Setup cost improvement in just-in-time production using profit sharing

Abstract

In this paper, a model is developed to investigate the design of profit-sharing incentive plans in an environment, e.g. just-in-time production, where the worker's responsibility has been enlarged to perform multiple tasks, e.g. production and setup time and costs reduction. The incentive model is based on the agency theory and the Scanlon profit-sharing plans developed in the USA. Comparing inventory cost with a pre-established cost target, each employee receives a share of profits or loss in proportion to his or her wage or salary level. The main contribution of this paper is to explore the roles of risk attitudes, production risk and monitoring mechanisms in developing such profit-sharing plans. Understanding these human and environmental factors will help managers design more effective incentive systems.