Table of Contents
- What Is Throughput?
- Key Takeaways
- Understanding Throughput
- Factors Affecting Throughput
- Formula and Calculation of Throughput
- Benefits of Knowing Throughput Time
- How to Increase Throughput
- Example of Throughput
- What Is the Difference Between Throughput Time and Lead Time?
- How Do You Calculate Throughput?
- How Can One Find a Bottleneck in a Business Process?
- The Bottom Line
What Is Throughput?
Let me explain throughput directly: in business, it's the amount of a product or service you can produce and deliver within a specific time frame. You'll often hear it discussed in terms of your company's production rate or processing speed.
If your business achieves high throughput, you can capture market share from competitors with lower rates, as it signals you're producing more efficiently than they are.
Key Takeaways
Throughput describes the rate at which your company produces or processes its products or services. You measure it to identify and minimize the weakest links in your production process. Factors like capacity assumptions and your supply chain directly impact it. It gets challenging when you're producing different products through joint and separate processes. Maximizing throughput leads to maximizing your revenues— that's the bottom line.
Understanding Throughput
Throughput, or flow rate, comes from the theory of constraints in business management. The core idea is that a chain is only as strong as its weakest link. As a manager, your job is to minimize how those weak links affect performance and maximize throughput for end users. Once you remove inefficiencies and optimize the flow of inputs and outputs, your company can hit revenue maximization.
Production capacity ties closely to throughput, and you can make different assumptions about it. If you assume continuous operation without interruptions, that's theoretical capacity—but it's unrealistic. No process runs at max forever; machines need maintenance, and employees take time off. Stick to practical capacity, which factors in repairs, wait times, and holidays.
Remember, only products that actually sell count toward throughput.
Factors Affecting Throughput
Your throughput depends on how well you manage your supply chain—the interactions with suppliers. If supplies aren't available for production, it disrupts everything and lowers throughput.
Often, two products start with the same process, sharing joint costs. But at the split-off point, they go separate ways, making it harder to keep throughput high.
Formula and Calculation of Throughput
Calculate throughput with this formula: T = I/F, where T is throughput, I is inventory (units in process), and F is the time those units spend in production from start to finish.
Benefits of Knowing Throughput Time
Throughput time is the total time to complete a process from start to finish, like from customer order to sale, including sourcing and manufacturing.
Break it down: processing time for production steps, inspection time for quality checks, move time for transport and delivery, and queue time for any idle periods in between. Add them up for total throughput time. If you spot backlogs or bottlenecks, address them to improve efficiency. Faster times mean better ROI and profitability.
Throughput analysis also helps in capital budgeting, viewing your entire company as one process to decide on projects.
How to Increase Throughput
You want to increase throughput and cut throughput time. One way is real-time monitoring and data analysis of processes—technology makes this straightforward to spot and fix slowdowns.
Another approach is using a standardized checklist for every process step. It might feel repetitive, but it reduces errors and speeds things up.
You can also introduce competition among workers with scorecards that reward speed and efficiency while highlighting inefficiencies.
Example of Throughput
Take ABC Cycles, which makes bicycles. They maintain equipment and plan capacity around maintenance and staffing.
They coordinate with suppliers for frames and seats. If parts are late, throughput drops.
They produce mountain and road bikes starting jointly with shared frames and seats, but later separate for tires, brakes, and suspensions, complicating management.
If they have 200 bikes in inventory and each spends five days in production, throughput is T = (200 / 5) = 40 bikes per day.
What Is the Difference Between Throughput Time and Lead Time?
Lead time covers from customer order to delivery. Throughput time focuses only on production processes.
How Do You Calculate Throughput?
In finance, it's inventories divided by the time to produce them.
How Can One Find a Bottleneck in a Business Process?
Map out your production process clearly. Monitor each step for slowdowns where parts pile up. Automated systems can report these, and once identified, you resolve them.
The Bottom Line
Track and improve throughput—it's crucial. Higher throughput means more products for sale and more revenue. Identify bottlenecks, strategize to boost it, and you'll see profitability rise.
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