What Is Throughput Time?: Benefits and Formula

By Team TranZact | Published on Apr 14, 2023

As a business owner, knowledge of throughput time will help you enhance production and eventually boost profits. If you run a manufacturing unit, your main motto should be to provide the consumers with the best quality products at the right time when they want to buy the items. This process can become more efficient by using the throughput time formula that tells you the exact production time from start to finish.

In this article, you will get a complete understanding of throughput time, why throughput time analysis is important, how to increase throughput, the difference between throughput time and cycle time, and more.

What Is Throughput Time?

The amount of time required to manufacture a product is called the throughput time. This is the time from the very beginning of the production process to the end product when the product becomes part of the inventory and is ready to be shipped - the entire time is included in the throughput time.

Being a manufacturer, you must know the exact time you need to produce a product from the time your customer orders to the stage of sourcing the raw material, production time, packaging, and labeling to finally when the product is ready to be sold. This is called the throughput time.

Knowing the throughput time of your company helps in many ways. If you notice any lapse in the throughput time, you can work towards making manufacturing more efficient than before. So, it helps with effectiveness and saving money.

Having insights into your business's throughput time will help you to calculate other businesses' profit, and efficiency. You can use other companies' throughput time as your benchmark and work towards increasing your business efficiency and profit. Therefore, it is an important business metric.

Throughput Time Formula

Following is an easy formula to calculate the throughput time:

T=I/F

T stands for the throughput time. I stands for Inventory. F stands for the time the inventory units are being kept or used in production.

There are four ways of counting the product's throughput time. Those are:

Process time
Inspection time
Move time
Inspection time

The amount of time that a business needs for manufacturing a product is called process time. With the completion of the product, there is an examination of it. As most businesses do not start selling away the product right after the inspection, they need to be stored first. For that, all products are sent to storage centers or warehouses.

Once the products are ready for sale, they are promptly sent to the customer. The careful processing during the throughput time adds significant value to the finished product. By following this procedure, you can ensure a properly finished product every time. However, it's important to note that a significant amount of time is also dedicated to administrative tasks.

Benefits of Throughput Time

Throughput time is highly beneficial for companies to increase their revenue and enhance customer-seller relationships. Therefore, you must monitor the throughput time to deliver the goods or services as fast as possible. Here are the benefits of monitoring it:

Maintain Inventory Level

When you calculate the throughput time, you will find the connection between the production time and your inventory level. You can set an inventory benchmark for your production just by experimenting with different throughput times and how they work with the inventory required. You can get a good idea about it by seeing whether the product has been increased or decreased. Soon you will find a balance between the throughput time and inventory flow.

Improve Competitiveness

When you are able to manage the inventory flow better with improved throughput time, you will be able to supply your goods on time. Not only can you put more products out there for sale but at effective prices as well. So, improving throughput not only helps in saving a good amount of money on waste and extra labor but also enables you to achieve more profits by being competitive. Use this competitive advantage to your benefit and to be placed better in the market.

Ensure Customer Satisfaction

As a manufacturer, your primary goal is to produce high-quality products and increase sales. By analyzing and improving your throughput time, you can achieve these goals more effectively. One critical business objective is to achieve customer satisfaction. Delivering high-quality products on time can help foster a positive perception of your brand among customers. Satisfied customers can also help generate new business through word-of-mouth referrals.

Boost Efficiency and Profits

The most prominent benefit of using the throughput time is that it increases the efficiency of the manufacturing unit. While doing business, efficiency matters the most. Therefore, when you have low throughput time, it denotes that you use your resources well and there are minimal discrepancies in the process. Most, importantly, low throughput means more profits by cutting down extra labor costs, electricity costs, and machinery costs.

Why Is Throughput Time Analysis Important?

If you are running a manufacturing company, calculating the throughput time is important because it helps you to understand the entire time distribution of the product manufacturing. When you track it, you can work on identifying the bottlenecks and use the time most efficiently.

When the actual throughput time is not in sync with the expected throughput time, it is time to make some changes. You need to evaluate the whole process. By experimenting and adjusting, you will surely find the best suitable throughput time for your business.

Through throughput time analysis and comparison with other brands or companies, you can see where you are lacking. By fixing those issues, you can establish a more powerful system in place.

In fact, when you compare the throughput time of your company with other similar ones, you create a benchmark for yourself. Having a goal always helps to succeed in the business.

By analyzing the throughput time, you can make some adjustments in the manufacturing process which will reduce delays and do away with the bottlenecks. Also, fast delivery means more loyal customers.

How to Improve Throughput?

Throughput is the measure of the number of products or goods manufactured in any manufacturing facility. Falling behind the required throughput can create delays in order delivery. Therefore, the lower the throughput, the better.

Monitor your machines for downtime and idle time to know their efficiency. There are applications that help you know if there are any issues with the machinery that can be done away with to improve throughput.
Track the team performance closely and see if there is any scope for improvement and make sure your workers are skilled and trained; if not organize training workshops.
Also, creating healthy competition among workers can help you achieve a great result.
Track cycle time to know where you can cut short and improve throughput.
Keep a check of hourly production to identify the problem and think of corrective measures.

