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Replacement Decisions
RF Jardine: page i RF
SUMMARY & PURPOSE
The objectives of the tutorial can be summarized as follows: (1) To focus on managing risk through using
the techniques of optimization. Whether the decision is about the replacement of component-parts or
entire equipment units, the concept of making the very best decision will be the principal concern of the
tutorial. All decision problems are supported by case studies; (2) To equip the participants with the know-
how to select the most appropriate analytical tools for their maintenance and replacement decision-making;
(3) Educational versions of four software packages will be made available to participants. The packages
are: OREST for the optimization of component preventive replacement decisions, AGE/CON for the
optimization of the economic life of mobile equipment, PERDEC for the optimization of the economic
life of plant and equipment, SMS for the optimization of insurance/emergency spare parts decisions.
Table of Contents
1. Component Preventive Replacement.................................................................................................... 1
2. Repairable Systems............................................................................................................................... 4
3. Spare Parts Provisioning....................................................................................................................... 5
4. Inspection Decisions ............................................................................................................................. 7
5. Capital Replacement Decisions .......................................................................................................... 11
6. References........................................................................................................................................... 15
RF Jardine: page ii RF
1. COMPONENT PREVENTIVE REPLACEMENT 1.3 Optimal Preventive Replacement Interval of Items Subject
to Breakdown (Also Known as the Group or Block
1.1 Introduction Policy).
The goal of this section is to present models that can be used 1.3.1 Statement of Problem
to optimize component replacement decisions. The interest in
this decision area is because a common approach to improving An item, sometimes termed a line replaceable unit (LRU) or
the reliability of a system, or complex equipment, is through part, is subject to sudden failure and when failure occurs the
preventive replacement of critical components within the item has to be replaced. Since failure is unexpected it is not
system. Thus, it is necessary to be able to identify which unreasonable to assume that a failure replacement is more
components should be considered for preventive replacement, costly than a preventive replacement. In order to reduce the
and which should be left to run until they fail. If the number of failures preventive replacements can be scheduled
component is a candidate for preventive replacement, then the to occur at specified intervals. However, a balance is required
subsequent question to be answered is: What is the best time? between the amount spent on the preventive replacements and
The primary goal addressed in this section is that of making a their resulting benefits, i.e. reduced failure replacements. The
system more reliable through preventive replacement. In the conflicting cost consequences and their resolution by
context of the framework of the decision areas addressed in identifying the total cost curve are illustrated on Figure 2
this tutorial we are addressing column 1 of the framework of
Figure 1 that is the foundation of this tutorial and is contained
in Jardine and Tsang (1) along with elaborations of the Total Cost Per Week, C (tp)
material presented in this tutorial.
Failure Replacement
Optimizing Equipment Maintenance & Replacement Decisions Cost/Week
$/Week
Component Capital Equipment Inspection Resource
Replacement Replacement Procedures Requirements Preventive Replacement
1. Best Preventive 1. Economic Life 1. Inspection 1. Workshop Cost/Week
Replacement Time Frequency for a Machines /Crew
a) Constant Annual System
a) Replace only on Utilization Sizes.
failure a) Profit Maximisation
b) Varying Annual b) Availability 2. Right Sizing
b) Constant Interval Utilization Equipment tp
Maximisation
c) Age-Based c) Technological
d) Deterministic
2. A, B, C, D Class a) Own Equipment Optimal Value of tp
2. Tracking Individual Inspection
Performance Intervals b) Contracting Out
Units Peaks in
Deterioration 3. Repair vs Replace 3. Failure Finding
Intervals (FFI)
Demand Preventive Replacement Cost Conflicts
2. Glasser’s Graphs 4. Software PERDEC & 3. Lease / Buy
4. Condition Based
AGE / CON Maintenance (Oil
3. Spare Parts
Provisioning Analysis)
4. Repairable Systems 4. Blended Health
Monitoring & Age
5. Softwares
RELCODE and SMS
5.
Replacement
Software EXAKT Figure 2. Optimal Replacement Time
Probability & Statistics Time Value of Money Dynamic Queueing Theory
(Weibull Analysis) (Discounted Cash Flow) Programming Simulation
The replacement policy is one where preventive replacements
DATA BASE (CMMS/EAM/ERP) occur at fixed intervals of time; failure replacements occur
whenever necessary. We want to determine the optimal
Figure 1. Decision Areas Framework interval between the preventive replacements to minimise the
total expected cost of replacing the equipment per unit time.
1.2 Stochastic Preventive Replacement: Some Introductory
Comments 1.3.2 Construction of Model
RF Jardine: page 1 RF
replacement at intervals of length tp denoted C(tp) is: C(tp) = Breakdown
Total expected cost in interval (0, tp) / Length of interval. The
total expected cost in interval (0, tp) = Cost of a preventive 1.4.1 Statement of Problem
replacement + Expected cost of failure replacements, i.e.
