Did you know Malaysia’s industrial production growth has been slowing down recently, with some sectors seeing a drop in output? For manufacturers, this is a sign of the bigger challenge lurking beneath: managing work in process (WIP) effectively can make or break your production efficiency.
Managing WIP is not without its challenges. Issues like rising costs, slow-moving inventory, and difficulty tracking progress can cause significant delays and lead to poor decision-making, ultimately affecting profits.
For example, a study by the Malaysia Investment Development Authority (MIDA) highlighted that slow production times and inefficient work in process management can cost local manufacturers up to 8% in lost revenue annually. Read more here.
Understanding how to manage WIP efficiently is crucial to overcoming these challenges. Keep reading to discover how mastering WIP can transform your operations and how ERP manufacturing software can streamline your processes for greater success.
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What is a Work in Progress?
Work in progress (WIP) refers to partially completed goods being transformed from raw materials into finished products. While this term is most common in manufacturing, it also applies to companies managing products that may be in transit or awaiting supplier fulfillment, reflecting the broader work-in-progress meaning across industries.
This manufacturing category includes costs such as materials, labor, and manufacturing overhead incurred during production, which are recorded as assets on the balance sheet. An effective production tracking system and accurate work-in-progress accounting help companies monitor unfinished production costs and clarify the status of ongoing projects.
A work-in-progress example could be a product completed within a single accounting cycle but not yet ready for sale, such as a half-assembled electronic device. Clear work-in-progress signage and robust tracking provide businesses with insights to optimize workflows, control costs, and improve delivery timelines.
Key Differences of Work in Progress vs. Work in Process
Understanding the subtle distinctions between work in process and work in progress is essential for accurate inventory management and financial reporting. While these terms are often used interchangeably, recognizing their unique characteristics helps businesses optimize production tracking systems and improve work-in-progress accounting.
Below, we explore the key differences that set these concepts apart across various industries and operational contexts.
1. Scope of work
Work in process typically involves standardized production using machinery and bulk raw materials to create uniform products. These items are often part of high-volume manufacturing runs, such as a factory producing packaged snacks in Laguna.
In contrast, work in progress applies to large, unique projects requiring substantial time and resources. Such projects have extended timelines and diverse materials, highlighting the meaning of work in progress in industries handling long-term undertakings.
2. Industries
The work-in process is most common in manufacturing industries, where repetitive workflows are common. It is easily managed through a production tracking system and quickly covers partially finished goods moving through the production line.
Meanwhile, work in progress is prevalent in construction and large-scale project industries, where ongoing project status is tracked carefully, often using progress billings. These industries also rely on specific work-in-progress signage to communicate project stages.
3. Financial statements
Both work-in-progress and work-in-process appear as accounts on a company’s balance sheet, but their classification differs. Work in process relates to short-term assets with faster turnover due to quicker completion and sale.
On the other hand, work in progress is considered a long-term asset, reflecting unfinished manufacturing costs in projects that may take years to complete. Thus, work-in-progress accounting requires special attention.
4. Accounting treatment
Companies often aim to complete all work-in-progress items to simplify financial statements, moving finished goods into inventory and cost of goods sold upon sale. Conversely, work in progress involves capitalizing large projects not part of the inventory, such as building a corporate headquarters.
Unlike work in process, which usually is not depreciated, work in progress assets may incur depreciation over their useful life, requiring careful accounting treatment. Manufacturing accounting software is critical in managing these complex calculations and ensuring accurate reporting.
5. Asset liquidity
Work-in-progress items are easier to liquidate despite being unfinished because they consist of standardized products with shorter completion times. Buyers often find these partially completed goods attractive due to their uniformity.
Work in progress items, however, are tailored to specific projects or company needs, making resale difficult without significant discounts. Due to their customised nature, selling such long-term assets often requires overcoming challenges.
6. Typical time-period
Work in process aligns with short production cycles, with items generally completed within a defined timeframe and swiftly moving through inventory systems. In contrast, work in progress covers projects with varying timelines, from medium-term efforts to massive, multi-year constructions.
This difference affects how companies monitor and report these assets, emphasizing the need for accurate production tracking system integration.
7. Management focus
Managing work in process prioritizes efficient production workflows, reducing cycle times, and minimizing unfinished inventory costs. This focus ensures smooth transitions between production stages and faster delivery.
Meanwhile, work in progress management centers on meeting project milestones, maintaining steady ongoing project status, and ensuring the timely completion of complex projects. Proper use of work-in-progress signage and accounting practices supports effective oversight.
Work in Progress in Supply Chain and Accounting
Effectively managing work in progress (WIP) is crucial for smooth manufacturing operations and accurate financial accounting. Proper WIP tracking, supported by robust manufacturing software, helps businesses avoid costly mistakes, ensuring production flows seamlessly and that work in progress is clear and actionable at every stage.
Work in Progress in Supply Chain Management
Manufacturing managers use WIP metrics to track raw materials, in-progress goods, and finished products over time. This balance ensures raw materials are available when needed without tying up excessive resources in unfinished goods, reducing unnecessary production and storage costs.
A reliable production tracking system updates ongoing project status and material levels. For example, if WIP levels exceed raw material stock, procurement may need to be accelerated. In contrast, high raw material inventory with low WIP may suggest slowing production to prevent overproduction.
Work in Progress in Accounting
In accounting, WIP reflects the total costs of unfinished goods at the end of an accounting period, including raw materials, labor, and manufacturing overhead. These costs are recorded in the WIP account and classified as current assets on the balance sheet.
