Work in progressWork in Progress (WIP) Inventory

Work in progress — abbreviated WIP and sometimes written work in process — is inventory that has been started but isn't yet finished. It sits between raw materials and finished goods on the production line.

For a brand that manufactures, packs, or assembles its own product, WIP is the value of everything mid-build at any given moment: garments cut but not sewn, components assembled but not tested, products built but not yet packaged for shipment.

For a brand that fully outsources to a contract manufacturer, WIP usually doesn't appear on the balance sheet — it sits on the supplier's books until the finished goods are dispatched.

What WIP includes

WIP value combines three things:

• Raw materials already consumed in the partially-finished goods
• Direct labour spent so far on those goods
• Manufacturing overheads allocated based on the production stage reached

So a half-finished bottle of skincare carries the cost of the formula already poured, the operator time on the line, plus an allocated share of the factory rent and utilities for that production run.

Where WIP shows up for scaling brands

Even brands that don't think of themselves as "manufacturers" often have meaningful WIP:

• Custom packaging or kitting. Bundles being built in your own warehouse before they go out as finished SKUs.
• Light assembly. Multi-component products that arrive as parts and ship as one unit.
• Make-to-order or made-to-measure. Anything customised after the order comes in.
• Slow-moving production runs. Long-lead manufacturing where stock spends weeks at intermediate stages.

How WIP is valued

Same standard cost-flow methods apply: FIFO or weighted average cost. The difference from finished goods is the equivalent units calculation — you have to decide how "complete" each WIP unit is, then value the materials and conversion costs accordingly.

Most scaling brands don't track this stage-by-stage. They use a simpler approximation: count the WIP units, apply standard cost rates, accept the imprecision, and reconcile at year-end if material.

Why WIP matters to ops, not just accounting

Three reasons WIP gets attention from operators:

• It ties up cash. Every unit sitting half-built is working capital you can't deploy elsewhere. High WIP relative to throughput = slow line = trapped money.
• It signals bottlenecks. WIP piles up in front of whichever production step is slowest. The pile is your bottleneck. Lean manufacturing's whole job is reducing WIP by smoothing the flow.
• It hides quality problems. A unit doesn't become "bad inventory" until it's finished. Defects discovered at QC after WIP has accumulated mean larger write-offs than catching them earlier in the line.

WIP vs raw materials vs finished goods

The three inventory states form a sequence:

• Raw materials — bought but not yet started in production
• Work in progress — started but not yet completed
• Finished goods — completed and ready to ship

Most balance sheets break down inventory into these three categories so anybody reading can see the mix. A business mostly in finished goods is operating short production cycles or outsourcing manufacturing. A business with a lot of WIP is either making complex products or has a slow line.

When WIP is too high

Rules of thumb that travel across industries:

• WIP that's growing faster than revenue = the line is jamming
• WIP that exceeds 30 days of throughput = something specific is wrong (bottleneck, supply gap, or batched production runs that should be smaller)
• WIP that fluctuates wildly month to month = the production schedule isn't smooth

The fix is rarely accounting. It's usually production planning, supplier reliability, or quality systems.