How much “Work-in-Progress” (WIP) Inventory is best?

How long is a piece of string…?  It might be a similarly open-ended question but that won’t stop us from looking rigorously at the different demands on our options, how they are affected by too much or too little WIP and some methods you can use to make an informed choice on what is best for you. Let’s start with the essentials…

What is Work-in-Progress (WIP)?

WIP, Work-In-Progress (a.k.a Work-In-Process) refers to inventory, (physical or non-physical), that has been started but isn’t yet ready for sale to the customer. This is both stuff being worked on right now, and all the work that has been started but is now just waiting for the next thing to happen to it.

If you’d like to get a more detailed explanation of what WIP is, click here.

How much Work-In-Progress is it best to have? 

The short answer is as little as possible whilst supporting the flow through your operations to meet real customer demand. Easy huh!….   But its not. Its fine balancing act in the face of uncertainties, variation, unknown forecasts and unforeseeable disruptions.

For almost every organization, “reducing” the WIP from their current level would be a good thing, especially WIP just “waiting” between processes (rather than what is actually “being” worked on. 

DISCOVER THE “FORGOTTEN FUNDAMENTALS” OF OPERATIONS MANAGEMENT”

Going a bit deeper, focus on reducing batch sizes, especially “transfer” batch sizes (which is the size of the batch you pass between processes). These smaller batch sizes will mean increasing job changeover frequency and you should try that until capacity reduces to meet the demand put on your bottleneck process. This will sound like a lot of extra managerial work and it will require effort, system, organization and management to achieve but the impact of less WIP on throughput times, customer lead times, cash flow and risk can be phenomenal. 

Want to learn more about Inventory Management fundamentals? Have a look at my 3h online video training course to arm you with the essentials, or you may find my course on “Lean Manufacturing” and its focus on reducing batch sizes to improve flow to be what you need…

WIP: Two opposing philosophies

On one hand, you have the convenience and ease of achieving high utilization and output from having lots of Work-In-Progress, due to no downtime from lack of WIP. However, these benefits come with their share of issues:

  • Slow throughput times.
  • High inventory costs.
  • Finance and financing costs.
  • Operational costs.
  • Holding costs.
  • Quality problems potentially remaining undiscovered for longer. 

Having lots of Work-In-Progress can help everyone “feel” very efficient, as each process is never starved of work. In fact, people / processes often like to “save up” work of a certain kind so they can individually be even more “efficient” (cough cough) by doing their own work in their own convenient batches. This is typically a terrible idea for the overall system. 

Local optimization doesn’t lead to system optimization, and throughput times and lead times go through the roof as much WIP crawls through the system, which is then seriously disrupted by expedited urgent orders because the system’s throughput time is so slow.

One-Piece-Flow

On the other extreme are those people that have taken inspiration and militant dedication to the lean manufacturing holy-grail ideal of “One-Piece-Flow”. Here, each process may only work on one item, one job, before passing it on to the next process, (as opposed to doing a whole batch of things and passing them on to the queue of work for the next process). 

One-Piece-Flow will give you the smallest possible amount of Work-In-Progress, ideally with the next process starting its tasks as soon as the previous process is done. It would lead to incredibly fast system throughput times, (just the sum of all the processes cycle times), with ideally no waiting time between the processes. It would mean that you could offer the customers very short lead-times on customized products or services as everything can be made to order quickly.

However, in reality, different processes tend to take different amounts of time to complete, and queues of work will build up unintentionally in front of the slowest process, and there will also be variation in the release of jobs and in the process times. If you make more than one type of product or service, and you are attempting to apply one-piece flow, then each process will be switching jobs continually, and probably losing a significant amount of its available time to changeovers which seriously reduces the potential output. One-piece flow is a great ideal to aspire towards, but it’s not remotely realistic in almost any situation.

Real-world application: What can we do?

WIP is very expensive, probably much more than you realize:

  • It increases financial and financing costs.
  • Has cash flow implications.
  • Creates additional operational complexity.
  • Increases holding costs.
  • Creates additional space requirements.

Keep in mind that properly tackling WIP reduction depends on a dozen potential factors that are unique to your organization, starting with the key performance driver in your operation’s strategy. Are you aiming for output maximization or fast customer lead times, hitting a capacity utilization, or minimizing the risk and costs of mistakes? 

You also need to consider the bottleneck processes, appropriate buffers and safety stock to protect against supply and demand variation, and many other unique details to your industry and operation’s strategy. You’d want to learn about Little’s law, the “Theory Of Constraints”, Lean pull, Lean flow, the costs of inventory, safety stock calculations, operational tradeoffs, and many other topics.

I know a great place to learn a bit about all these topics! ????

Tackling topics like this, both in answering what situation we should aim for and how to get there is based on deeper operations management understanding of the factors, interplay, systems understanding, and knowledge of established operations management theory and methodologies. There are lots of great resources out there and if I had to recommend one resource, it would be the book “The Goal” by Eliyahu M.Goldratt. It is the most insightful operations management storybook you’ll ever come across with razor-sharp insight, especially on the WIP issue.

How much Work-in-Process is best? 

You should strive to have as little WIP as possible. Start by focusing on reducing batch sizes, especially transfer batches. Educate yourself on the many factors affecting the WIP that are unique to your business, this article is a great start but you can’t stop here.

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