Costs are essential to manufacturers. When you let them escalate out of control, you run the risk of putting your business in trouble from the outset. The key is to stay on top of them to avoid having to try and eliminate cash flow issues later down the line, something that many entrepreneurs do with loans and credit cards, which only makes matters worse.
Photo: erhui1979 / Gettyimages
However, it doesn’t have to be this way. With a solid Work-in-Progress (or WIP) strategy, you can track your finances and stay within your means, regardless of the size of your company. It’s not easy by any means, yet it is possible with the following advice. Continue reading to find out more.
WIP = WIP inventory at beginning of period + WIP purchased during period – WIP inventory at end of period + Labour Costs + Manufacturing Overheads
Okay, it’s a bit of a mouthful! However, it’s more complicated on the surface than it appears, since the figures you require should be pretty simple to collate due to the fact that they are essential to your business.
For example, machines might continually break the same parts, causing you to purchase replacements and waste your budget. However, by replacing or fixing the company’s machinery, the bottlenecks will end and your WIP fees will naturally start to drop.
What they provide determines whether your WIP manufacturing processes will run smoothly. Therefore, by planning with them, it’s possible to reduce unwanted side-effects that do occur now and again. This could include the aforementioned faulty or damaged parts that slow down the process and reduce productivity.
To prevent WIP expenses from rising exponentially as a result, you should attempt to evaluate your sales forecasts. By doing this, you’ll have a greater insight into demand, allowing you to manage stock to cater to influxes in sales. With fewer items sitting in a warehouse collecting dust, your bottom line won’t be negatively affected.
Work-in-progress manufacturing fees can build up and lead to significant cash flow issues. The good news is that this strategy is proven to give you a greater insight into your expenses, which should then allow you to target the problem areas.
Photo: erhui1979 / GettyimagesHowever, it doesn’t have to be this way. With a solid Work-in-Progress (or WIP) strategy, you can track your finances and stay within your means, regardless of the size of your company. It’s not easy by any means, yet it is possible with the following advice. Continue reading to find out more.
Use a Readymade Formula
What? There’s a formula that does most of the heavy lifting for you? Yes, that’s right – your prayers have been answered! When it comes to WIP, you can work out your manufacturing costs by implementing an equation that concentrates on where production is falling short. Check out the work-in-progress manufacturing formula underneath:WIP = WIP inventory at beginning of period + WIP purchased during period – WIP inventory at end of period + Labour Costs + Manufacturing Overheads
Okay, it’s a bit of a mouthful! However, it’s more complicated on the surface than it appears, since the figures you require should be pretty simple to collate due to the fact that they are essential to your business.
Reduce Bottlenecks
Just because you have a tool, that doesn’t mean it is guaranteed to work. For it to be effective, you must use it in the right areas, or else nothing will change. An excellent place to start is to target your bottlenecks, as they can create chaos. Typically, they are down to issues such as faulty machinery, which should represent a fairly easy fix.For example, machines might continually break the same parts, causing you to purchase replacements and waste your budget. However, by replacing or fixing the company’s machinery, the bottlenecks will end and your WIP fees will naturally start to drop.
Plan with Your Suppliers
Speaking to your suppliers is another way of reducing bottlenecks. The two areas might appear unrelated, yet the reality is that the relationship between the supply chain and your business’s success is inextricably linked.What they provide determines whether your WIP manufacturing processes will run smoothly. Therefore, by planning with them, it’s possible to reduce unwanted side-effects that do occur now and again. This could include the aforementioned faulty or damaged parts that slow down the process and reduce productivity.
Understand Demand
It shouldn’t shock you to learn that manufacturing costs occur due to a lack of planning. Insufficient or poor planning is bad because its contributes to wastage. After all, if you don’t know when your low and high seasons are, you can’t prepare your inventory accordingly.To prevent WIP expenses from rising exponentially as a result, you should attempt to evaluate your sales forecasts. By doing this, you’ll have a greater insight into demand, allowing you to manage stock to cater to influxes in sales. With fewer items sitting in a warehouse collecting dust, your bottom line won’t be negatively affected.
Work-in-progress manufacturing fees can build up and lead to significant cash flow issues. The good news is that this strategy is proven to give you a greater insight into your expenses, which should then allow you to target the problem areas.
