Throughput (business)
Encyclopedia
Throughput is the movement of inputs and outputs through a production process. Without access and assurance of a supply of inputs, a successful business enterprise would not be possible.
In the business management Theory of Constraints
, throughput is the rate at which a system
achieves its goal. Often this is monetary revenue and is in contrast to output, which is inventory that may be sold or stored in a warehouse. In this case throughput is measured by revenue received (or not) at the point of sale—exactly the right time. Output that becomes part of the inventory
in a warehouse may mislead investors or others about the organizations condition by inflating the apparent value of its assets. The Theory of Constraints
and throughput accounting
explicitly avoid that trap.
Throughput can be best described as the rate at which a system generates its products / services per unit of time. The ultimate goal of a business is to keep their customer satisfied. Businesses often measure their throughput using a mathematical equation known as Little's Law, which is related to inventories and process time: time to fully process a single product.
Using Little's Law, one can calculate throughput with the equation:
,
where I is the number of units contained within the system, Inventory; T is the time it takes for a unit to go through the process, Flow Time; and R is the rate at which the process is delivering throughput, Flow Rate or Throughput. If you solve for R, you will get:
In the business management Theory of Constraints
Theory of Constraints
The theory of constraints adopts the common idiom "A chain is no stronger than its weakest link" as a new management paradigm. This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the...
, throughput is the rate at which a system
System
System is a set of interacting or interdependent components forming an integrated whole....
achieves its goal. Often this is monetary revenue and is in contrast to output, which is inventory that may be sold or stored in a warehouse. In this case throughput is measured by revenue received (or not) at the point of sale—exactly the right time. Output that becomes part of the inventory
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
in a warehouse may mislead investors or others about the organizations condition by inflating the apparent value of its assets. The Theory of Constraints
Theory of Constraints
The theory of constraints adopts the common idiom "A chain is no stronger than its weakest link" as a new management paradigm. This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the...
and throughput accounting
Throughput accounting
Throughput Accounting is a principle-based and comprehensive management accounting approach that provides managers with decision support information for enterprise profitability improvement. TA is relatively new in management accounting...
explicitly avoid that trap.
Throughput can be best described as the rate at which a system generates its products / services per unit of time. The ultimate goal of a business is to keep their customer satisfied. Businesses often measure their throughput using a mathematical equation known as Little's Law, which is related to inventories and process time: time to fully process a single product.
Using Little's Law, one can calculate throughput with the equation:
, where I is the number of units contained within the system, Inventory; T is the time it takes for a unit to go through the process, Flow Time; and R is the rate at which the process is delivering throughput, Flow Rate or Throughput. If you solve for R, you will get: