Limiting Work in Progress

Work in Progress Limit

Limiting WIP (work in progress) is a characteristic feature of Kanban - it is of paramount importance to why the system works so well. When you first think about it, it may seem counter-intuitive. Are we telling people to work less? No - limiting WIP doesn’t mean to limit work itself, but to limit how many tasks can be started all at once.

What is Work in Progress?

Kanban came from manufacturing. Typically, manufacturing businesses keep a production inventory: a list of levels of materials and supplies in stock for use in the process. There are normally 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.

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

One of the original reasons was to do with accounting purposes, but reasons are several, as you will see.

Example Let’s consider WIP limits at a company producing high-quality chairs: they create the designs, take raw materials like wood and leather, assemble, paint and sell them to customers. They can produce around 12 bespoke chairs at the end of each month, ready to be sold. But besides the 12 fully done chairs, they also have 16 partially completed items, 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 work in progress.
It’s one thing for the chair-makers to recognize the WIP as an asset, but the fact is this object is unsellable. No one wants to buy a half-done chair, 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?

  • To foster a culture of finishing work, and reduce time to market

    Your profit lies in the finished goods, not in WIP. 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? It’s always better to focus on building 10 chairs and selling them. That’s what limiting Work in Progress helps to achieve.
    If a company can only sell 10 items per month, there is no point in working on 30. 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 monetize.

  • To minimize multi-tasking and chaos

    Limiting WIP quiets the noise and helps to manage 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.
    For the same reason multitasking is a fallacy - 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.

  • To maximize throughput and exercise a true pull process

    Thanks to starting work only on what can be finished, you are ensuring the process running at its highest possible material throughput. That means less waste and more sales.
    Furthermore, by forcing the team not to start work while previous items are still in progress, you’d be implementing a true pull process model: not pushing work into the process, regardless of whether it can be handled or not, but letting the team pull new work in, when it’s ready for it.

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 a team consists of 6 employees, and the manager limits Work in Progress on 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 identify where in the process Work in Progress should be limited?

Decidig on the right WIP limit

Example

There are six people in a chair manufactory, divided among 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.

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 manager should do here, is 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 employee engagement is improving along with throughput.

How to apply a WIP limit?

In summary, in order to apply a WIP limit appropriate to your process, you need to analyse it and find the slowest cog in the machine.

Step 1: Look at your process and identify bottlenecks

For a start, just walk your factory or office floor. Look around for team members who are totally overloaded and have a lot of inventory on their desk. That’s how you will find your bottleneck!

Step 2: Match WIP limit to the capacity of the slowest process step

Go talk to the team working at the bottleneck step, and see how you can limit work to them, it will help your whole company work faster, and your employees will love you for it!

Step 3: Analyze the flow with the WIP limits applied periodically

As your process changes, team grows, shrinks or changes - the applied WIP limit may need adjusting. Keep an eye on it, so as to maintain your optimal throughput levels.