This problem is similar to that of Section 1.3 except that
C p + C f H (t p ) instead of making preventive replacements at fixed intervals,
thus with the possibility of performing a preventive
where H(tp) is the expected number of failures in interval (0, replacement shortly after a failure replacement, the time at
tp). The length of interval = tp. Therefore: which the preventive replacement occurs depends on the age
of the item. When failures occur failure replacements are
made. When this occurs, the “time-clock” is re-set to zero, and
C p + C f H (t p )
C (t p ) = the preventive replacement occurs only when the item has
tp been in use for the specified period of time.
This is a model of the problem relating replacement interval tp Again, the problem is to balance the cost of the preventive
to total cost C(tp). replacements against their benefits and we do this by
determining the optimal preventive replacement age for the
1.3.3. An Application: Optimal Replacement Interval for a item to minimize the total expected cost of replacements per
Left-Hand Steering Clutch unit time.
In an open-pit mining operation the current policy was to 1.4.2 Construction of Model
replace the left-hand steering clutch on a piece of mobile
equipment only when it failed. In this application there was a Assume that:
fleet of 6 identical machines, all operating in the same (1) Cp is the total cost of a preventive replacement.
environment. The fleet had experienced 7 failures. When the (2) Cf is the total cost of a failure replacement.
study was being undertaken all 6 machines were operating in (3) f(t) is the probability density function of the failure
the mine site. To increase the sample size data on the present times of the item.
ages of the clutches on the 6 currently operating machines (4) The replacement policy is to perform a preventive
were obtained and thus the data available for analysis was 7 replacement when the item has reached a specified
failures and 6 suspensions. A Weibull analysis that blended age tp, plus failure replacements when necessary.
together failure and suspension data resulted in the Weibull (5) The objective is to determine the optimal replacement
shape parameter ß being estimated as 1.79 and the mean time age of the item to minimize the total expected
to failure estimated as 6,500 hours. This indicates that there is replacement cost per unit time.
an increasing probability of the clutch failing as it ages since ß
is greater than 1.0. In this problem, there are two possible cycles of operation:
one cycle being determined by the item reaching its planned
To determine the optimal preventive replacement age to replacement age tp, the other being determined by the
minimize total cost requires that the costs be obtained. In this equipment ceasing to operate due to a failure occurring before
case the total cost of a preventive replacement was obtained the planned replacement time. The total expected replacement
by adding the cost of labour (16 hours – 2 people each at 8 cost per unit time C(tp) is:
hours), parts, and equipment out of service cost (8 hours). The
cost of a failure replacement was obtained from adding the Total expected replacement cost per cycle
C (t p ) =
labour cost (24 hours – 2 people at 12 hours), parts, and Expected cycle length
equipment out of service cost (12 hours).
The total expected replacement cost per cycle = Cost of a
While the cost consequence associated with a failure preventive cycle × Probability of a preventive cycle + Cost of
replacement was greater than that for a preventive
a failure cycle × Probability of a failure cycle, i.e., CpR(tp) +
replacement, it was not sufficiently large to warrant changing
Cf × [1 - R(tp)]. The Expected Cycle Length = Length of a
the current policy of replace only on failure (R-o-o-F). But at
least the mining operation had an evidence–based decision. As preventive cycle × Probability of a preventive cycle +
the maintenance superintendent subsequently said “A run-to- Expected length of a failure cycle × Probability of a failure
failure policy was a surprising conclusion since the clutch was cycle, i.e., tp × R(tp) + (expected length of a failure cycle) × [1
exhibiting wear-out characteristics. However, the economic - R(tp)]. The Expected cycle length =
considerations did not justify preventive replacement t p × R(t p ) + M (t p ) × [1 − R(t p )] . Therefore,
according to a fixed-time maintenance policy”.
C p × R (t p ) + C f × [1 − R (t p )]
C (t p ) =
t p × R (t p ) + M (t p ) × [1 − R (t p )]
1.4 Optimal Preventive Replacement Age of an Item Subject to
RF Jardine: page 2 RF
of Equipment in the Short Term). OREST will take item
This is now a model of the problem relating replacement age failure and suspension times and will fit a Weibull distribution
tp to total expected replacement cost per unit time. to the data. Once the Weibull parameters are estimated
OREST will then provide the option of establishing the
1.4.3 An Application: Optimal Bearing Replacement Age optimal preventive replacement interval or optimal age.
OREST has a number of other features, such as analysing for
A critical bearing in a shaker machine in a foundry was possible trends in data and forecasting the demand for spare
replaced only on failure. (Jardine, 2) It was known that the parts. The interested reader is referred to the web site
cost consequence of a failure was about twice the cost of www.banak-inc.com where the educational version of OREST
replacing the bearing under preventive conditions. Data on the can be downloaded free.
