What is Throughput Time?
Definition: Throughput is also called flow rate and it is the data amount that is transferable from point A to point B in a specific amount of time. It is thus used to measure the inputs and outputs moving through the production process. Companies use throughput as a metric to identify the efficiency level that the company is working at as far as production is concerned.
Every business that manufactures a specific product has a production line with multiple processes. The production line also has a capacity ceiling that is usually limited by multiple factors such as raw materials and plant capacity.
The type of information provided by throughput is vital for companies because it allows them to focus on key aspects that allow them to optimize their production processes. The overall goal of companies is to maximize profits and this can be done by minimizing losses and costs while also maximizing the production capacity.
Throughput Time Operations Approach Example
The concept of throughput has a wide range of applications that are not necessarily limited to production lines. For example, a company can use throughput to determine how fast it delivers services to its clients.
Throughput Time Formula
Many production companies use throughput to determine their inventory levels. Below is the formula for calculating inventory.
Inventory = Throughput X flow time.
Where inventory represents the amount of units within the business process at any given time.
Throughput is the flow rate or rate at which the manufacturing process handles a specific number of units.
The flow time is the duration of time in which units are processed from the start to the end.
The equation can also e arranged in other forms such as;
Throughput = Inventory/flow time.
The above demonstrates throughput calculation and use in operations management. Using the above calculation, if a firm manages to produce about 1,000 units of a product within 10 hours, then the throughput will be 1,000/10= 100.
Throughput in operations can be improved by boosting the productivity of any operation that might be pulling back the entire production line. For example, in a situation where an operation is experiencing bottlenecks, perhaps an extra machine can be purchased to increase productivity, especially in that particular operation. Once that one segment is improved, then theoretically the entire production line should achieve higher efficiencies. In other words, the bottleneck is the problem that needs a solution and not necessarily the other operations.
Throughput Time Financial Approach Example
Throughput from a finance perspective usually focuses on the revenues that come from a production process especially after all variable expenses involved in the process are deducted. Sales commissions and direct materials are usually the only expenses that are completely variable. Throughput is usually high when the expenses involved are low. The only exception is cases where the variable expenses are slightly lower than the prices.
Throughput in the financial approach can be enhanced through a better product mix especially for the raw materials being combined in the production process. The idea here is to focus more on products that deliver a higher throughput per minute. This type of focus allows the business to achieve more efficiency in its production line. Products with lower throughput can be outsourced, thus helping the company to achieve higher throughput.
Throughput is a common term, especially when dealing with electronic components in the computer industry. It is particularly used to gauge the performance of internet connections, RAM and hard drives. One hard drive may have a maximum data transfer speed of 200 Mbps while another might be rated at 100 Mbps.
This means that the 200 Mbps hard disk has double the throughput of the 100 Mbps. Nevertheless, the throughput might be affected by other factors such as network traffic and internet speeds. In such a case, the actual throughput ends up being lower than the hard drive’s maximum throughput but only because there are secondary factors affecting the actual figures.