By increasing throughput, minimizing inventory, and decreasing operating expenses,
the following three traditional financial measures of performance will be affected
favorably: net income and return on investment will increase and cash flow will improve.
Of the three TOC factors, throughput is viewed as being the most important
for improving financial performance, followed by inventory, and then by operating expenses.
The rationale for this order is straightforward. Operating expenses and inventories
can be reduced at most to zero (inventory, though, being the larger amount),
while there is virtually no upper limit on throughput. Increasing throughput and decreasing
operating expenses have always been emphasized as key elements in improving
the three financial measures of performance; the role of minimizing inventory,
however, in achieving these improvements has been traditionally regarded as less important
than reducing operating expenses