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Replacement Theory  Operations Research
Content•   Failure Mechanism•   Replacement Models•   Selecting Best Equipment•   Recruitment and Promotion
When do we replace products or         services?
Replacement Problem• When should a product or service be  replaced?  – Economic/ Financial considerations (when cost of   ...
A thought experiment• When a product or service deteriorates gradually, how to  decide when to replace?• How to mitigate t...
General approach to solve         replacement problems• Analyze the failure or performance reduction  pattern over time• A...
Scenario 1: Maintenance cost        increases over timePurchasing   Maintenance   Maintenance   Maintenance   Scrap  Price...
Point of Lowest Cost
Adjusting for time value of money
Sudden Failure Scenario• We have to look at probabilities of failure and  cost of failure• Individual replacement  – Repla...
Replacement Theory
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Replacement Theory

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Replacement Theory

  1. 1. Replacement Theory Operations Research
  2. 2. Content• Failure Mechanism• Replacement Models• Selecting Best Equipment• Recruitment and Promotion
  3. 3. When do we replace products or services?
  4. 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.
  5. 5. 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?)
  6. 6. 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)
  7. 7. Scenario 1: Maintenance cost increases over timePurchasing Maintenance Maintenance Maintenance Scrap Price Cost Cost Cost Value
  8. 8. Point of Lowest Cost
  9. 9. Adjusting for time value of money
  10. 10. 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

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