What is Throughput?

What is Throughput?

Throughput is a measure of how many units of information a system can process in a given amount of time. It is applied broadly to systems ranging from various aspects of computer and network systems to organizations.

Related measures of system productivity include the speed with which some specific workload can be completed, and response time, the amount of time between a single interactive user request and receipt of the response.

introduction of Throughput

The idea of throughput, also known as the flow rate, is part of the theory of constraints in business management. The guiding ideology of this theory is that a chain is only as strong as its weakest link. The goal for business managers is to find ways to minimize how the weakest links affect a company’s performance and to maximize throughput for the product’s end users.

Once throughput is maximized by removing inefficiencies, allowing inputs and outputs to flow in the most ideal manner, a company can reach revenue maximization.

A company’s level of production capacity is closely related to throughput, and management can make several types of assumptions about capacity. If the company assumes that production will operate continually without any interruptions, management is using theoretical capacity, but this level of capacity is not reachable.

No production process can produce the maximum output forever because machines need to be repaired and maintained, and employees take vacation days. It’s more realistic for businesses to use practical capacity, which accounts for machine repairs, wait times, and holidays.

Throughput Formula

The formula can be derived from the following equation of calculating inventory:

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inventory = throughput x flow time

Where:

  • I – the inventory. This is the number of units that are currently contained in a business process. Inventory is measured in number of units. Note that the concept of inventory in operations management is different from the accounting definition of inventory. In accounting, inventory includes products that are waiting to be sold. In operations management, inventory comes with a broader meaning and it includes all the units of the products within the operations system.
  • R – the flow rate (throughput). It is the rate at which the number of units goes through the process per unit time. The rate is measured in units/per time (e.g., units/minute).
  • T – the flow time. This is the time that the units spend in the business process from the beginning to the end.

If we rearrange the formula above, we can find throughput using the following equation:

R = I / T

Factors Affecting Throughput

A company’s throughput also depends on how well the company manages its supply chain, which is the interaction between the company and its suppliers. If, for whatever reason, supplies are not available as an input to production, the disruption has a negative impact on throughput.

In many cases, two products may start in production using the same process, which means that the joint costs are allocated between each product. When production reaches the split-off point, however, the products are produced using separate processes. This situation makes it more difficult to maintain a high level of throughput.

How to Increase Throughput

Increasing throughput and decreasing throughput time are important goals for company managers. As such, there are several ways to help achieve this goal. One is to deploy real-time monitoring and data analysis of production processes, made easier with the help of technology. Applications that analyze throughput can quickly identify slowdowns or other anomalies so that they can be quickly addressed.

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Another time-proven method is to use a standardized checklist of steps to follow in the process that must be ticked off every time. While this may seem tedious and redundant, studies have shown that committing to a checklist reduces errors and speeds up processes.

A third way, often used by companies in various industries, is to introduce a bit of competition among workers using a scorecard, where speed and efficiency are rewarded, and inefficiency is highlighted as a problem area.

Example of Throughput

ABC Cycles manufactures bicycles. The company has procedures in place to maintain equipment used to make bikes, and it plans production capacity based on scheduled machine maintenance and employee staffing plans.

However, ABC must also communicate with its metal bike frames and seat suppliers and get them to deliver these component parts when it requires them for production. If the parts don’t arrive when ABC Cycles needs them, the company’s throughput will be lower.

Going further, ABC Cycles begins building more than one type of bicycle. It starts the production of mountain and road bikes using a joint production process, and both bikes use the same bike frame and seat. Later on in the process, however, the production becomes separate because each bike model uses different tires, brakes, and suspensions. This makes production harder to manage since ABC must consider production capacity and supply chains in both joint and separate production processes.

Let’s say that ABC Cycles has 200 bikes in inventory, and the average time that a bike is in the production process is five days. The throughput for the company would be:

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T = (200 bikes / 5 days) = 40 bikes a day.