Production Gap

A production gap is the gap between the could-be production and the actual production. Remember when your mom told you growing up that you needed to “live up to your potential”? Well, firm-moms tell firms that they need to “fill [their] production gap[s].”

How do we know exactly what potential production is? We can only know the production gap if we know the true full potential, since: Production Gap = Full Potential of Production - Actual Level of Production.

Short answer: we don’t know. But we try. For instance, it’s pretty easy to calculate the production lost when an accident happens, like a natural disaster. Earthquakes, fires, and floods don’t give a darn about your usual level of production.

Other than than, a gap analysis has to carefully analyze a company to determine its potential before it can figure out the production gap. There may be departments doing redundant or overlapping work. They might be having a hard time finding the right person for some vacant job positions. They might have had to switch suppliers, or consumers might have different preferences they must adapt to.

Like your mother said, mind the gap.