Work in process (WIP), also known as work-in-progress or goods in process, refers to a company's partially finished goods waiting for completion and eventual sale, or the value of these items
. WIP is a key input for calculating inventory on a company's balance sheet and is used in supply chain management
. It represents the raw materials, labor, and overhead costs incurred for products that are at various stages of the production process
. WIP is considered an asset because money has been spent towards a completed product, but the product has not yet been completed
. Key aspects of WIP include:
- Inventory : WIP is a component of a company's inventory asset account on the balance sheet, which includes raw materials, labor, and overhead costs
- Calculation : To calculate WIP inventory at the end of an accounting period, the following three figures are required: beginning WIP inventory, production costs, and finished goods
- Lean Production : In lean thinking, excess WIP is seen as one of the seven wastes (muda) that do not add value to a product, as it represents unfinished goods and ties up money that could be generating higher returns elsewhere in the company
- Supply Chain Management : WIP inventory calculations can help a company assess their supply chain health and guide in supply chain planning. It is generally ideal to have low WIP inventory levels, and companies that manage their inventory level efficiently tend to have lower costs
Managing WIP inventory requires coordination between several functions within a company, as well as with suppliers and other stakeholders
