Limiting Work in Progress

Work in Progress Limit

If you speak to most Kanban practitioners and ask them about the most fundamental principle of Kanban, the majority of them will say it’s Limiting Work in Progress or Visualizing the Workflow. But for people who have never heard of Kanban, limiting Work in Progress will be the first one to remember.

Limiting WIP (work in progress) is of paramount importance. When you first think about it, it may seem not to make any sense. Are we telling people to work less, do we want them to be lazy? Of course not! Limiting WIP does not mean to limit work itself, but rather to limit Work in Progress.

What is Work in Progress?

Let’s look at where the concept of Work in Progress originated, and what it means.

Manufacturing companies have a production inventory: a list of levels of materials and supplies in stock for use in the manufacturing process. Typically, manufacturing companies have three types of inventory:

  • Raw materials: building materials, to which no work has yet been applied.
  • Work in Progress: materials that have had some work done on them, also referred to as semi-finished goods.
  • Finished products: materials, work on which has been completed, and they are ready to be sold.

Now, let’s create a manufacturing scenario for a fictitious company called Company Kanban. Company Kanban produces high-quality chairs. They design chairs, take raw materials like wood and leather, assemble them, paint them, and sell them to customers. If a customer walked onto the shop floor and asked Company Kanban for a chair, they would be able to take one from their finished goods pile, and sell it there and then.

Why is limiting WIP considered a good thing, and should it be?

One of the reasons is to do with accounting purposes. Let’s consider our example again, in which Company Kanban can produce around 12 bespoke chairs at the end of each month. They start off with 0 finished products at the beginning of the month, and at the end, they have 12 completed sellable items. But besides the 12 fully done chairs, they also have 16 partially completed items that are in various states of completion.

Although these unfinished items cannot be sold, the accountants shouldn’t just write them off and not recognize them at all, as this wouldn’t be an accurate representation of work done during the month. Hence, the accountants decide to accept the unfinished goods as a form of an asset, and the company banks that value as something positive. We can see how that can make sense. Companies feel that the more WIP they have, the better. They trust that it’s only a matter of time before they will sell those, so unfinished work is correctly recognized as an asset. But the problem is - what happens when the Work in Progress time prolongs further and further? What if there is a problem with production, and these WIP items never get sold, does it still make sense to see them as an asset? Are they gaining value?

You’ve probably heard people say that “Cash is King” - in many cases this is true. Companies will often go under due to poor cash flow. It’s not always important how many assets a company has if it can’t convert it to or otherwise generate the cash when it’s needed. It will go broke, and all assets will be sold for far less than what they’re worth. This is the problem with WIP. It’s one thing for Company Kanban to recognize the WIP as an asset, but what if a customer demand a product, would they be able to sell them half a finished chair? The answer, of course, is no. Who wants to buy a chair without legs, or without a cushion? And if somebody does, then they’re probably looking to buy it for a whole lot less than a finished product price.

Eli Goldratt, a successful businessman and management guru, argued that Work in Progress should not be regarded as an asset, but actually an expense. He argued that no one goes into business with the hope of just “staying busy”, companies need to make a profit. The only way you make a profit is by selling your product, and your manufacturing cost must be smaller than your total sales. Goldratt created a concept known as Throughput Accounting. The concept singles out throughput (the speed with which an item can be built and delivered), inventories, and operating expenses as three main measures of productivity constraint. He formalized his thinking into a book The Goal and later into a system known as the Theory of Constraints. Companies that implemented this system experienced dramatic bottom-line improvements.

Why should we limit Work in Progress?

Firstly, we can see that creating Work in Progress, although important to the act of creating a product, will only contribute once converted into finished goods. Hardly anyone starts a company just to sell it, some never want to sell, but all want to make a profit. And if you’re running a cash tight business - do you want to have 30 items halfway through to being sold, or rather 10 items ready to go? If you’re cash strapped, it’s clearly better for you to focus on building 10 chairs and selling that 10. That is the concept of limiting Work in Progress. If a company can only sell 10 items per month, what is the point of working on 30 items in that month? A limitation of WIP here would be to focus on getting those 10 items done. So, if you limit WIP, you can easily focus on getting the begun work completed, and the sooner you can finish the work, the sooner you can sell.

Secondly, limiting WIP quiets the noise and helps to manage the chaos. If I threw one ball at you, you would catch it quite easily. Then if I threw another shot at you, you’d also catch it. If I threw two balls at you at the same time, well, possibly you’d catch them both, or drop them both. But what if I threw 10 balls at you all at the same time? You would likely drop them all - total chaos.

Limiting Work in Progress, the act of not throwing the next ball, before your team-mate has caught the first one and put it down, minimizes chaos and allows people to get things done. You may have heard opinions that multitasking is a fallacy - teams that are limiting WIP share that view, and take it much further. You can either work on one or two items and get them done quickly or work on 10 items and have nothing to show for it, or in other words: catch 2 balls or drop 10.

WIP limits and identifying the bottlenecks

Although limiting WIP is good, if we apply WIP limits everywhere along the process, a number of other problems may arise. Applying a limit in the wrong place can lead to waste all around. If Company Kanban has 6 employees, and the manager limits Work in Progress in a bad way, it could lead the company to produce fewer items than it is capable of. This too would be a waste and not something that Taichi Ohno would approve of.

So how do we, as leaders, identify where in the process Work in Progress should be limited? Let’s consider the below scenario to understand the concept further.

Work In Progress limit example

There are six people in our fictitious chair production facility, called Company Kanban. The company is made up of a production facility that has three teams:

  1. John and Jane design chairs.
  2. Annie, Anton, and Alice assemble the chairs with the available raw materials.
  3. Peter paints the chairs and sends them to the sales department.

Now, John and Jane can design 7 chairs a week. Annie, Anton, and Alice can assemble 5 chairs a week, and poor Peter can paint just 3 chairs a week. We now know the company can produce 3 finished chairs per week, that is its throughput.

But if workers were told to work at their highest capacity, what would the situation be at the end of two full weeks? We will assume that each team has enough work to start working on from the beginning. Let’s see how this could play out:

WIP Limits Example

Remember, that WIP is an inventory item. We notice large stacks of inventory at the Design stage and under Chair Assembly. But why are items pilling up there? Because, clearly, the Chair Painting Team is the bottleneck, the constraint of the process. Peter can only complete 3 chairs per week. What a savvy Kanban manager should do here, is to limit the Chair Assembly Team to produce no more than 3 chairs a week, since anything more will be a waste, the Painting Team cannot handle the pace. Ideally, what should happen is for John, Jane, Anton, Annie and Alice to actually jump in and help out Peter with painting, once they are finished producing their items. This should improve the throughput of the system. Suddenly the company is producing more than 3 chairs per week, and the throughput, as well as employee engagement, are improving.

So what we suggest for a start is to walk your factory or office floor. Look around for team members who are totally overloaded and have a lot of inventory on their desk, or whose intrays are overloaded. That’s how you will find your bottleneck! Then gently go talk to them and see how you can limit the work to them, it will help your whole company work faster, and your employees will love you for it! All because you practised the principle of limiting Work In Progress.