Productivity and flexibility: Fundamental relations between two major properties and performance measures of the production system

A number of different definitions have been given to the concept of productivity, all sharing the feature of relating an output measure to a measure of inputs. This concept has been available for approximately a century and has been applied in many different circumstances and on different levels of aggregation in the economic system. In recent years, due to the increased speed of change in the market environments of manufacturing industries the concept of flexibility has emerged. This measure deals with the opportunity for changing the production abilities of a company or an industry. Due to the relative novelty of this term, its definition has not yet been equally rigorously established in the literature. Various interpretations have been suggested for different typical cases, in particular for the company's ability to adapt its product mix, production rate and new product development to changes in the market demand. In this paper we propose a general definition of the concept of flexibility and analyze its relationship with the productivity concept departing from a basic economic–theoretic point of view. It is shown how flexibility may be defined from properties of production functions in a dynamic context.