most recent 6 failure ages was known (Figure 3) and from that
small sample size a Weibull analysis was undertaken to 1.5.2 Using OREST
estimate the failure distribution. Best estimates using the
criterion of maximum likelihood for the shape parameter (ß) We will use the bearing failure data provided in Section 1.4.3,
and the characteristic life (η) were 2.97 and 17.55 weeks namely, the five failure times, ordered from the shortest to the
respectively. Using the age-replacement model, equation (2), longest, which are: 9, 12, 13, 19 and 25 weeks. Entering these
the optimal preventive replacement age was identified as 14 values into OREST provides the Weibull parameter estimates
weeks. Figure 4 is a graph of the total cost as a function of ß = 2.51 and η = 17.78. A screen capture of the parameter
different replacement ages. estimation is provided in Table 1.
12 25 9 13 19
To-day
1.5.1 Introduction It again can be stressed that software such as OREST enables
many sensitivity checks to be undertaken so that one can
Rather than solve the mathematical models for component establish a robust recommendation on the optimal change-out
preventive replacement interval or age, from “first principles” time for an item.
we saw in the previous section how a graphical solution can
be used. A disadvantage of graphical solutions is lack of
precision compared to using a mathematical model. Software 1.5.3 Further Comments
that has the models programmed in provides a very easy way
to solve the models, and also provides a high level of This section has just dipped very briefly into one software
accuracy. One such package is OREST (Optimal Replacement package that can be used to optimize the preventive
RF Jardine: page 3 RF
replacement times for a component. Others include RelCode Age at Failure (Weeks)
developed by Hastings initially in 1976, but regularly updated 8
and Weibull++ (www.weibull.com). Hastings (3) presents a 12
case study that illustrates the use of RelCode. 14
16
24
one unfailed at 24 weeks
Table 3. Bearing Failure Times
(d) There are two similar forging plants and each works for 50
Figure 5. OREST: Cost Optimization Curve weeks per year. Estimate the number of replacement parts
required per year if the policy is preventive replacement at age
6 weeks. How many failure replacements will occur per year
(steady state average) under this policy?
2. REPAIRABLE SYSTEMS
RF Jardine: page 4 RF
The concept of virtual age has been introduced in order to (3) T is the planning horizon, typically one year.
model repairable system maintenance problems, Malik (5). (4) EN (T, tp) is the expected number of spare parts
The key question to be addressed is: When there is the need required over the planning horizon, T, when
for a maintenance intervention what action should be taken: preventive replacement occurs at time tp.
minimal repair, general repair or complete replacement?
For the Constant Interval Model, EN (T, tp) = Number of
Non-committal
preventive replacements in interval (0,T) + number of failure
12 25 9 13 19
System replacements in interval (0,T), i.e., T / tp + H (tp ) (T / tp
9 12 13 19 25 Happy
System
)where H (tp) is defined in Section 2.4
Sad
25 19 13 12 9 System For the Age-Based Preventive Replacement Model, EN (T, tp)
= Number of preventive replacements in interval (0,T) +
number of failure replacements in interval (0,T). In this case
the approach to take is to calculate the expected time to
Figure 6. Repairable System Maintenance
replacement (either preventive or failure) and divide this time
into the planning horizon, T. This gives:
Renewal time T
r(t) EN (T , t p ) =
Minimal repair t p × R (t p ) + M (t p ) × [1 − R (t p )]
time
General repair
Minimal repair time where development of the denominator of the above equation
time
is provided in Section 2.5.2.
RF Jardine: page 5 RF
be considered for establishing the optimal number of both
non-repairable and repairable spares. They are: interval reliability - Spares are available at all moments
during a given interval of time (we must not run out of spares
1. Instantaneous reliability. This is the probability that a spare at any time during a specified interval, e.g. for twelve months)
is available at any given moment in time. In some literature - This situation is obviously more demanding than the
this is known as availability of stock, fill rate or point instantaneous reliability case.
availability in the long run.
Failures
failure
2. Interval reliability. This is the probability of not running out time
of stock at any moment over a specified period of time, such
as one year.
RF Jardine: page 6 RF
Mean time to repair (µR) 80 days
Cost of one spare $15,000 Three classes of inspection problems are addressed in this
component (regular Section: (1) Inspection frequencies: for equipment which is in
procurement) continuous operation and subject to breakdown. (2) Inspection
Cost of one spare $75,000 intervals: for equipment used only in emergency conditions.
component (emergency (Failure finding intervals); (3) Condition monitoring of
procurement) equipment: Optimizing condition-based maintenance
Value of unused spare after $10,000 decisions.