By doing throughput analysis, you will be immediately fixing any sort of inefficiencies or slowdowns. There are various processes to increase throughput. One of them is using technology with throughput analysis software that can help immensely.

How to Use Throughput Time to Assess Performance?

To calculate throughput time, you need to go through the following steps:

First, calculate your throughput time

There is a simple formula to calculate the throughput time. You need to add processing time, inspection time, move time, and queue time together to get the throughput time.

To understand a throughput time example, let's suppose you have 50 minutes of processing time, 60 minutes of inspecting time, 12 minutes of move time, and 28 minutes of queue time. So, the calculated throughput time for this will be 150 minutes. See? It's easy!

Find out the throughput efficiency rate

To find out the throughput efficiency rate, you first have to calculate the throughput time. Then, divide the inventory by the throughput time, and you will get the throughput efficiency rate.

For example, when you have 200 products in the inventory, and the throughput time is 50 minutes, you need to divide 200 by 50 and your throughput efficiency rate will be 4. To be more specific, it can be said that the throughput efficiency rate will be 4 products per minute.

Calculate the net profit and ROI as well

In addition to calculating throughput time and throughput efficiency rate, you can easily calculate the return on investment (ROI), net profit, and throughput with these.

**Revenue - entire expenses = Throughput Time **

Example: If your revenue is 2 million USD and the expenses are 800,000 USD, then your revenue would be 1.2 million USD.

Now, if you minus the operating expenses, you will get your net profit.

When the throughput is 1.2 million USD and the operating expenses are 700,000 USD, your net profit will be 500,000 USD.

Now, here is the formula for calculating your ROI.

[(total revenue - total cost) / total cost] X 100 = ROI

Example: When you have a total revenue is 70,000 USD and a total cost is 35,000 USD, the calculated ROI would be 100%.

Throughput Time vs Cycle Time

Both throughput time and cycle time are important for the manufacturing business. Although they seem to be the same to some extent, they are different.

The cycle time denotes the time frame of making one unit in manufacturing. The duration between the start of two units is calculated as the cycle time. In other words, it is the time taken to complete one production cycle, from the start of one unit to the start of the next unit.

Cycle time is highly valued in the manufacturing process because it helps determine the capacity of the manufacturing process. it also shows places where it needs some improvement. It contributes to optimizing the workflow and improving the utilization of equipment.

On the other hand, the throughput time refers to the entire time the production is going to take starting from the beginning to the final stage of the product. Throughput time helps in measuring the efficiency, delays, and factors affecting the lead time.

As already said, both are extremely important and connected to each other. If you reduce the cycle time, it will surely increase the production capacity. On the other hand, when the throughput time is reduced, it helps to identify and eliminate any kind of inefficiency thus improving the overall performance.

Throughput Time vs Response Time

Throughput time and response time are both important metrics in measuring the performance of a system, but they have different meanings. Throughput time refers to the total time it takes for a task to be completed from start to finish, including any waiting time in between.

On the other hand, response time refers to the time it takes for a system to respond to a request or input, typically measured from the time the request is made until the response is received. While throughput time focuses on the overall time it takes to complete a task, response time is more concerned with the speed of a system's response to user input. Both metrics are important in evaluating and optimizing performance.

Throughput Time vs Lead Time

Another important metric in the manufacturing business is the lead time. This is also close to the definition of throughput time but slightly different.

Lead time is the amount of time between the customer ordering something and getting the final product ready and delivered to their door steps. Therefore, the ordering time, manufacturing time, examination, and delivery - lead time includes all these. Therefore, it is the time value to know how responsive a company is to its customer demand.

Both throughput time and lead time are important aspects of the manufacturing business. When the throughput time is less, it shows how efficient a company is in using its resources. On the other hand, a shorter lead time denotes how responsive the company is towards its customer demands.

If you want to reduce any of it, it may have an effect on the other. For example, while reducing the lead time, you would require to have some ready amount of material in the inventory. Thus, the throughput time automatically increases to fulfill it.

As both are an important part of manufacturing, it is essential to understand both the concepts and their difference. This way, one can ensure the most efficient production planning for their goods or services.

Achieve the Fastest Throughput

If you fall behind throughput, it will lead to delayed deliveries and loss of clients or customers. So, if you want to retain your customers and don't want to lose them to your competitors, you must improve your throughput time.

The best way to ensure that everything is being done properly and there is no scope for delay, focus on improving your manufacturing functions and processes. This is where TranZact's advanced business automation solution comes into play. From inventory management to production and quotations, it will help you automate all your processes and digitally transform your business!

FAQs on Throughput Time

1. How do you calculate throughput time?

If the time taken for the entire manufacturing is divided by the unit of products, we get the throughput time value.

2. What is throughput time vs cycle time?

Cycle time in manufacturing denotes the amount of time required to produce one unit of product whereas throughput time is the time for the entire manufacturing of products or services. Cycle time helps with the response time and throughput time helps with the efficiency of the company.

3. What is throughput time in manufacturing?

Throughput time in manufacturing refers to the total duration required to complete a product from the beginning of the production process to the finished product. It includes all the activities, processes, and waiting times that are required to transform raw materials into a finished product, including any delays or interruptions that may occur during the production process.