What is WIP in manufacturing?

WIP (short for Work in Progress) refers to work that is in progress or only partially completed. In manufacturing, WIP refers to products that are in the process of being manufactured and not yet finished.

WIP (Work in Progress)

The term varies depending on the context of use, so WIP is understood as work in progress during the production process or storage stage in the warehouse.

WIP in Manufacturing

WIP (Work in Progress) in manufacturing is used to refer to products that are in the process of being produced or waiting to be processed (unfinished/semi-finished products).

To calculate WIP, it is necessary to know the number of products that have started production, the number of products that have been completed, and the number of products that are in the process of being produced. The simple formula to calculate WIP in manufacturing is:

WIP (products in production) = Number of products that have started production – Number of products that have been completed.

For example:
Suppose a factory manufacturing rollers

has started the production process of 500 rollers and has completed 300 rollers. Then, we can calculate WIP as follows:

WIP (products in production) = Number of products that have started production – Number of products that have been completed

WIP = 500 – 300

WIP = 200

So in this case, WIP is 200 rollers.

Note that this example is for illustration purposes only and the actual production process may be more complicated. Therefore, the WIP calculation formula and appropriate inventory management should be applied based on the specific needs and requirements of the business.

WIP in accounting

WIP (Work in Progress) in accounting is part of the inventory account and is recorded in the balance sheet. WIP represents the value of goods that are in the production process and not yet completed.

Formula for calculating WIP in accounting:
WIP is calculated by the following formula: WIP = (Inventory in production + Raw materials used during the period + Direct labor during the period + General manufacturing costs during the period) - Ending inventory.

Inventory in production: Value of goods in the production process.

Raw materials used during the period: Cost of raw materials used in the production process during the period.

Direct labor during the period: Cost of direct labor consumed during the production process.

General manufacturing costs during the period: Includes costs such as raw materials, direct labor, and other costs related to production.

Calculating WIP in accounting helps businesses determine the value of goods in the production process, thereby accurately calculating product cost and cost of goods sold.

Causes of WIP

• Imbalance between supply and demand: When supply exceeds demand, businesses produce too many goods compared to market demand, leading to product inventory.
• Suboptimal production process: Inappropriate processes and overlapping production orders cause disruptions in the production line, increasing WIP.
• Damaged or defective products: When a product is completed but defective, it needs to be remanufactured, increasing WIP due to unfinished products being stocked.
• Lack of resources: Inaccurate warehouse management processes or lack of necessary raw materials disrupt production, causing WIP to increase.
• Inflexible production process: Businesses have difficulty responding to changes in production demand, leading to overproduction and increased unfinished products.

Understanding WIP in production and accounting helps businesses optimize production processes and manage finances more effectively. This also helps businesses avoid product surplus and optimize production costs.

Ví dụ về WIP trong sản xuất Beer

5 Ways to Reduce WIP in Manufacturing

1. Just in Time (JIT) Production

Just in Time production focuses on producing the right amount of products at the right time. This helps to minimize inventory and improve production efficiency. JIT is an effective production method that reduces WIP by reducing delays, providing flexibility, eliminating unnecessary operations, and reducing waiting times. JIT helps produce a variety of goods on a line when needed and avoids problems with excess inventory.

>> See more:  Just in Time (JIT) Model

2. Identify faulty machines

One of the important factors to reduce WIP in manufacturing is to identify bottlenecks due to technical and equipment failures. When products are defective or production progress is disrupted, businesses need to check components and equipment. Defective products need to be remanufactured, leading to unfinished products being stored and increasing WIP. Regular equipment maintenance helps minimize these problems, ensuring the production process runs smoothly.

3. Scientific production planning to meet demand

Enterprises need to have a detailed production plan to meet customer demand effectively, such as using the MES-X production management system. Production plans need to take into account factors such as customer demand, inventory needs and the possibility of orders arising. As a result, businesses can adjust production plans before peak periods and avoid shortages. This helps maintain low WIP levels and meet customer demand in a timely manner.

4. Human resource coordination

To improve production efficiency and reduce WIP, businesses need to ensure that all employees are focused on the same goal and understand their roles. Coordination between departments such as production planning, quality control, and warehouse management will help ensure that products are produced correctly and on time. This saves time, reduces WIP, and optimizes the production process.

5. Upgrade equipment and train staff

Upgrading equipment and training staff is an important factor in reducing WIP in manufacturing. Intensive training helps employees improve their skills and work efficiency. However, outdated equipment can limit productivity even if the employees are highly skilled. Investing in modern equipment helps increase production speed and minimize unfinished products, thereby reducing WIP and improving overall efficiency.

6. Lean Manufacturing

Lean manufacturing is a method of optimizing performance, increasing product quality, and reducing waste. Lean Manufacturing focuses on creating value from the customer's perspective, while eliminating unnecessary activities and minimizing waste in the production process. As a result, this method helps reduce WIP and optimize the production process.

Benefits of reducing WIP in manufacturing

1. Improve production processes Reducing WIP helps businesses improve production processes, thereby reducing production time and costs. When the amount of unfinished products is reduced, the production process becomes faster and more efficient. This also helps businesses avoid excess inventory, thereby optimizing the use of resources and storage space.

2. Enhance quality control Reducing WIP also helps enhance the ability to control product quality. Defective products often have to be removed or modified, which will increase production costs. By reducing inventory and unfinished products, businesses can focus on controlling the quality of each product more closely, helping to reduce defect rates and improve product quality.

Conclusion

Understanding WIP in production and accounting helps businesses optimize production processes and manage finances more effectively. This also helps businesses avoid product surplus and optimize production costs.

References:

What is the EOQ model?

What is Safety stock? How to calculate Safety stock

What is Lean Manufacturing?