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02/14/2012 10:50 AM
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In TOC terminology throughput is sales less the cost of materials. Producing inventory is not throughput. You can put it in the balance sheet, add overheads, manipulate profit/results, but it does not impact the results of the formula NP=T-OE. This is why it is such a good measure of true savings. The rest is accounting slight of hand. The moment you start to equate throughput to production you have opened pandora's box. In lean terminology inventory is waste. In TOC you get no credit for unsold production. In lean accounting one would expect the same, although there is perhaps no clear standard. The question was on savings. All I am suggesting is thast if you want to claim real savings, ask what is the impact on your cash. All else can be misleading and at best a possible oportunity.
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02/14/2012 10:50 AM
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I respectfully disagree. Throughput is expressly defined as Sold goods. E.G. made this very clear by defining the difference between activation and utilization. i.e. it's not Throughput until it's sold.
A business can make huge profits (GAAP) by not selling anything. Unfortunetly the absence of cash prohibits this as a long term strategy.
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02/14/2012 02:17 PM
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Rich
Overall I like your answer but would like to fine tune. Throughput measurement does not depend upon going into inventory. It can go directly to the customer and must if it is a supplier on a direct pull from their customer. The same with sales - sales can be recorded after the final operation and it is loaded into the truck and shipping documents completed. Except in the case of a direct pull sometimes the sale cannot be recorded until the customer unloads.
Ron Turkett
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02/14/2012 04:39 PM
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Ron,
We're talking about the same thing. In perfection a firm would produce exactly what is to be bought right now and recieve the money in the bank a the same instant. It's useful to distinguish revenue the components of revenue. this is because it's conceivable that what is done along a value stream may mutually exclusively influence prices and volume.
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