Operations Management Basics: Flow rate / throughput, flow unit, inventory and flow time

The three most important performance measures of a business process are flow rate / throughput, inventory and flow time. In the following definitions, the term “flow unit” will be used a lot. A flow unit is the basic unit of analysis in any given scenario (customer, sandwich, phone call etc.).

Flow rate / throughput: The number of flow units (e.g. customers, money, produced goods/services) going through the business process per unit time, e.g served customers per hour or produced parts per minute. The flow rate usually is an average rate.

Flow time: The amount of time a flow unit spends in a business process from beginning to end, also known as the total processing time. If there is more than one path through the process, the flow time is equivalent to the length of the longest path.

Inventory: The number of flow units that are currently handled by a business process, e.g. the number of customers in a store, the number of enrolled students in an university etc. pp.

It should be kept in mind that the definition of inventory in Operations Management is different from the definition used in accounting. While the number of bottles on stock qualifies as inventory in both Operations Management and accounting, the number of patients waiting at a dentists office would not be seen as inventory in accounting – but is, in fact, inventory in Operations Management.

These lecture notes were taken during 2013 installment of the MOOC “An Introduction to Operations Management” taught by Prof. Dr. Christian Terwiesch of the Wharton Business School of the University of Pennsylvania at Coursera.org.