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If you’ve never calculated WIP inventory, here’s how you can start.
If you’re applying for a loan, the lender may be hesitant to count WIP inventory as collateral (even though it’s tallied as an asset) since it’s not very liquid. Too much WIP inventory increases the risk of materials becoming lost, broken, expired, or obsolete before they have a chance to be assembled.Īnother reason to classify WIP inventory is that it’s a significant factor in the valuation of your business.The more WIP you have on hand, the more capital you have tied up in items waiting to be sold.WIP inventory eats up space in a storage space or factory floor that could otherwise be used for inventory that’s ready to sell, thus increasing carrying costs.Taking time to classify WIP inventory in a warehouse waiting to be assembled might seem tedious, but it’s crucial for monitoring and improving your supply chain and inventory control.Īs we mentioned earlier, holding on to excessive WIP inventory is usually not beneficial for a business's bottom line.