Once production is completed, these costs are moved from WIP to finished goods inventory and eventually recorded as the cost of goods sold (COGS) when the products are sold, highlighting the importance of precise work-in-progress accounting.
Work in Progress Manufacturing Formula
The standard formula for calculating WIP in manufacturing is:
WIP Manufacturing = Beginning WIP + Manufacturing Costs – Cost of Finished Goods
- Beginning WIP refers to the value of partially completed products carried over from the previous period.
- Manufacturing Costs include raw materials, direct labor, and overhead, all allocated according to the company’s accounting policies.
- Cost of Finished Goods accounts for the total value of completed products, including those started in previous periods and those completed in the current period.
Example:
Let’s consider a fictional Malaysian manufacturer, Laguna Luxe Furniture Co., which begins with RM2,500,000 in WIP at the start of the period. The company incurs RM10,000,000 in manufacturing costs during the period and completes RM9,000,000 worth of products. Using the formula:
WIP Manufacturing = RM2,500,000 + RM10,000,000 – RM9,000,000 = RM3,500,000
This RM3,500,000 is recorded as a current asset on the balance sheet under work-in-progress manufacturing, accurately reflecting the costs of unfinished products.
Work in Progress Examples
Work in progress (WIP) is applicable across various industries and production environments. It refers to partially completed goods moving through different production stages. Simply put, WIP serves as the critical bridge between raw materials and finished products in the production cycle.
Example 1: Perishable Goods
Take Marianna’s Pastries, a commercial bakery that manufactures cakes, pastries, and other baked goods. Its production process includes multiple steps—mixing, baking, cooling, decorating, and packaging—and custom products like wedding cakes require several days to finish.
At the beginning of the month, Marianna’s had RM1,250,000 worth of WIP in production. Throughout the month, they incurred RM3,000,000 in ingredient costs, RM3,750,000 in wages, and RM2,250,000 in manufacturing overheads like utilities and equipment maintenance. By month-end, they had completed RM 7,750,000 worth of finished goods.
Using the WIP manufacturing formula:
WIP = Beginning WIP + Manufacturing Costs – Cost of Finished Goods
WIP = RM1,250,000 + (RM3,000,000 + RM3,750,000 + RM2,250,000) – RM7,750,000 = RM2,500,000
After reviewing their updated WIP value, the bakery adjusted its production pace to avoid overproduction and minimise waste, especially for perishable items. They slowed operations slightly until customer demand stabilised.
Example 2: Clothing Manufacturer
Consider Davao Designer Threads, a Malaysian-based garment manufacturer producing custom, high-end apparel. Their manufacturing process involves precise craftsmanship by skilled artisans across several stages.
They recorded RM1,600,000 of unfinished garments as WIP at the start of the period. During the same period, they spent RM4,750,000 on raw materials, RM4,000,000 on labour, and RM2,500,000 on manufacturing overheads. They completed RM12,000,000 worth of finished garments.
Using the same WIP calculation:
WIP = RM1,600,000 + (RM4,750,000 + RM4,000,000 + RM2,500,000) – RM12,000,000 = RM850,000
The reduction in WIP reflected smoother workflows and faster output, but the team flagged a potential risk: if demand continues to rise and production doesn’t keep up, stockouts may occur. To stay ahead, they increased production capacity while maintaining quality control.
These WIP manufacturing examples highlight the importance of precise WIP accounting, accurate cost tracking, and a real-time production tracking system. With proper oversight and work-in-progress signage, businesses can monitor progress, control costs, and improve manufacturing efficiency across all stages.
Effortless Work in Progress Monitoring with HashMicro Manufacturing Software
Monitoring and managing work in progress (WIP) is crucial to maximising storage efficiency, streamlining production, and controlling costs. However, many businesses still rely on manual methods or disconnected systems, making it challenging to accurately track raw materials, labour, and overhead costs at each production stage.
HashMicro Manufacturing Software bridges the gap between production, inventory, and finance departments by offering a unified platform that delivers real-time updates on WIP status. Unlike traditional manual systems that often lead to delays, this solution provides every team member instant visibility into the production process.
Moreover, HashMicro’s system is highly flexible and customizable to meet your company’s unique needs. It supports unlimited users without extra charges, and as your business grows, the software scales seamlessly to accommodate that growth without any additional fees.
Here are some key features to help optimise your WIP management:
- Stock Forecasting with Automatic Reordering Recommendations: This method leverages historical consumption and current production demands to predict stock levels and automatically generate purchase orders or reorder alerts.
- Products and Variants Management with Lot and Serial Numbers: This system assigns unique identifiers to each product or variant, enabling precise tracking throughout every production phase.
- Stock Card Analysis for Detailed Stock Movement Reports: Provides comprehensive records of all stock transactions, including incoming, outgoing, and transfers, with accurate tracking of quantities, dates, and transaction types.
- Product Expiry Tracking, Notifications, and Dashboard: This feature monitors expiry dates for materials and WIP inventory, sending automatic alerts and highlighting items nearing expiry on the dashboard.
- Integration with Barcode, QR, and RFID: This system utilizes scanning technologies to instantly update stock movements when materials are used, moved, or converted into finished products.
Conclusion
Work in progress (WIP) refers to managing partially completed goods moving through various stages of production. Effectively managing WIP leads to smoother operations, better cost control, and less stress when balancing production and financial records.
If tracking WIP feels complicated, HashMicro Manufacturing Software can simplify everything. With real-time updates and seamless team collaboration, you’ll always have clear visibility of what’s happening at every production stage.
What’s even better is that HashMicro scales with your business growth. No extra fees are required to add more users, regardless of how large your team becomes. Try the free demo today and experience the difference for yourself!
