Throughput is rate at which a product is moved through a production process and is consumed by the end-user, usually measured in the form of sales or use statistics. The goal of most organizations is to minimize the investment in inputs as well as operating expenses while increasing throughput of its production systems. Successful organizations which seek to gain market share strive to match throughput to the rate of market demand of its products.
In the business management theory of constraints
, throughput is the rate at which a system achieves its goal. Oftentimes, 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 (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation.
Inventory management is a discipline primarily about specifying the sha ...
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 or services per unit of time. 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:
*''I'' is the number of units contained within the system, inventory;
*''T'' is the time it takes for all the inventory to go through the process, flow time;
*''R'' is the rate at which the process is delivering throughput, flow rate or throughput.
If you solve for ''R'', you will get:
* Goldratt, Eliyahu
and Jeff Cox. The Goal. Croton-on-Hudson: North River Press, 2004.