Meaning
Manufacturing strategy in distressed situations completes partially assembled goods to maximize their market value before a factory wind-down or liquidation occurs. This work in process completion ensures that raw materials and sub-assemblies are transformed into salable finished goods, which yield a much higher recovery rate for secured lenders. It governs the short-term allocation of labor and utilities to run the factory until the existing assembly line is empty.
The boundary of the strategy is limited to goods already on the line, excluding the starting of new production cycles from scratch.
Production Completion
Finishing the existing run requires a careful calculation of the incremental cost of completion versus the added recovery value. The readiness question this answers is whether the factory can run safely for a limited period to finish these items. If a lender funds this work in process completion without auditing the costs, the labor and utility costs can easily exceed the value gained.
This execution must be closely supervised.
Yield Optimization
Transformation of unfinished parts into finished inventory prevents the massive loss of value associated with selling scrap. Work in process is almost worthless to an outside buyer.
Value Recovery
Sale of the newly finished goods generates the cash needed to pay down secured debts or fund the wind-down expenses. Lenders support this approach because it yields a far higher return than selling components individually. This completed inventory can then be distributed through standard retail or wholesale channels.
