Takt time is the average time between the start of production of one unit and the start of production of the next unit, when these production starts are set to match the rate of customer demand. If a customer wants 10 units per week, then, given a 40-hour work week and steady flow through the production line, the average time between production starts should be four hours, yielding 10 units produced per week.
A common misconception is that takt time is related to the time it takes to actually make the product. In the previous example, whether it takes four minutes or four years to produce the product, the takt time should be four hours. The time it takes to produce the product will impact the magnitude of the number of units actually in production at any point in time.
Takt time is used to determine production quantities, making it easy to organize the equipment, labor hours, and other factors necessary for effective production. If only one type of item is manufactured, level production is possible by leveling only the quantity. If multiple types are manufactured, however, the leveling of the types is necessary to avoid the waste that leads to lowered efficiency.
It is an expression of your customer demand normalized and leveled over the time you choose to produce. It is not, and never has been, a pure customer demand signal. Customers do not order the same quantity every day. They do not stop ordering during your breaks, or when your shift is over. What takt time does, however, is make customer demand appear level across your working day.
Takt time makes capacity calculations really easy through a complex flow. You can determine what each and every process must be capable of, such as the necessary speeds of machines and other capital equipment. You can also determine minimum batch sizes when there are changeovers involved or quickly determine the optimum number of people required to make it work, plus see opportunities where a little bit of kaizen will make a big difference in productivity.
Check out this amazing video on Takt time.