By Chad Waldo

The story is almost a cliché these days; the customer needs parts yesterday and you have a week’s worth of production left.

It was a typical Monday morning when we got the call from the Norfolk Naval shipyard. There was a container ship leaving 10 days from Monday, and our parts needed to be on that ship. Production was still in process and would be finished Thursday afternoon. With that in mind, we told the procurement officer that there shouldn’t be a problem and hung up the phone. But upon checking the parts list for that order, we quickly discovered that there were two parts which required heat treating.

It wasn’t until we called our outside heat treating service company that we realized we had a big problem. Their current backlog was one week. There was no way to make the boat unless the parts were completed and out by Tuesday. We were at least two days short of time.

One constant truth about manufacturing I have found is that you always have options. Ours were to either ship the parts late and lose the contract, speed up the manufacturing process or heat treat the parts in house. With a limited window of only a few hours to make this decision, we dissected the choices, one at a time. Option one was out of the question; we simply could not afford to lose the contract. We quickly discovered that speeding up manufacturing wasn’t possible without shutting down several other jobs that were just as hot. In the end, the only option that made sense was heat treating the components in-house quickly.

We already had some of the equipment in place to make heat treating feasible, but we had no idea if it would work right. For our socket production line, we had installed a furnace next one of our punch presses. This setup was used to heat blanks up to 1800 degrees Fahrenheit. There was a large hood over the furnace to pull out heat and gas. We had access to several air lines, and one gas line could be tapped into if needed. With that layout in mind, we had the rest of the afternoon to figure out the best method to finish the parts in-house.

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By Lloyd Graff

Texas City Explosion 2005

As the details gradually emerge from the BP oil spill it becomes more and more clear that management in London had incentivized the troops in the field to skimp on maintenance to enhance the company’s bottom line. There probably is a connection between the BP refinery explosion at Texas City back in 2005 and the Deepwater catastrophe in the Gulf. It appears to me that London had incentivized its employees to emphasize the short-term bottom line and ignore the future consequences.

With the U.S. productivity statistics showing incredible improvement in efficiency month after month, it prompts the question whether productivity incentives are always good long-term.

In the machining game, there is a danger in setting productivity targets that invite people to game the system. If one machine operator or shift is competing with another the temptation for sabotage in the plant is real. When teams compete against norms and other teams, the peer pressure within teams can become destructive to the enterprise. In a coal mine, when tonnage means everything, safety is often neglected, which may culminate in tragedy.

Sales incentives which are based on monthly or quarterly results often end up with employees gaming the system.

I’m interested in your experience with incentives.

How do you make incentives work for the business rather than undermine it?

By Lloyd Graff

What do you do when your doctor tells you to do something that you doubt is necessary?

I just endured a kidney scan and a cystoscope because I had a few extra blood cells in a urine test. The nurse called me several weeks after the initial test at a six-month appointment and told me that I needed to come back because my test wasn’t “normal.” OK, I’ll spend an afternoon going into the city to pee in a cup. But then the urologist says, “Lloyd, I want you to do a kidney scan and a bladder scope. There is a one in 100 chance there’s anything, but you are the age…”

So what do you do? Tell the doc who has treated you for 20 years, cut into your body and saved your life once, that he’s overreacting or milking the system? The doctor is God, right? Doing nothing could be a catastrophic mistake. Didn’t I miss the signals before my heart attack two years ago?

So I took all the tests. Everything was cool. I’ve got the nasty aftereffects of the scope and I feel like a chump, a dumb sheep who lamely colored between the lines of American medicine.

Question: What do you do these days when you feel fine, but the medical practitioner tells you to worry or take a drug? What do you trust—your gut or your doc?

Interviewed by Noah Graff

Dan Ariely is professor of Behavioral Economics at Duke University. Behavioral economics examines market trends like traditional economics, but distinguishes itself by not assuming that humans always act rationally. The research relies on observing how people behave rather than using traditional economics methods such as cost-benefit analysis.

What is the behavioral economics perspective of the recent stock market crash?
DA: You can think about the recent stock market crash as a good example of the differences between standard and behavioral economics. In standard economics you let people run loose, and because people can optimize and be rational and they do only what’s best for themselves, the whole system works very well. In behavioral economics we don’t think this is the case. We think that there’s a lot of reasons why people make mistakes, and as a consequence they can’t be let loose on everything. The free market is not the right approach.

Define “irrational.”
DA: When we act in ways that we don’t understand or predict. This matters because it gives us an opportunity to get into trouble. If I think that I will have safe sex when the time comes but when I get aroused I don’t, it’s an opportunity to get into trouble. If I think that I will save for a long time but then I get tempted to buy certain things, that’s a problem. If we think that people can compute what is the right amount of mortgage for them to take out that’s a problem. If we think like Greenspan said when he testifi ed in front of congress that he thought that people would work in the best interest of their companies, which is clearly not the case, we get into trouble.

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