The 4 Differences Between Production And Productivity
In the world of finance and business, it is necessary to know and distinguish between two fundamental terms to understand and achieve the proper functioning of an organization: production and productivity.
Although in some ways it may seem that production and productivity are synonymous, the truth is that this is not the case, although they are two very related terms.
In this article we are going to address the differences between production and productivity in addition to carefully explaining their definitions and understanding their relationship when it comes to understanding the operation of a company.
Production is, in essence, the total amount of goods or services that a company offers in a specific period of time. It is defined as any activity in which, through an entire process, a raw material is transformed into a consumer good or a useful service for society. Production is the main objective of an organization, since, if it reaches a satisfactory level, the company can address the market it intends to enter.
At the beginning of the process, some inputs enter the company, which can be tangible, such as materials and machinery, or intangible, as would be the case of the human effort involved in the process, either in the form of physical work or in the form of creativity, brainstorming, imagination and planning.
For a company to make profits It is necessary that the profits achieved with the final production be greater than the expense invested in inputs. Otherwise, the organization will be suffering losses that can lead to ruin after a while.
On the other hand, the term productivity refers to the degree of efficiency in the production process. That is, it is about the relationship between the materials consumed and the final products, in addition to taking into account the human capital invested and the time needed for it. While production focuses on the final product, productivity takes into account different aspects of the entire process.
Below we present the fundamental differences between production and productivity.
1. Measurement
Production measures what a company has produced , whether in the form of goods or services. On the other hand, productivity measures efficiency, which can include the company’s own total production.
2. Expression
Production is measured and expressed in absolute terms, since it focuses on what is produced. For example, if a company produces 100 soaps every day, we will say that it has a production of exactly 100 soaps per day. As you can see, this is a fairly simple and easy-to-understand measure.
Instead, productivity is measured in relative terms given that as it encompasses many more variables than production and some of them are difficult to measure, it is not possible to calculate it accurately or concretely.
Returning to the example of the soap company, to calculate their productivity it is not enough to know that they manufacture 100 soaps every day. It is useful information, but it is necessary to know much more, such as the materials invested, their cost, the time spent, the individual production of each employee, the machinery used and its maintenance…
3. Product and usability
Production is a measure of the total quantity of products and services offered at the end of the process. By itself, it does not indicate how well the raw materials have been used
Thus, the production measure simply allows us to know to what degree what is produced by a company generates profits or, on the contrary, causes losses.
On the other hand, productivity is a measure that allows us to know to what degree resources have been used.
An organization is productive if it has made intelligent use of resources no materials have been wasted nor waste has been produced during the process.
4. Added value
When a certain product is produced or a service is offered, the company itself assigns a value to it, taking into account what has been invested initially and what percentage of income it wishes to obtain.
Productivity, on the other hand, although it is a difficult measure to calculate, it is not possible to give it an arbitrary value. It is the total efficiency of the company in the production of a product or service, with which, The expenses and benefits obtained must be taken into account as objectively as possible without the possibility of giving it added value.
Productivity-production relationship
As we have already seen, the basic difference between both concepts is that production refers to the quantity of goods and services offered in a certain period of time, while productivity refers to the level of use of resources, whether materials, human or energetic. Once this fundamental difference is understood, it is time to see the close relationship that these two terms have.
It is not possible to calculate productivity without taking into account what the production is in the organization To know how efficient a company is, it is necessary to know how many products/services are offered. In this way it is possible to know to what extent losses or gains may be occurring, and how appropriate use of resources is being made within the organization.
The degree of production and productivity influence each other. For example, if a decrease in production has been detected in a company, it is necessary to investigate what happened, whether the workers have suffered any mishap, whether a machine has broken down or some raw material has been exhausted. Also it may be the case that employees are not working properly making it necessary to invest in training or, if there is no other option, replace them.
It should be said that paradoxical situations may arise in which the desired productivity for the company is being achieved but what is necessary to keep the organization afloat is not being produced. It may also be the case that the desired production is achieved, however, analyzing what has been invested during the manufacturing process, it is seen that large amounts of money and materials are being wasted.
Successful companies are those that manage to produce what is necessary to achieve profits and, in turn, They don’t waste resources allowing you to invest intelligently and save to ensure workers’ salaries.
In short, the best way to calculate real productivity is by taking into account what the company’s real production is. It should be noted, however, that an increase or decrease in one of these two factors is not synonymous with a change in the other component, but it can influence and be an indicator that there has been some change in the organization.
