Is there anyone in the world who does not believe production is important? That is the whole point of a firm, to produce things for profit. However, there is always more to the story. Productivity, if it is just reflected in profits and losses, forgets the whole picture. Productivity is about people, about work, about the shop floor, not just numbers in a ledger. Productivity is about labor, and labor is necessary, intelligent and hopefully rewarding work.
Production and Markets
Because the importance of productivity is so taken for granted, discussing it further seems almost redundant. After all, the balance sheet eventually will show whether the firm is producing to its potential. This approach is highly simplistic. American farmers are an excellent example. American farmers produce enough food to feed the planet. Few agronomists will deny this fact. However, this kind of impressive production means that the price of most produce, for most of the 20th century, has been driven down. Therefore, the rationality of scientific methods of production, while producing more food, has driven thousands of farmers out of business because excess production has destroyed its own profitability.
Production and Returns
The law of diminishing returns states that adding new inputs, or factors of production, over time will lead to less benefit per newly produced unit. This, while abstract, is the crux of the matter. For example, you own a firm that produces printer cartridges. You buy a new piece of equipment that is meant to increase efficiency. This new factor of production is run day and night. Production increases and each cartridge becomes cheaper because of this new machine. However, the machine will wear out, demand more spare parts and might even demand you hire a person to oversee its operation. The more it is used, the less benefit it brings. What began as creating cheaper products suddenly becomes expensive when production continues to increase.
Production and Process
Production is the lifeblood and purpose of a business organization. Production is so important because the act of producing too much or too little not only can destroy the firm but the entire field, as the farming example shows. Production is important not just because it produces the products that create the eventual profit, but because productivity is a process, not just an outcome. Production is important because real people working real equipment are making it happen.
Production and Demand
Production is the final test of any changes made to the firm's regime, or its day-to-day functioning. New machines that promise to increase efficiency can actually retard it if the new equipment does not fit into the scheme of the shop, or if it demands too much attention or service. Excessive production can flood the market, reducing profits over time. Production works only when it is precisely in tune with demand. Without understanding demand, production by itself makes no sense. Stable prices can only exist when firms adjust production schedules to meet demand. Good jobs can only be secure when this demand is steady and regular. In turn, demand is based on the ready supply of good jobs that can support a market.
- Press Release Point: Global Perspective - The Importance of Productivity, 2010
- Measure Productivity: The Importance of Productivity Monitoring
- The US Department of Agriculture; "The 20th Century Transformation of U.S. Agriculture and Farm Policy"; Carolyn Dimitri, Anne Effland, and Neilson Conklin; 2006