The 4 differences between production and productivity

How to distinguish between production and productivity? What are the differences?

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 closely related terms.

In this article we will discuss the differences between production and productivityIn this article, we will explain in detail their definitions and understand their relationship when it comes to understanding how a company works.

What are production and productivity?

Production 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, through a whole process, a raw material is transformed into a consumer good or service that is useful to society. Production is the main objective of an organization, since, if it reaches a satisfactory level, the company can enter the market it intends to enter.

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

For a company to make a profit profits from final production must be greater than the expenditure invested in inputs. 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 the ratio between the materials consumed and the final products, in addition to taking into account the human capital invested and the time required. While production focuses on the end product, productivity takes into account different aspects of the entire process.

Key differences between the two concepts

The following are the key differences between production and productivity.

Measurement

Output measures what a company has produced, either in the form of goods or services.either in the form of goods or services. Productivity, on the other hand, measures efficiency, which can include a company's own total output.

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 would say that it has a production of exactly 100 soaps per day. As can be seen, this is a fairly simple and easy to understand measure.

Productivity, on the other hand, 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 accurately or concretely.

Returning to the example of the soap company, to calculate its productivity it is not enough to know that 100 soaps are produced every day. This is a useful piece of information, but it is necessary to know many more, such as the materials invested, their cost, the time spent, the individual production of each employee, the machinery used and its maintenance...

3. Output 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 raw materials have been utilized..

Thus, the output measure simply lets us know the extent to which what a company produces generates profits or, on the contrary, entails losses.

Productivity, on the other hand, is a measure of the extent to which resources have been used.

An organization is productive if it has made an intelligent use of resources, has not wasted them, and has not been able to make a profit.The organization is productive if it has made intelligent use of resources, has not wasted materials, and has not produced waste in the process.

4. Value added

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 revenue it wishes to obtain.

Productivity, on the other hand, although it is a difficult measure to calculate, cannot be given an arbitrary value. It is the total efficiency of the company in the production of a product or service, the costs and benefits obtained must be taken into account as objectively as possible.without the possibility of giving it an added value.

Productivity-production ratio

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 utilization of resources, whether material, human or energy. Once this fundamental difference is understood, it is time to see the close relationship between these two terms.

It is not possible to calculate productivity without taking into account the organization's production.. 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 there may be losses or profits, and how resources are being used appropriately within the organization.

The degree of production and productivity influence each other. For example, if a company has detected a decrease in production, it is necessary to investigate what has happened, whether workers have suffered a mishap, a machine has broken down or a raw material has run out. Also It may also be the case that the employees are not working properly.The company has to invest in training or, if there is no other option, to replace them.

Paradoxical situations may arise in which the desired productivity for the company is being achieved, but not enough is being produced to keep the organization afloat. It can also be the case that the desired production is achieved, however, analyzing what has been invested during the manufacturing process, it can be 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, at the same time, do not waste resources, do not waste resourcesThe successful companies are those that are able to produce what is necessary to achieve profits and, at the same time, do not waste resources, allowing them to invest wisely and save to ensure their workers' salaries.

In short, the best way to calculate real productivity is by taking into account what the company's actual 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.

Bibliographical 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. Norton & Company, Inc.