Incentives versus value in manufacturing systems: An application to high-speed milling

Optimal parameter selection is an important aspect of optimizing system performance. This paper examines the effect of different incentive structures, including reward and penalty based structures, for employees within an engineering firm on the value captured by that firm. Incentives are used to communicate the firm's values to the employee without revealing the firm's value function. We use a high-speed milling example to illustrate the approach and derive results. We show that, in certain cases, simple incentive structures can be aligned such that they induce profit maximizing behaviour. In other cases, we show that incentive structures result in a loss of value that we term the value gap. In the milling case considered, reward-based incentives coincide with optimal parameters while penalty-based incentives result in a greater than four-fold increase in costs. The effect of uncertainty within a system can also be analysed. We consider uncertainty in the process dynamics as well as tool life and that the inclusion of uncertainty in the analysis may not change the results in some cases.