Incentives and yield management in improving productivity of manufacturing facilities

Financial incentives are used to improve productivity and quality in manufacturing and service facilities. This improvement in productivity would normally release part of the facility's productive capacity. Without stimulating additional demand to consume this released capacity, the facility would be unable to tap the full benefits of the improvements in productivity. Hence, yield management is introduced in an attempt to entice more demand and increase revenues. In this paper, we develop a NonLinear Programming (NLP) model to jointly determine the optimum financial incentives and price discount levels for each rate class. The model aims at maximizing net revenues. It includes nonlinear relationships representing the impact of incentives on productivity and quality improvements as well as the effect of price discounts on customer demand in each market segment. The generic nature of our NLP model makes it applicable to all multi-product manufacturing facilities covering sales, production and delivery. The model is applied to determine the optimum incentive and price discount levels for perishable products in a multi-product ready-mix concrete plant. It is demonstrated that the model is useful in maximizing net revenues through productivity improvements and an increase in customer demand.