Work In Progress represents the financial outlay (raw materials, labor, equipment/overhead costs) and “cost to date” of unfinished goods. 

The terms "work-in-progress" and "finished goods" differ from company to company. Finished goods for one company (sheet plywood from a lumber mill) may be considered a raw material for another company (a cabinet maker).

It is not necessary to measure anything you won’t use in your decision-making process.  So before investing in configuring Odoo to measure WIP, you should make sure you will regularly monitor WIP and make decisions after measuring it.

Finance – Odoo books all transactions having an impact on the General Ledger in real-time, including those in the warehouse and/or the production floor, so if your team discusses needing to accrue and report WIP, this is done automatically.

Project Management – If your company manufactures to order, WIP is a way of measuring how much inventory and labor and overhead (money) a particular order is “using”.  Any asset a company has should be used as effectively as possible. Cash flow is commonly affected by how long it takes an order to be completed (because when it is finished, you can ask your customer to pay for it).  If you work on too many orders at once, more of your capital might be tied up.  Since you can’t charge your customers until you finish, you might run out of money!

Profitability Margins – if you don’t measure WIP, you need to use other methods to understand the true cost of items you make.  You can allocate your non-administrative labor and overhead from time to time but measuring WIP can give you a more real-time measurement.  You don’t want to find out at the end of the month that everything you made (and probably already sold) lost you money.

Raw materials and direct labor are quite easy to understand.  The third component to WIP, overhead, can consist of things like:

• indirect labor (such as security and cleaning personnel);

• indirect materials (glues, tapes, repair parts, etc);

• utilities (rent, water, gas, electricity, etc);

• maintenance (machine repairs, tune ups, etc);

• quality (inspections, rework, testing, etc);

• downtime (machines or people waiting); and  

• depreciation (on equipment and machines).

Overhead can sometimes be the largest "hidden" component of your product cost. 

In a Restaurant for example, the cost of making a meal can work out to look like:

Without looking at all of these costs, you might think that with a food cost of 30% and a labor cost of 15% that the restaurant makes a profit margin / net profit of 50%.  Once you add in the overhead items the profit margin drops to 15%.  Quite a difference!

You don’t have to measure WIP to calculate a true profit margin.  You can, from time to time, review the overhead costs (like at the end of the month) and allocate them back into the cost of manufacturing based on product or quantity or other methods – so that your cost of goods (when you sell something) can be accurately estimated.

Note that due to the fact you might sell Inventory during the month, you need to evaluate if this is a good enough method for you. 

If you have a quicker turnaround for inventory, it might be better to set up manufacturing to manage WIP for you and to include overhead on your Bills of Materials, and even integrate Manufacturing with Timesheets.