Throughput

Strategic Cost Management Throughput Throughput is the quantity or amount of raw material processed within a given time, especially the work done by an electronic computer in a given period of time. It is also known as the Productivity of a machine, procedure, process, or system over a unit period, expressed in a figure-of-merit or a term meaningful in the given context, such as output per hour, cash turnover, number of orders shipped. In the business management theory of constraints, throughput is the rate at which a system achieves its goal. Often 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 inventory in a warehouse may mislead investors or others about the organizations condition by inflating the apparent value of its assets. The Theory of Constraints and throughput accounting explicitly avoid that trap. Throughput can be best described as the rate at which a system generates its products / services per unit of time. The ultimate goal of a business is to keep their customer satisfied. Businesses often measure their throughput using a mathematical equation known as Little's Law, which is related to inventories and process time: time to fully process a single product. Using Little's Law, one can calculate throughput with the equation: I = R * T, where I is the number of units contained within the system, Inventory; T is the time it takes for a unit to go through the process, Flow Time; and R is the rate at which the process is delivering throughput, Flow Rate or Throughput. If you solve for R, you will get: R = I / T Throughput accounting Throughput Accounting is a dynamic, integrated, principle-based, and comprehensive management accounting approach that provides managers with decision support information for enterprise