The 4 differences between production and productivity

In the world of finance and business it is necessary to know and distinguish between two terms fundamental to understand and achieve the proper functioning of an organization: the production and productivity.

Although in a way it might seem that production and productivity are synonymous, the truth is that they are not, although they are two closely related terms.

In this article we will address the differences between production and productivity, in addition to explaining in detail their definitions and understanding what their relationship is when it comes to understanding the operation of a company.

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What are production and productivity?

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 a whole 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 tackle the market in which it is intended to enter.

At the beginning of the process, some inputs enter the company, which can be tangible, such as materials and machinery, or intangible, such as the case of human effort involved in the process, whether in the form of physical labor or in the form of creativity, brainstorming, imagination and planning.

For a company to have benefits It is necessary that the profits achieved with the final production are higher than the invested expenditure 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. In other words, 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 end product, productivity takes into account different aspects of the entire process.

Key differences between both concepts

Below we present the fundamental differences between production and productivity.

1. Measure

Production measures what a company has produced, either in the form of goods or services. Instead, productivity measures efficiency, in which the company's own total production can be included.

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 daily. As can be seen, this is a fairly simple and easy to understand measure.

Instead, productivity is measured in relative termsSince it encompasses many more variables than production, and some of them are difficult to measure, it is not possible to calculate it exactly or in a concrete way.

Returning to the example of the soap company, to calculate its productivity it is not enough for us 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 ...

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3. Product and usability

Production is a measure of the total amount 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, implies losses.

Instead, productivity is a measure that allows knowing to what degree resources have been used.

An organization is productive if it has made wise use of resources, you have not wasted materials or wasted during the process.

4. Value added

When a certain product is produced or a service is offered, the company itself gives it a value, taking into account what has been invested in the beginning and what percentage of income is desired obtain.

On the other hand, productivity, although it is a measure that is difficult to calculate, cannot be given 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 should be taken into account as objectively as possible, without the possibility of adding value.

Productivity-production ratio

As we have already seen, the basic difference between the two concepts is that production refers to the amount of goods and services offered in a certain period of time, while productivity refers to the level of use of resources, whether material, human or energetic. Having understood this fundamental difference, it is necessary 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 gains or losses may be taking place, 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, if the workers have suffered any mishap, if a machine has broken down or any material has been exhausted cousin. Also it may be the case that employees are not working properly, being necessary to invest in training or, in case there is no other option, to 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 is not being produced to be able to keep the organization at float. 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.

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 the salary of workers.

In short, the best way to calculate real productivity is taking into account what the real production of the company is. It should be noted, however, that one of these two factors increases or decreases 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.

Bibliographic references:

• Fuchs, V. (1969). Production and Productivity in the Service Industries. New YorK USA, NBER.
• Moretti, E. (2004). Workers' Education, Spillovers, and Productivity: Evidence from Plant-Level Production Functions. American Economic Review, 94 (3), 656-690.
• Gillis, M.; Perkins, D. H.; Roemer, M.; Snodgrass, D. R. (1992). Economics of development. New York, USA, W.W. Norton & Company, Inc.