Throughput (business)

<h2 id="overview">Overview</h2>
<p>In the business management <a href="/facts/Theory_of_constraints/Xz4qagTL">theory of constraints</a>, 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 <a href="/facts/Inventory/vSBu0d9r">inventory</a> in a warehouse may mislead investors or others about the organizations condition by inflating the apparent value of its assets. The <a href="/facts/Theory_of_constraints/Xz4qagTL">theory of constraints</a> and the practice of throughput accounting explicitly avoid that trap.
</p><p>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 <a href="/facts/Little%2527s_law/lVGmPs6U">Little's law</a>, which is related to inventories and <a href="/facts/Process_time/BhzkBzFl">process time</a>: time to fully process a single product.
</p>
<h2 id="basic-formula">Basic formula</h2>
<p>Using <a href="/facts/Little%2527s_Law/lVGmPs6U">Little's Law</a>, one can calculate throughput with the equation:
</p><p>
  
    
      
        I
        =
        R
        ∗
        T
      
    
    {\displaystyle I=R*T}

</p><p>where:
</p>
<ul><li><i>I</i> is the number of units contained within the system, inventory;</li>
<li><i>T</i> is the time it takes for all the inventory to go through the process, flow time;</li>
<li><i>R</i> is the rate at which the process is delivering throughput, flow rate or throughput.</li></ul>
<p>If you solve for <i>R</i>, you will get:

R
        =
        I
        
          /
        
        T
      
    
    {\displaystyle R=I/T}
  
.<a class="footnote-ref" id="fnref:3" href="#fn:3"><sup>3</sup></a>
</p>

<h2 id="further-reading">Further reading</h2>
<ul><li><a href="/facts/Eliyahu_M._Goldratt/zB6rPp1L">Goldratt, Eliyahu</a> and Jeff Cox. The Goal. Croton-on-Hudson: North River Press, 2004.</li></ul>

<h2 id="references">References</h2>

<ol>
<li id="fn:1"><p>"What is 'Throughput'". investopedia.com. Retrieved 15 November 2016. <a href="http://www.investopedia.com/terms/t/throughput.asp" target="_blank">http://www.investopedia.com/terms/t/throughput.asp</a> <a href="#fnref:1" class="footnote-back-ref">↩</a></p></li>
<li id="fn:2"><p>Goldratt UK, Throughput Accounting, archived on 20 April 2017, accessed on 23 February 2025 <a href="https://web.archive.org/web/20170420092616/http://www.goldratt.co.uk/resources/throughput_accounting/index.html" target="_blank">https://web.archive.org/web/20170420092616/http://www.goldratt.co.uk/resources/throughput_accounting/index.html</a> <a href="#fnref:2" class="footnote-back-ref">↩</a></p></li>
<li id="fn:3"><p>"The Relationship Between Cycle Time and WIP". fabtime.com. Retrieved 15 November 2016. <a href="http://www.fabtime.com/ctwip.shtml" target="_blank">http://www.fabtime.com/ctwip.shtml</a> <a href="#fnref:3" class="footnote-back-ref">↩</a></p></li>
</ol>

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Throughput (business)