# Calculating Throughput Using a Formula

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• 0:00 The Throughput Formula
• 0:43 Formula and Explanation
• 1:41 Manufacturing Example
• 2:17 Service Example
• 3:01 Healthcare Example
• 3:36 Lesson Summary
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Lesson Transcript
Instructor: John Skoy

John has an MBA and has taught college business for over a decade, both online and in person. He is a Dean of Faculty for an online university.

Throughput calculations allow managers to better understand how efficiently they are manufacturing goods or conducting services. It is a simple formula that gives several important metrics in the operations environment.

## The Throughput Formula

An entrepreneur opens a t-shirt shop outside a popular theme park. She begins to sell t-shirts at a reasonable pace, and as the popularity of her shirts increases, so do sales. Pretty soon, she is taking custom orders and needs to figure out how long it will take to fill them. How can she figure out the length of time it will take to complete these orders, and how does she know how quickly to replenish her t-shirt supply at the store? Luckily, both of these problems can be solved with one simple formula: The throughput formula can help determine the rate at which operations run in a given business. Let's examine the details of this formula.

## Formula and Explanation

Throughput, or flow rate, is a calculation that is commonly made in operations management that allows a manager to see what output is in a given amount of time. This output can be in either a product or service environment. The formula is based on Little's Law, which in essence is used to calculate the average number of something over a given amount of time. When the variables are rearranged, you get the formula for throughput:

TH = I / T

• TH is the throughput that we are determining, or the average output of something over a given amount of time. The time is most commonly illustrated per minute, hour, or day.
• I is the inventory that is used over a period of time. This can be physical inventory or service inventory, where the inventory is the customer.
• T is the total time that is required to complete the inventory or task.

To better explain the throughput formula, let's look at some examples.

## Manufacturing Example

A soap manufacturer wants to know how many bars of soap its producing per hour. It knows it produces 10,000 bars (I) of inventory per day, and that its machines run for first and second shifts, which is 16 hours (T) per day. It can calculate throughput as:

TH = 10,000 / 16

TH = 625 bars per hour

If the factory wanted, it could further break this down into how many bars of soap it produces per minute by dividing by 60. This results in 10.4 bars produced each minute of operation.

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