eliminate bottlenecks by adjusting the flow, simplifying the process, adding staff, or reducing production. Implementing one or more of these solutions can keep manufacturing inventory moving swiftly from raw materials, to work in progress, to a finished product.