An optimization-based productivity improvement incentive system

Incentives and productivity improvement (PI) are intertwined. Often, we ask what incentive program should be introduced to achieve a certain level of PI, and what is its minimal cost; or conversely, for a given incentive program, what is the maximum achievable PI? Incentives can be extended to any combination of customers, management, production staff, sales staff, and delivery staff, among others. What is the share of each of these segments in the incentive program and what is the yield for such a program in terms of productivity improvement? The answers to these questions and others are the subject of this paper. Relations between incentives of the various segments of the operation, productivity improvement, costs and earnings are determined. These relations are then used to model the problem as a nonlinear program. The solution of the model provides answers to the above questions. The solution enables us to distribute some of the extra earnings, generated from the resulting PI, among the parties contributing to productivity improvement. This method has been applied to the operation of a firm specialized in the production of ready-mixed concrete.