How much cash is sitting in your work-in-progress?

The cash sitting in work-in-progress equals the units you finish a day, times the days a unit spends on the floor, times the cost already built into it. A plant finishing 2,000 units a day, with 8 days from release to finish and ₹450 of average cost in each unit, holds 16,000 units and about ₹72 lakh in WIP. At 12% cost of capital that costs ₹8.64 lakh a year to carry, and halving the lead time at the same output frees about ₹36 lakh.

How the calculator works

The calculator takes four inputs:

• Units completed a day. Your steady output: finished parts, garments, cartons or assemblies a day.
• Days a unit spends from release to finish. The lead time on the floor: from the day material is issued to the first operation to the day the unit is finished. Count calendar or working days consistently with the output figure.
• Average cost built into a unit in WIP (₹). What a half-finished unit has absorbed so far: material plus the labour and overhead added up to its stage. A unit at the first operation holds little more than material; one waiting for final inspection holds almost its full cost. Use an average across the floor.
• Cost of capital (% a year). What the money tied up costs you: the interest rate on your cash-credit line, or the return you expect on your own money.

The formulas:

Units in WIP = units completed a day × days on the floor
Cash in WIP = units in WIP × average cost per unit
Carrying cost a year = cash in WIP × cost of capital
Freed by halving lead time = cash in WIP ÷ 2

The first line is Little's law. John Little proved in 1961 that, for a stable system, the average number of items inside equals the rate at which they arrive times the average time each one spends there (Little, Operations Research, 1961). Fifty years on he revisited it with an eye on practical uses, operations management among them (Little, Operations Research, 2011). On a factory floor, "arrival rate" is your daily output (in a steady state what goes in equals what comes out), and "time in the system" is your lead time.

Worked example (India)

A mid-size plant with a steady product mix. All figures are assumptions for illustration; they are the calculator's default inputs.

The carrying cost is the smaller number. ₹8.64 lakh a year is real, but the ₹36 lakh freed by halving lead time is cash back in the business once, and it comes without selling a single extra unit. A shorter lead time also means a shorter delivery promise to customers and less floor space under trolleys and bins.

A quick check you can run on your own floor: count the units physically in WIP on one day and divide by daily output. If you count 16,000 units and finish 2,000 a day, your real lead time is 8 days, whatever the routing sheet says. A routing sheet typically counts processing time; the physical count includes all the waiting.

What typical numbers look like

We found no credible published benchmark for WIP days or WIP value in Indian factories by sector. Lead time depends on the product, the number of operations, batch sizes and how work is released, so a figure from another plant tells you little. Measure your own: a physical count on two or three ordinary days, divided by daily output, gives your actual lead time. For examples worked through on specific floors, see the guides on sewing-line bundles, packaging reels and sheets and CNC parts waiting between operations.

What this number does not tell you

• Where the WIP sits. The calculator gives one total. In practice WIP piles up in front of one or two slow operations, and that is where cutting it pays. Walk the floor and note where trolleys, bins and bundles wait longest.
• Whether halving lead time is possible. The ₹36 lakh assumes the same daily output with half the units on the floor. That works when most lead time is waiting, but not when units genuinely need the time (curing, drying, ageing, heat treatment).
• The full cost of carrying WIP. The carrying figure is only the cost of money. Floor space, handling, damage, rework of parts that wait too long and obsolescence when a design changes all add to it, and none are in the calculator.
• Whether the steady-state assumption holds. Little's law holds for averages over a period in which WIP neither keeps rising nor keeps falling. In a month when you are building up for a festive peak or running down a product, one day's count will mislead.
• What the average cost really is. ₹450 a unit is an assumption. Take material cost from your purchase records and add labour and overhead roughly in proportion to how far along the units typically are.
• What a camera cannot see. A camera can show where bins and trolleys pile up and how long a zone stays full. It cannot count the parts inside a closed bin or read their cost. Unit counts and costs still come from your stores and costing records.

Related guides

• Parts Waiting Between Operations: WIP Cash in an Indian CNC Machine Shop
• Bundles on the Floor: The Cash Your Sewing-Line WIP Holds
• Reels and Sheets Waiting: WIP in a Packaging Plant
• Stock ageing cash calculator

FAQ

How do I calculate the cash tied up in WIP? Multiply daily output by the days a unit spends on the floor to get units in WIP, then multiply by the average cost built into a unit. 2,000 units a day × 8 days × ₹450 = ₹72 lakh.

What is Little's law in manufacturing? Average WIP equals throughput times lead time. Proved by John Little in 1961, it means that at a fixed output you can only cut WIP by cutting the time units spend on the floor.

How much does it cost to carry WIP? At minimum, the cost of the money it ties up. At 12% a year, ₹72 lakh of WIP costs ₹8.64 lakh a year. Space, handling, damage and obsolescence come on top.

How much cash does reducing lead time free? In proportion. At the same output, halving lead time from 8 days to 4 halves WIP, freeing about ₹36 lakh in the example. Cutting it by a quarter frees about ₹18 lakh.

How do I find my real lead time? Count the units in WIP on an ordinary day and divide by daily output. That includes all the waiting, which routing sheets usually leave out.

Mama can draw a camera plan for the zones where work waits longest. Leave an email or phone in the form below.