What is Work-in-Progress?
Work-in-progress, or WIP, refers to a type of good that is unfinished—products that require further processing in order to turn them into their intended final or completed form.
Work-in-progress is often used interchangeably with work-in-process, especially in manufacturing. Materials that have not proceeded to a value-adding process are considered raw materials and not work-in-progress. Thus, the latter is an intermediate of raw materials and finished goods.
Since the items, assets, or projects, will undergo a series of processes, the work-in-progress can be identified with different labels, depending on the work, task, or value added to them. The total amount of WIP can therefore be subdivided into more than one label of WIP’s, accounting for the WIP in each process within service or manufacturing line.
The work-in-progress can be expressed in terms of the number of items or in terms of the cost of used resources that are not yet turned into finished products for delivery to customers. The latter is often used in accounting.
Most processes will have a certain WIP level, which can be classified into necessary vs unnecessary WIP.
Necessary WIP levels are set in order to meet fast-moving or peak season demands. On the other hand, unnecessary or excessive WIP levels indicate underlying problems within the operation.
In inventory management and lean manufacturing, it is important to monitor the work-in-progress as its abnormal levels could imply the following problems: lack of supply chain management, insufficient production planning, excessive manual labor required. All of these cause production delays and thus a spike in work-in-progress level, and thus require further analysis to avoid unnecessary work-in-progress, which are also considered as a kind of waste, since costs are already associated with it and requires storage areas.