All the money that the system spends in turning Investment in Throughput.

OE are the periodical amount of expenses spent by the organization. These are the expenses that do not vary with a single sale. OE includes all the money that is paid out and cannot be directly associated with a specific product or specific customer order.

In other words, OE is all the non-TVC: the costs that the company would incur irrespective of the number of units – like

• the pay for the direct labor that is on regular salaries (not piece incentive),
• salaries for directors/managers/secretaries,
• telephone bills,
• electricity bills,
• premises rent, etc.

All such costs are treated as operating expense and are not deducted from the revenue for the calculation of Throughput for a certain period.

 

Source: Oded Cohen and Jelena Fedurko, Theory of Constraints Fundamentals, 2012