What Is Throughput Rate? (And How to Calculate It)
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Throughput calculations can help a business determine the rate at which deliverables reach consumers. Sometimes referred to as flow rate or process throughput, this information can help a company make knowledgeable decisions about the production process, from investment to production to revenue. Knowing how to measure throughput is the first step in making decisions that positively affect revenues. In this article, we discuss what throughput rate is, look at its key elements, learn how to calculate throughput, and explore its benefits, along with some examples.
What is throughput rate?
Throughput rate measures the pace at which units move through the production process from start to finish. The unit, in a flow rate calculation, can be any item relevant to a particular business, tangible or intangible. For example, a throughput calculation might involve individual physical items, customers or interactions, such as shoes sold per minute or customers helped per hour. Determining throughput can help businesses make decisions, such as minimizing overhead and maximizing revenue.
What are the key elements of throughput?
Inventory and flow time are the key elements when calculating throughput. The terms inventory and flow can mean different things in regular conversation, but they mean something specific when calculating throughput for business purposes. Here are the descriptions of the elements in terms of throughput calculation:
When calculating throughput, inventory refers to the number of units involved in a business operation at a given time. For example, the customer inventory of a nail salon would include clients waiting for service and those currently receiving assistance. This is a broader definition of inventory than in accounting, as that only refers to the current number of units. In that case, for the nail salon, accounting inventory would include only those clients receiving service at a given time.
Flow time refers to the time a product spends in the production process from start to finish. This is sometimes also referred to as processing time. Sometimes, a product might have more than one way through a business' operations. Here, the business may consider the most extended time a product can take to get through the production process.
Calculating throughput or flow rates
The formula for calculating the flow rate is:
I = R x T
In this formula, I refers to inventory, R represents throughput or flow rate, and T indicates flow time. Since the desired result is the flow rate or R, you can rearrange the formula by solving for R:
R = I / T
How to calculate throughput rate
The components of flow rate may vary since you might count different inventory and measure across different periods of time, but the process for calculating the rate usually follows these steps:
1. Measure inventory
Inventory, in the context of flow rate, is every unit involved in the operations cycle at a given time. This includes items ready for selling and items still in production. If you are measuring the inventory of customers, this would involve customers receiving service and customers waiting. This number becomes the I in your rate calculation. For example, if you have 100 party hats in stock and 200 party hats in production, then I=300.
2. Establish the unit of time
Throughput is a function of business units over time. Depending on the information you are looking for, you might want to know the total units for one second, one minute, one hour, or another measure of time. This period becomes the T in your throughput equation. For example, if you want to measure the number of hamburgers produced and sold during an 8-hour shift, then T=8.
3. Set up your equation
When you have identified your inventory and desired time period, divide the inventory figure by the measure of time. For instance, suppose you determined you had ten customers waiting and receiving service. You counted those customers over two hours. You would set your equation as R=10 customers divided by I=2 hours. In this case, your throughput would equal five customers per hour.
4. Analyze your results
Throughput figures are most valuable when operations management professionals and other business leaders use them to analyze a business' efficiency. Every company has a unique set of operational elements depending on its size, overhead, and operating costs. Therefore, you may find that an analysis of flow rates is relative. You can make meaning from throughput figures internally by comparing one day to another or similar business units in different locations. You can also compare the flow rates of your business to others in the same industry for which information is available.
Benefits of knowing the flow rate
There are several benefits to understanding flow rates:
Permits companies to calculate resource requirements to meet demands
Helps companies manage supply chain and inventory
Helps companies negotiate contracts for scheduled work hours and bulk raw materials, including planning and scheduling deliveries to improve cash flow and manage warehouse space
Allows companies to meet customer demand, manage workflow, and improve efficiency
Related: Top Product Management Skills
Using flow rates to improve productivity and efficiency
Consider the following ways in which you may improve efficiency by increasing throughput:
Establish a baseline workflow
Knowing your current situation is often the best starting point for gaining future efficiencies. Determine whether you have assigned the correct duties to the employees. Check if all the equipment is functioning properly and meeting your needs and also check if you have mapped all the processes correctly.
Use your baseline information to identify problem areas, slowdowns, and other bottlenecks. There may be changes that may require attention, like workarounds in long-term processes or the addition of newer equipment to the workflow. Knowing your flow rates may support any expenses necessary for modifications.
Reduce unexpected downtime
By scheduling time for regular equipment maintenance or employee training, you can reduce unexpected downtime, improving productivity and flow rates. By training employees to troubleshoot operations, they may identify opportunities for improvements and repairs before experiencing downtime. You can create a preventive maintenance schedule and follow it for better results.
Reduce rejection rates
If you can reduce rates of rejection for damaged goods, the flow rate may improve. By examining your process flow, you might identify areas where damages usually occur. Once you correct the issue, you may experience enhanced throughput and customer satisfaction.
Automate routine processes
By automating routine parts of your processes, you can reassign employees to other activities. Engaging them in less routine activities may improve their well-being and reduce work-related injury. In addition, automated processes often work at greater speeds than employees, also supporting growth in productivity and flow rate.
Consider the following examples when determining throughput for a business:
Calculating the flow rate for a coffee shop:
Suppose the owner of a coffee shop wants to know the flow rate for coffees sold during a typical workday and that each workday has 15 hours. If the shop sold 300 coffees during one day, then I (inventory) = 300 drinks and T (time) = 15 hours. The coffee shop owner can calculate flow rate by dividing inventory by time, or 300 drinks divided by 15 hours. 300 / 15 = 20. Hence, the rate is 20 coffees per hour.
Calculating flow rate for packaging widgets for shipment:
A manufacturer may wish to calculate the flow rate through a piece of machinery in packaging widgets for shipment during an eight-hour shift. The inventory reflects both the quality-approved widgets, and the widgets removed for reasons such as damaged or missing components. Suppose that the manufacturer produced 950 widgets that flowed through the machinery, including 50 damaged widgets. In this case, the flow rate is I (inventory) = 950 divided by T (time) = eight hours, for a flow rate of 118.75 widgets per hour.
Calculating flow rate for scheduling employees at a kiosk:
Suppose that the manager of a kiosk in a mall wants to determine how many employees to schedule. They may use the flow rate to help plan the schedule. Suppose further that the manager assumes that 240 customers visit the kiosk during an eight-hour shift and that each employee can serve 15 customers per hour. I (inventory) = 240 customers divided by T (time) = eight hours results in a flow rate of 30 customers per hour. Therefore, the manager may schedule two employees to serve customers during this time.
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