Replacement Theory
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This document discusses replacement theory and models for determining when to replace products or services. It examines factors like maintenance costs increasing over time, probabilities of failure, and costs of failure or disruption. Common replacement scenarios explored include replacing when maintenance costs exceed replacement costs, replacing after a set number of failures, or periodically over time. The general approach is to analyze failure and performance patterns over time and assess costs and probabilities to determine the optimal replacement strategy.
Replacement Theory
- 1. Replacement Theory Operations Research
- 2. Content • Failure Mechanism • Replacement Models • Selecting Best Equipment • Recruitment and Promotion
- 3. When do we replace products or services?
- 4. Replacement Problem • When should a product or service be replaced? – Economic/ Financial considerations (when cost of maintenance becomes higher than cost of replacement) – Other considerations • Replace on complete breakdown • Replace after n failures • Replace at periodic intervals • Etc.
- 6. A thought experiment • When a product or service deteriorates gradually, how to decide when to replace? • How to mitigate the risk of sudden failure? (Your car engine stalls) • How to handle a scenario where people rather than products are involved? (When one of your best people’s performance goes down, what to do?) • What to do if a product goes out of fashion/ obsolete compared to other new products? (When to replace your Sony Walkman?)
- 7. General approach to solve replacement problems • Analyze the failure or performance reduction pattern over time • Assess probability • Assess costs of replacement – Actual cost – Cost of replacement (labour etc.) – Cost of disruption (opportunity loss, lost production, lost orders, learning curve)
- 8. Scenario 1: Maintenance cost increases over time Purchasing Maintenance Maintenance Maintenance Scrap Price Cost Cost Cost Value
- 9. Point of Lowest Cost
- 10. Adjusting for time value of money
- 11. Sudden Failure Scenario • We have to look at probabilities of failure and cost of failure • Individual replacement – Replace on failure – Attrition of employees also falls under this scenario • Group replacement – When one individual in a set of products fails, replace the entire group