Understanding TOC Concepts: Throughput

The concept of “Throughput” is not new. Nevertheless, its relevance was regained when presented in the book The Goal as one of the three simple accounting measurements that allow an organization determine if actions and decisions are getting it closer to its goal when stated in financial terms. The relevancy became such that it allowed to define two very distinct mind sets in the management decision making arena: the Throughput World Mentality vs the Cost World Mentality. The Theory of Constraints concepts and its applications are based on this holistic view called the Throughput World Thinking/Paradigm.
 
Any person that claims to know TOC should have internalized the Throughput World Mentality, the concept of Throughput and its implications as a measurement of the whole.

The TOC Dictionary provides the following definitions:

Throughput (T)

The rate at which the system generates “goal units”.
Usage: Because throughput is a rate, it is always expressed as goal units per unit of time (e.g., hour, day, month or year) or unit of product. If the goal units are money, throughput will be an amount of money per time period or per unit of product. In the case of throughput per time period, throughput is calculated as (revenues received for the period minus totally variable costs) divided by the chosen time period. In the case of throughput per unit of product, throughput is calculated as the selling price of the product minus totally variable costs per unit.

Cox III, James F., Lynn H. Boyd, Timothy T. Sullivan, Richard A. Reid, and Brad Cartier, 2012, The Theory of Constraints International Certification Organization Dictionary, Second Edition, page 121.

Throughput-world paradigm

The view that a system consists of a series of dependent variables that must work together to achieve the goal and whose ability to do so is limited by some system constraint. The unavoidable conclusion is that global improvement is the direct result of improvement at the constraint, and cost allocation is unnecessary and misleading. This paradigm is in conflict with the cost-world paradigm.

Cox III, James F., Lynn H. Boyd, Timothy T. Sullivan, Richard A. Reid, and Brad Cartier, 2012, The Theory of Constraints International Certification Organization Dictionary, Second Edition, page 123.

Directly from the source, the TOC Insights, the Goldratt Satellite Program (GSP) Series and The Goal Movie provide a clear explanation of the Throughput concept and its principles:


The Goal Movie – How to version
(available as Download, Online streaming, or on DVD)

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Click to watch an excerpt →


Finance and Measurements – T, I & OE and Throughput Accounting
(available as Download, Online streaming, or on DVD)

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Click to watch an excerpt →


Distribution and Supply Chain – Measuring performance with TDD and IDD
(available as Download, Online streaming, or on DVD)

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Click to watch an excerpt →


TOC Insights into Finance and Measurements
(available as Download, Web access, or for iOS devices)

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Click to open an excerpt →

Several of the TOC Handbook chapters are devoted to Throughput, Measurements and the Throughput World Paradigm, like:

Traditional Measures in Finance and Accounting, Problems, Literature Review, and TOC Measures
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Resolving Measurement/Performance Dilemmas
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Resolving Measurement/Performance Dilemmas
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Resolving Measurement/Performance Dilemmas
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You can find much more about Throughput and Throughput Accounting on TOC.tv. Here are just a few samples:


Making Decisions with Throughput Accounting

Click here to watch this video →


Finance of TOC Distribution or T, I and OE tell the whole story?

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My Viable Vision for Throughput Accounting

Click here to watch this video →


A look into Measurements

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Learn more about the concept of Throughput from resources like these:

Book
The Haystack Syndrome

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Book
Throughput Accounting

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E-Book and DVD
The Measurement Nightmare

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E-Book
Management Dynamics: Merging Constraints Accounting to Drive Improvement

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E-Book
The Conflicted Middle: Lean Accounting

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CD-Rom
Performance Measures – Concepts and Principles Workshop

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