‘Work in process’ inventory refers to unfinished products that are somewhere in the manufacturing process, and are therefore unsellable. The ending work in progress inventory roll-forward starts with the beginning balance, adds the manufacturing costs, and then deducts the cost of goods manufactured (COGM). The major benefit of the work in progress inventory is that it is beneficial in cost control. When you know the things that are present in your inventory, it will help you order everything in the right manner. You will know the things that are excess in the inventory and the things that are in shortage.

When Does Inventory Become WIP Inventory?

These include warehouse management, transport flexibility, and advanced fulfillment capabilities that connect with Ware2Go’s 1–2 day delivery network. The warehouse management system market is set to grow from $4 billion in 2024 to $8.6 billion in 2029, highlighting its key role in gross vs net supporting inventory management. Although you can’t see WIP inventory, it’s considered an asset on the balance sheet. For this reason, it’s best practice to hold as little WIP inventory as possible. Work in process (WIP) inventory is a key indicator of the health of your business’s supply chain. If your procurement process looks anything like the following three scenarios, you should track and calculate your WIP inventory.

Accurate tracking and forecasting

Excess work in process inventory can pose several challenges for your business. This enables you to take corrective action and enhance the overall efficiency of your manufacturing operations. This can result in faster order fulfillment, improved customer satisfaction, and higher sales volumes.

Finished goods

The cost of WIP inventory is a bit more complex than determining the value of finished goods, as there are many more moving parts. Before attempting to calculate your current WIP inventory value, here are some terms you will need to know first. Generally, most companies strive to reduce the amount of time that inventory spends at the work in progress (WIP) stage. The formula for calculating work in progress inventory – in the specific context of a manufacturer – is as follows. WIP stands for “work in progress” and refers to any partially complete inventory not yet ready to be sold to customers.

Additionally, calculating WIP inventory can assist in identifying trends over time, such as seasonal production variations or recurring inefficiencies in the manufacturing process. Monitoring WIP inventory helps businesses understand production progress, manage costs, and optimize workflow efficiency. With Katana, you can track WIP inventory levels at each stage of the production process.

• This ensures adequate resource allocation to meet production goals without excess waste.
• Real-time tracking through the stages of manufacturing makes smart WIP limits possible.
• In short, the beginning WIP inventory shows what was left from the previous period, while the ending WIP inventory shows what remains at the end of the current period.
• Since WIP inventory is an inventory asset, neglecting to include it on your business’ balance sheet can cause your total inventory to be undervalued.

Once you have all the data mentioned above with you and have calculated your manufacturing cost and COGM, you can determine how much WIP inventory you have. It differs from finished goods as they are items that are ready to be sold as-is. This formula accounts for the cost of goods available for sale during a specific period, subtracting the value of the ending inventory to determine the cost of goods sold. Understanding WIP inventory can help you better understand supply chain management, so you can find ways to optimise your supply chain to drive more revenue.

Work in Process Inventory Formula

• Though some within supply chain management do make a small distinction between them.
• Take a look at the asset section of your balance sheet for the previous accounting period, and find the ending WIP inventory.
• Now, the main question is why this WIP inventory is important in the supply chain and what its role is.
• WIP inventory includes the cost of the raw materials in use, along with any added production costs.
• They can provide flexible warehousing solutions, real-time inventory visibility, and even handle some light assembly or kitting processes.
• Managing inventory is a significant part of growing a successful online store.

WIP inventory should be kept at “just the right size” – big enough to ensure consecutive processes can flow optimally and small enough to avoid it piling up and tying up extra cash. To achieve this, WIP needs to be continuously managed and tracked throughout the manufacturing process. Designing optimized storage and shop work in progress inventory floor layouts and considering WIP inventory volumes already in the production planning phase is also a must.