Throughput—or flow rate—is an important metric meant to ascertain the period of time—or cycle time—it takes for a finished product or service to be delivered to the end user or customer. It’s specifically a supply chain management concept but can also apply in a more general business management concept.
In the operations management and business sense, determining a company’s total throughput rate—or flow time—is a key step toward profitability maximization and an efficient workflow overall. Here are four reasons a business might run a throughput calculation: 

1. __To reduce bottlenecks__: Knowing the amount of time it takes for a current production process to go from work-in-process to completion can be a good way to identify areas where [manufacturing](https://www.masterclass.com/articles/an-entrepreneurs-guide-to-product-manufacturing) processes are getting backed up. You can only clear up these bottlenecks if you know your manufacturing throughput time overall. Once they’re addressed, you’ll be better able to have your products ready in advance rather than [just in time](https://www.masterclass.com/articles/just-in-time-inventory-explained) for delivery.
2. __To eliminate inefficiencies__: Calculating the average time it takes to get your raw materials ready-made into the number of units you need to sell helps expose areas of your process that aren’t operating at maximum capacity. Maybe you need to speed up your inspection time or increase manufacturing efficiency elsewhere. Regardless, eliminating this kind of downtime can decrease unnecessary product latency.
3. __To lower operating expenses__: Decreasing the amount of process time for your products can shrink your operating costs. Once the lead time on product development drops, that can mean less money spent on unnecessary additional materials, labor time, and other expenses.
4. __To encourage lean manufacturing__: Knowing the throughput rate for your production process helps establish a manufacturing style that’s as efficient as possible. A smaller unit of time spent on any given product means a smaller amount of time spent on all products combined. Once all inefficiencies are eliminated, the manufacturing process itself will proceed with fewer moving parts, less wait time, and greater total time to spare.
This throughput formula draws from the probability theorem (a mathematical rule) called Little’s Law to arrive at its equation. To determine how long it takes to go from sub-assemblies to finished products, you’ll need to divide whichever inventory (I) you’re looking at by the real time spent in the manufacturing process (T) to discover the throughput rate (R). Written mathematically, it looks like this: R = I / T.
Imagine there’s a cellphone company trying to discover how many phones they can get out the door into the hands of consumers on a given day. They know they’ve built 300 phones in the last 30 days, so they can start there as a reference point. In this case, their throughput formula (R = I / T) looks like this:

R (the move time for a single day of production) = 300 (phones developed in the last 30 days) / 30 (the number of days total)

In this scenario, the throughput rate (R) is 10, meaning the company should be able to build 10 phones a day.
Get the [MasterClass Annual Membership](https://www.masterclass.com) for exclusive access to video lessons taught by business luminaries, including Bob Iger, Chris Voss, Robin Roberts, Sara Blakely, Daniel Pink, Howard Schultz, Anna Wintour, and more.
In the area of supply chain management, a company’s throughput refers to the total time it takes to develop and deliver a good or service to the customer.

In the area of supply chain management, a company’s throughput refers to the total time it takes to develop and deliver a good or service to the customer.

Throughput Defined: How to Calculate Production Time

Throughput—or flow rate—is an important metric meant to ascertain the period of time—or cycle time—it takes for a finished product or service to be delivered to the end user or customer. It’s specifically a supply chain management concept but can also apply in a more general business management concept.

What Is Throughput?

In the operations management and business sense, determining a company’s total throughput rate—or flow time—is a key step toward profitability maximization and an efficient workflow overall. Here are four reasons a business might run a throughput calculation: <ol class="mc-m-4"><li class="mc-my-4"> 1. To reduce bottlenecks: Knowing the amount of time it takes for a current production process to go from work-in-process to completion can be a good way to identify areas where <a href='https://www.masterclass.com/articles/an-entrepreneurs-guide-to-product-manufacturing' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/an-entrepreneurs-guide-to-product-manufacturing","linkCopy":"manufacturing","category":null}'>manufacturing</a> processes are getting backed up. You can only clear up these bottlenecks if you know your manufacturing throughput time overall. Once they’re addressed, you’ll be better able to have your products ready in advance rather than <a href='https://www.masterclass.com/articles/just-in-time-inventory-explained' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com/articles/just-in-time-inventory-explained","linkCopy":"just in time","category":null}'>just in time</a> for delivery. </li><li class="mc-my-4"> 2. To eliminate inefficiencies: Calculating the average time it takes to get your raw materials ready-made into the number of units you need to sell helps expose areas of your process that aren’t operating at maximum capacity. Maybe you need to speed up your inspection time or increase manufacturing efficiency elsewhere. Regardless, eliminating this kind of downtime can decrease unnecessary product latency. </li><li class="mc-my-4"> 3. To lower operating expenses: Decreasing the amount of process time for your products can shrink your operating costs. Once the lead time on product development drops, that can mean less money spent on unnecessary additional materials, labor time, and other expenses. </li><li class="mc-my-4"> 4. To encourage lean manufacturing: Knowing the throughput rate for your production process helps establish a manufacturing style that’s as efficient as possible. A smaller unit of time spent on any given product means a smaller amount of time spent on all products combined. Once all inefficiencies are eliminated, the manufacturing process itself will proceed with fewer moving parts, less wait time, and greater total time to spare. </li></ol>

4 Reasons to Determine Throughput Time

This throughput formula draws from the probability theorem (a mathematical rule) called Little’s Law to arrive at its equation. To determine how long it takes to go from sub-assemblies to finished products, you’ll need to divide whichever inventory (I) you’re looking at by the real time spent in the manufacturing process (T) to discover the throughput rate (R). Written mathematically, it looks like this: R = I / T.

Formula for Calculating Throughput

Imagine there’s a cellphone company trying to discover how many phones they can get out the door into the hands of consumers on a given day. They know they’ve built 300 phones in the last 30 days, so they can start there as a reference point. In this case, their throughput formula (R = I / T) looks like this:R (the move time for a single day of production) = 300 (phones developed in the last 30 days) / 30 (the number of days total)In this scenario, the throughput rate (R) is 10, meaning the company should be able to build 10 phones a day.

Example of Throughput

Get the <a href='https://www.masterclass.com' target='_self' class='mc-text--link' data-mc-segment-trigger='true' data-mc-segment-event-type='Article Page Click' data-event-obj='{"textTag":"p","href":"https://www.masterclass.com","linkCopy":"MasterClass Annual Membership","category":null}'>MasterClass Annual Membership</a> for exclusive access to video lessons taught by business luminaries, including Bob Iger, Chris Voss, Robin Roberts, Sara Blakely, Daniel Pink, Howard Schultz, Anna Wintour, and more.

Want to Learn More About Business?

In the area of supply chain management, a company’s throughput refers to the total time it takes to develop and deliver a good or service to the customer.

In the area of supply chain management, a company’s throughput refers to the total time it takes to develop and deliver a good or service to the customer.
