SWork In Progress Inventory (WIP Inventories): How ShipBob Can Help

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Products are composed of numerous components that must be assembled and/or imported before they can be used. As a result, Work In Process Inventory (WIP inventory) is the partially finished raw materials at the end of a production cycle. As a result, the cost of manufacturing influences the price of the commodity (e.g., raw materials, labour, and production).

It is critical to comprehend the ending work in process inventory and how important it is for inventory management. This article will go over the costs of work-in-process inventory (WIP) and how much WIP you have in production.


What is a WIP inventory?

During the manufacturing cycle, work in progress (WIP) inventory includes unfinished products. Work in progress refers to the cost of all current products that have not yet been completed in the context of production and supply chain management. The balance sheet includes inventory for work in progress (WIP). It is not, however, the same as “finished products,” which are ready for purchase.

It is critical to reduce the amount of WIP (work in progress) before reporting because estimating the percentage of completion is difficult and time-consuming.


Work in Process vs. Work In Progress: What Are The Main Differences?

The terms “work in process” and “and” “work in progress” are frequently used interchangeably, but they can have different meanings in different industries. In general, work in process refers to unfinished materials that are quickly converted into finished inventory.

Work in progress, on the other hand, frequently refers to projects and the percentage of completion. These terms have the same meaning for both businesses that sell physical products. However, this is insufficient to justify the predefined norms, so a half-finished product remains in the works. The inventory for this item can be found on a balance sheet, which includes labour employed, inventory, and manufacturing overhead.


For context, let’s look at WIP inventory in the following classifications:

Take note that all these terms pertain to manufacturing inventory.

  • Raw material inventory: Any materials on your inventory needed to manufacture a product
  • Work in process inventory: Raw materials that need to be assembled during the production process
  • Finished goods inventory:  Final stage of completion, WIPs inventory that is ready to be sold

To elaborate, all raw material costs associated with the final product are typically added at the start of the conversion process. WIPs are a current asset, and you may need to track your WIP inventory for tax purposes in order to accurately determine the value of your inventory.


Why Is It Important To Classify Work In Progress Inventory?

Performing a WIP inventory prior to assembly in a time-sensitive warehouse environment may appear tedious, but it is critical for supply chain and inventory control monitoring. In practice, keeping excess work in inventory is rarely advantageous to a company’s financial position.

WIP consumes storage and manufacturing space that could be used for deliverable inventory, increasing carrying costs. The more complex your manufacturing process, the more your capital is locked up. At the same time, the larger the stock of work in progress, the more likely it is that materials will be misplaced, expired, or obsolete before they can be built.

Another reason to classify WIP inventory is that it has a significant impact on your company’s valuation. Even if your inventory is considered liquid, the lender may be hesitant to use it as collateral for a loan.


WIP Inventory Examples

Compared to finished product calculation, WIP inventory calculation has many moving parts. This value only accounts for a subset of the products included in the WIP figure. This does not include materials that have not yet been used to sell a product. Also, the WIP figure does not include finished goods held in anticipation of future sales.


WIP inventory is calculated by the following formula:

Total manufacturing costs + Beginning WIP Inventory – Ending WIP Inventory = WIP Cost of Production

This formula includes raw materials, finished products, work in progress and work in progress inventory. After you’ve determined your starting work in process inventory and your material and production costs, you will have a good idea of how much WIP you have.


How Do I Improve Production Operations?

The majority of eCommerce businesses rely on a saleable stock or a supplier. Because WIP inventory is an inventory asset, it is critical that it be included in your overall inventory accounts. If you have complex operations, it can affect your completion percentage and cause supply chain surprises, which can harm your sales growth. You must create a detailed schedule and implement it on your manufacturing floor.

Here are some ideas for improving your completion time and providing an accurate WIP inventory during inventory monitoring.

  • Manage the cost of direct and indirect materials
  • Use the process of WIP inventory to reveal how efficiently your supplier or manufacturer ships products.
  • Using a third-party logistics (3PL) provider such as ShipBob to optimise your supply chain
  • Seek out the most excellent vendor
  • Measuring and reducing WIP and controlling manufacturing processes as well.


Final Thoughts

A better understanding of WIP inventory can assist you in resolving supply chain optimisation issues. Running inventory is a critical component of creating a successful online store.

If you want to optimise business decisions for your customers, choose a partner that provides distribution, warehousing and fulfilment, as well as technology, expertise, and data analytics.

You can manage inventory in real-time by collaborating with a third-party logistics (3PL) provider such as ShipBob. It can display initial numbers and turnover information, display inventory quantities, request forecasts, and access inventory tools for small to large-scale projects.