As SoftSolutions prepares to formally launch Flex-LEAN in 2015, I am reminded of the simplicity of Throughput as a Key Performance Indicator (KPI). There are many terms used to describe Throughput, such as “Pace” or “Net Good Per Hour” or “Effective Rate of Production”.
Another term for Throughput can be found in the Toyota Production Systems (Lean) concept of Flow. If material is not moving, we can say with absolute certainty that value is not being added (however, just because material is moving does NOT mean value is always being added!).
Our latest Flex tools, such our new MS Excel plug-in, makes it easy to see that Throughput is basically a function of OEE. Therefore, if Throughput drops it must be due to one of three things: Uptime, Speed, or Quality.
The math ends up being very simple. Let’s assume a machine is rated to run at a Speed of 10,000 units per hour. Assume an Average Length of Run (ALOR) of 4,000 units. To keep the example simple, lets assume it takes 30 minutes for an average Run to clear 4,000 Good units. Assume an average Change-Over takes 30 minutes. IN terms of expected Throughput, here’s what we see:
Speed = 10,000 * 50% Uptime = 5,000 units per Hour * 80% Quality = 4,000 Good units per Hour of Throughput
In terms of OEE, here’s the math:
Speed = 100% * 50% Uptime * 80% Quality = 40% OEE - See the relationship? If we assume a machine is running at it’s rated Speed, then its expected Throughput = Rated Speed * OEE
Forget about the math and all the various terms and percentages. Throughput is basically CASH that the business generates per Hour. If materials are not Flowing, the business is not creating value that can be billed to customers. Overhead and indirect costs are like a steady burn that never stops. Unless there is Throughput, there is no Flow of CASH to cover that steady burn of Expenses. It’s easy to see why Hourly Boards are so popular in Lean Shops.
Perhaps my favorite term for describing the magic of Throughput is “Profit Velocity”. More on that later…