Theory of Constraints Applied to Bonus Payments

12manage is hiring Management/MBA Students!

Theory of Constraints > Forum Log in

Theory of Constraints Applied to Bonus Payments
Gene, Member
Hi everyone, I guess we all agree that if we want to change things we need to use "system thinking"!
There is a "but"; at my factory in the (instrumental shop) workers get paid bonuses for how many parts they produce. They use CAD drawings. Sometimes these are not correct or sometimes workers are not experienced enough to make correct judgment calls which results in bad end results.
I want to make the engineers and shop workers work together as a whole.
Instrumental shop workers get paid bonuses every month, I want to change that and make their KPIs based on how many end product they produce and then only pay them bonus. But sometimes it's not a worker's problem that he ends up with a bad CAD drawing.
My CEO asked one question that made me think "Why do you want to penalize the workers in the instrumental shop when it should be the managers who are responsible?"
On the other hand, why should we pay bonuses (waste money and material) if the end product is stored away and not used! I understand it's not their fault sometimes, but the current local performance doesn't help me at all.
What would be your suggestions? Greatly appreciated.

Decouple Companies, TOC (CCPM & MTO)
Salvador Pena, SIG Leader
Hi Gene, I think you have a typical problem of manufacturing companies that are handled with the concepts of local optima and I see you have a clear picture of it.
I recommend as a first step to decouple the issue of the poor quality of the CAD drawings and view both parts of the organization as a separate company:
  • The first company is dedicated to projects (TOC-CCPM, Critical Chain Project Management) where what they do is to create high quality CAD drawings, at this point I suggest putting a validation mechanism where it can be verified that the CAD drawings are correct before going to the next step or company (full kit).
  • Once we ensure that the CAD drawings are sufficiently good and meet the minimum requirements and are not delivering with poor quality to the next department, then we can move to the second company that is dedicated to produce high quality goods based on CAD drawings (TOC-MTO) of the first company.
Inside the entire company I suggest you change the bonuses from being based on local optimum to being based on global optimum, and a good way to do it is that the entire work cell that contributes to the creation of a single finished product is rewarded with these bonuses.
I hope these tips help you. Greetings. Salvador.



  Do you wish to study further? You can learn more from the summary, forum, discussions, lessons, courses, training, instructions, expert tips, best practices and education sources. Register.  

Special Interest Group Leader
Salvador Pena
Business Consultant

More on Theory of Constraints
Best Practices

Expert Tips


About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2018 12manage - The Executive Fast Track. V14.1 - Last updated: 24-6-2018. All names of their owners.