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WIP Cash Tied Up Calculator Using Little's Law

Work in process is cash sitting on the shop floor. Little's Law links WIP, throughput and flow time so a small plant can estimate that cash without counting every pallet.

Your numbers

Finished units per week

units

Working days per week

days

Average flow time, release to finish

12 working days

Average value per unit in process

Material plus labor added so far, usually 50 to 70 percent of finished cost.

Cost of capital and carrying

%/yr

Target flow time reduction

30 %

Your results

Cash tied up in WIP

$81,600

Cash released by target reduction

$24,480

Throughput per working day

Average units in process

960

Little's Law: WIP equals throughput times flow time.

Annual carrying cost of WIP

$11,424

New flow time

8 days

Little's Law holds for stable averages over a period. Use averages from a normal month, not a peak.

Save results:

Cash tied up in WIP vs flow time

Sweeps Average flow time, release to finish from 1 to 60, holding your other inputs fixed.

Measure real flow time from my ERP

Optional: discuss extracting release and close dates from production orders.

Optional. The tool and every export work without this. No spam.

How to use it

Enter average weekly finished output and the days an order spends from release to finished. If you do not know flow time, take a sample of recent orders and average the elapsed time between release and completion. Use the average value of a unit in process, not the sales price. Then set a target reduction to see the cash released.

Little's Law

The law states that average work in process equals average throughput times average flow time. Throughput is output per working day, flow time is working days in the system. Multiply the resulting units by average value to get cash. The relationship is linear, so cutting flow time by 30 percent cuts WIP and the cash it holds by the same share.

Flow time includes waiting, not just machining
Most flow time in small plants is queue
Releasing less work often does more than working faster
Smaller batches shorten flow time

Reading the result

The chart shows how fast cash grows with flow time at constant output. Plants that take 20 days to make parts needing 2 days of touch time are carrying roughly ten times the WIP they need. Share the numbers with the shop: they make the case for pull release, kitting and finite scheduling.

Common mistakes

People mix calendar and working days, use selling price for value, or measure flow time only on fast jobs. Avoid including finished goods or raw stock in the unit count: this tool covers only the time between release and completion.

Frequently Asked Questions

Does Little's Law need steady production?

It holds for long run averages when the system is stable, meaning the amount entering roughly equals the amount leaving. Use a representative month rather than a surge or a shutdown period.

What value per unit should I use?

Use the average cost accumulated at the point of each unit in process: material plus labor and overhead applied so far. As a rule of thumb that is often half to two thirds of the finished unit cost.

How do I shorten flow time?

Reduce queue time first: limit work released, break large batches into smaller transfers, level load across work centers and clear bottlenecks. Faster machines rarely help if jobs wait most of the time.

Can I use calendar days?

Only if throughput is also per calendar day. Mixing the two is the commonest source of error, so keep both in working days as the inputs suggest.

Netray can read released and closed production orders from your ERP to compute actual flow time and WIP per product family.

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