Throughput definition

/

What is Throughput?

Throughput is the number of units that pass through a process during a period of time. This general definition can be refined into the following two variations, which are noted below.

Throughout in Operations

Throughput is the number of units that can be produced by a production process within a certain period of time. For example, if 800 units can be produced during an eight-hour shift, then the production process generates throughput of 100 units per hour.

For operations, throughput can be increased by enhancing the productivity of the bottleneck operation that is constraining production. For example, an additional machine can be purchased, or overtime can be authorized in order to run a machine for an extra shift. The key point is to focus attention on the productivity of the bottleneck operation. If other operations are improved, the overall throughput of the system will not increase, since the bottleneck operation has not been enhanced. This means that the key focus of investment in the production area should be on the bottleneck, not other operations.

Related AccountingTools Courses

Constraint Management

Operations Management

Throughput in Finance

Throughput is the revenues generated by a production process, minus all completely variable expenses incurred by that process. In most cases, the only completely variable expenses are direct materials, sales commissions, and credit card fees. Given the small number of variable expenses, throughput tends to be quite high, except for those situations in which prices are set only slightly higher than variable expenses.

How to Increase Throughput

There are several ways to increase throughput, which are as follows:

  • Alter the product mix. You can alter the mix of products being produced, to increase the priority on those products that have the highest throughput per minute of time required at the constrained resource.

  • Outsource work. If a product has a smaller amount of throughput per minute, it can instead be routed to a third party for processing, rather than interfering with the bottleneck operation. As long as some positive throughput is gained by outsourcing, the result is an increased overall level of the throughput for the company as a whole.

  • Manage the constraint. A very controllable throughput enhancement is to manage the constraint in detail, so that it is operational for as high a percentage of the time as possible. This may include overstaffing it, assigning maintenance staff to it, and ensuring that there is always a raw materials buffer positioned in front of it.