WIP (work-in-progress) is a term which refers to the partially finished goods that is still in the production flow and are yet to hit the state of being customer ready. WIP holds labour costs, raw material costs and overhead manufacturing costs that are invested in the production process at different stages. It implies a substantial burden on the company finance when overproduced and brings about a customer churn when under produced and massive loss when a semi finished or finished goods is misplaced. Setting limits to such WIP is much important to streamline your manufacturing industry's operative efforts and control opex ( operational expenses). We would be outlining the WIP limits below and why is it important for manufacturers to understand their dynamic change in the profitability.
What & why do you need WIP Limit?
The key idea behind WIP limits is to stop starting new productions and start finishing the existing one. If there are more goods unfinished that are already in process, manufacturers will try to juggle at once and it will be tough for them to take it to the finish line. Hence, WIP limits enable manufacturers to optimize their production workflows for better management & control on WIP. It is about finishing the job already in progress before introducing more job. In Layman's terms " Optimal WIP is a way to go". Here are the three most predominant limits which every manufacturer should concentrate on to sustain and remain unshaken in the disruptive manufacturing industry.
- Count Based Limit
- Cost Based Limit
- No of Days of work Based Limit
Count Based Limit
Do you know how can over-presence of WIP count affect your manufacturing industry?
Many manufacturing industries are still unaware that too much unfinished & finished goods will have a direct impact on their operational expenses. possessing unfinished works & unsaleable products can be detrimental to any company. The same logic applies to the manufacturing industry. Having a lot of WIP inventory denotes that manufacturing industry has obstacles in meeting demands and streamlining the supply chains at large. This sort of excess WIP is often has a serious impact in repetitive jobs where raw materials are converted all the way into finished goods and stored before customer orders are received. To avoid excess WIP inventory, they can control WIP count by limiting the new production and can pull in only if necessary.
Let me explain with an example, consider the textile industry. It will be mostly a MAKE TO STOCK approach. When the products are overproduced and kept in stock for long time without considering market demands, will result in overage finally leading to inventory loss. Maintaining a minimum level of WIP at each sewing workstation is necessary here. This can be done by limiting or setting the WIP count at each process level.
And most importantly, they should set a target / limit for the productions by analysing the demand forecasts, so that they will plan only for the required count and the unfinished items for products in a production process can be maintained easily. During the festive season, there will be a lot of demands for textiles and in such case they can increase their WIP count based on demand. This helps them keep their WIP balanced by feeding the production line / work stations based on the market demands.
Days based limit
When faced with too much work, and too few machines to do it, manufacturers will assign multiple tasks in the hope of increasing throughput. Unfortunately, the result is that machines will take longer days to get that done and it burns out in the process. This is because the machine plan is not properly optimized and they try hard to multi-task & fail at it often. This lengthens the number of days they work on a task. When the machinery runs for a too long time, there is a high possibility of machine failure resulting in unplanned downtime. If your machines sits idle, it will take too long days to repair & how is it possible to complete yourorder on time? This is were you need a complete machinery plan with which you can allot tasks based on the machine's capacity and limit the days of its running.
While there is no hard rule in setting this WIP limit, the basic idea is that each machine should be working based on its capacity. So that it possibly avoids the complete shutdown of your machinery. This allows manufacturers to stabilize work and increase productivity.
Cost Based Limit
The optimal Opex is important for the smooth running of the business. In spite of all the tracking done with number of parts and day work, $$$ is something that needs to be monitored at the business level. So a limit of what can be the WIP Cost that a business can handle ......
One way to improve profitability is to maintain the stable opex. All you have to do is to limit your WIP based on cost. You can set a maximum limit to the operating cost / expense for a particular time. The expenses spent on anything in the production line that is materials / machinery (during WIP) should fall under the cost you have set. Your WIP should not exceed the opex sustainability.
Hope this article demonstrates what is WIP limit and why it is important for manufacturing industry to manage their opex and to improve their productivity.