Productivity vs. Efficiency – What to MeasureVenkat Srinivasan
In ordinary day-to-day conversation for most people, the words ‘productivity’ and ‘efficiency’ are thrown around indiscriminately. They are, however, different and it’s important to know the difference and when to use them.
PRODUCTIVITY V EFFICIENCY
Productivity is the raw measure of how much product is made in a certain time, disregarding other metrics, like demand or wastage. For example, an employee of a company that makes 45 units an hour while the company only needs 30 is seen as very productive. The end result, however, could be negative as the employee may cause large wastage and material deficiencies. Efficiency is more related to the quality of the work done and how streamlined the process is, disregarding other metrics like product thresholds and order quantities. For instance, Tim sold $50,000 worth of product using $5,000 worth of material while John sold $30,000 with $500 worth of material. John is much more efficient than Tim, making much more in sales from each dollar used. Even though John is more efficient, the end result may be negative as the company may have required a certain amount from sales which John did not reach. Each metric has its advantages and disadvantages in each use case.
WHEN TO BE PRODUCTIVE
Productivity is most important where there isn’t a material or product limit. In a law firm, where there isn’t a material cost other than time, a lawyer that generates $100,000 with 30 clients is better for the company than another lawyer that generates $70,000 with 5 clients. This is also the case where the material cost is required, like in a travel or holiday company.
WHEN TO BE EFFICIENT
Efficiency is most important when there are strict material or production rules and working within them is important. If a design must be competed in 2 months, an employee who finishes the design on time is more useful at that moment than another employee who makes a better design in 3 months.
In conclusion, knowing the difference between productivity and efficiency is important for any supply chain. Using effieicincy to assess someone who should be producttive (and vice versa) is potentially damaging and harmful.