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. In this article we will provide you the differences between production and productivity.
Although, in a way, 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’ll cover the differences between production and productivity , as well as carefully explain their definitions and understand what their relationship is when it comes to understanding how a company works.
What are production and productivity?
Output is, in essence, the total amount of goods or services offered by a company in a specific period of time. It is defined as any activity in which, during the 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, because if it reaches a satisfactory level, the company will be able to approach the market in which it intends to enter.
At the beginning of the process, some inputs enter the company, which can be tangible, such as materials and machines, or intangible, as would be the case with the human effort involved in the process, whether in the form of physical work or in the form of creativity, brainstorming, imagination and planning.
For a company to have benefits, it is necessary that the profits obtained with the final production exceed the expenses invested in inputs. Otherwise, the organization will suffer 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 required for this. While production focuses on the final product, productivity takes into account different aspects of the entire process.
Main differences between the two concepts
Next, we present the fundamental differences between production and productivity.
Output measures what a company has produced , whether in the form of goods or services. On the other hand, productivity measures efficiency, in which the total production of the company itself can be included.
Production is measured and expressed in absolute terms, as it focuses on what is produced. For example, if a company produces 100 soaps per day, we will say that it produces exactly 100 soaps per day. As you can see, it is a very simple and easy to understand measure.
On the other hand, productivity is measured in relative terms , since, as it encompasses many more variables than production and, some of them, difficult to measure, it is not possible to calculate it precisely or concretely.
Returning to the example of the soap company, to calculate its productivity, it is not enough to know that they manufacture 100 soaps every day. It is a useful fact, 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 machines used and their maintenance …
3. Product and usability
Output 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 were used .
Thus, the measure of production simply allows us to know to what extent the production produced by a company generates profits or, on the contrary, implies losses.
On the other hand, productivity is a measure that allows us to know to what extent resources have been used.
An organization is productive if it has made intelligent use of resources , not wasted materials or wasted in the process.
4. Added value
When a certain product is produced or a service is offered, the company itself assigns a value, taking into account what was initially invested and what percentage of revenue you want to obtain.
For productivity, however, although it is a difficult calculation, it is not possible to assign an arbitrary value. It is the total efficiency of the company in the production of a product or service, which must take into account the expenses and benefits obtained in the most objective way possible , without the possibility of adding value.
As we have already seen, the basic difference between the two concepts is that production refers to the quantity of goods and services offered in a given period of time, while productivity refers to the level of use of resources, whether material, human or energetic. this fundamental difference, we need to see the close relationship these two terms have.
It is not possible to calculate productivity without taking into account the production 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 the appropriate use of resources within the organization is being made.
The degree of production and productivity influence each other. For example, if a drop in production was detected in a company, it is necessary to investigate what happened, if the workers had an accident, if a machine was damaged or if any raw material was used. It could also be that employees are not functioning properly , so you need to invest in training or, if you have no other option, replace them.
It must be said that there can be paradoxical situations in which the desired productivity for the company is being achieved, but what is needed is not being produced to keep the organization afloat. It may also be that the desired output is achieved; however, analyzing what was invested during the manufacturing process, it is clear that large amounts of money and materials are being wasted.
Successful companies are those that manage to produce what is needed to make a profit and, in turn, do not waste resources , allowing them to invest smartly and save to guarantee workers’ wages.
In short, the best way to calculate real productivity is to take into account the company’s actual production. 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.