5 years
Holding cost for one spare $4.11 per day (10% of value 4.2 Optimal Inspection Frequency: Maximization of Profit
of part per annum)
Cost of conveyors $1,000 per day 4.2.1 Statement of Problem
downtime for a single
motor Equipment breaks down from time to time, requiring materials
and trades people to repair it. Also, while the equipment is
Table 4. Example Parameters for the System of Conveyors being repaired there is a loss in production output. In order to
reduce the number of breakdowns, we can periodically inspect
Case & Optimization Optimal Stock Associated the equipment and rectify any minor defects which may,
criteria level* Reliability otherwise, eventually cause complete breakdown. These
(i) Random failures: inspections cost money in terms of materials, wages and loss
95 % reliability required 48 95.61 % of production due to scheduled downtime.
Cost minimization 47 94.02 %
What we want to determine is an inspection policy which will
(ii) Not strictly random
give us the correct balance between the number of inspections
failures (σ=1000 days):
and the resulting output such that the profit per unit time from
95 % reliability required 42 97.63 %
the equipment is maximized over a long period.
Cost minimization 41 93.80 %
* Total number of spares required during the planning horizon 4.2.2 Construction of Model
of five years. Note: There is then the need to decide how best
to acquire the spares over the 5 year planning horizon. Assume that:
(1) Equipment failures occur according to the negative
Table 5. Solution for Non Repairable Spares exponential distribution with mean time to failure
(MTTF) = 1/λ, where λ is the mean arrival rate of
Case & Optimization Optimal Stock Associated failures. (For example, if the MTTF = 0.5 years, then
criteria level Availability the mean number of failures per year = 1/0.5 = 2, i.e.
Random failures: λ = 2 .)
95 % interval 7 Not calculated (2) Repair times are negative exponentially distributed
reliability required with mean time 1/ µ .
95 % instant reliability 4 Not calculated
(3) The inspection policy is to perform n inspections per
required
unit time. Inspection times are negative exponentially
95 % availability 0 97.40 %
distributed with mean time 1/i.
required
(4) The value of the output in an uninterrupted unit of
Cost minimization 6 99.99 %
time has a profit value V (e.g. selling price less
material cost less production cost). That is, V is the
Table 6. Solution for Repairable Spares profit value if there are no downtime losses.
(5) The average cost of inspection per uninterrupted unit
4. INSPECTION DECISIONS of time is I.
(6) The average cost of repairs per uninterrupted unit of
4.1 Introduction time is R. Note that I and R are the costs which
would be incurred if inspection or repair lasted the
The primary goal addressed in this section is that of making a whole unit of time. The actual costs incurred per unit
system more reliable through inspection. In the context of the time will be proportions of I and R.
framework of the decision areas addressed in this tutorial we (7) The breakdown rate of the equipment, λ, is a function
are addressing column 2 of the framework, as highlighted in of n, the frequency of inspection. That is, the
Figure 1. Also addressed in this chapter is that of ensuring breakdowns can be influenced by the number of
with a high probability that equipment used in emergency inspections, therefore, λ ≡ λ (n) . Thus, the effect of
circumstances, often called protective devices, is available to
come into service if the need arises. performing inspections is to increase the mean time
RF Jardine: page 7 RF
to failure of the equipment. kilometers.
(8) The objective is to choose n in order to maximize the
expected profit per unit time from operating the
equipment. 6000
2000
P (n) = V − − − −
µ i µ i
Figure 10. Mean Distance to Failure
4.2.3 An Application: An Optimal Vehicle Fleet Inspection
Using a slight modification to the model presented in Section
Schedule
4.2.2 the total downtime curve was established, Figure 11,
from which it is seen that minimum downtime, or maximum
Montreal Transit operates one of the largest bus fleets in
availability, occurs when the inspection policy is set at 8,000
North America having some 2,000 buses in its fleet. Buses,
kilometers. Note however, that the curve is fairly flat within
like many equipment, both fixed and mobile, are often subject
the region 5,000 to 8,000 kilometers and the final outcome
to a series of inspections, some at the choice of the operator,
was not to formally change the inspection policy from one
while others may be statutory. The policy in Montreal was to
where inspections were planned to take place at multiples of
inspect its buses at 5,000kilometer intervals, at which an A, B,
5,000 kilometers to one where the interval would be set at
C or D depth of inspection took place. The policy is illustrated
8,000 kilometers. Of course, had there been a significant
in Figure 9. The question to be addressed was: What is the
benefit in increasing the interval then that may have justified a
best inspection interval to maximize the availability of the bus
change in policy. Jardine and Hassounah (13) provide
fleet?
additional details.
Inspection Type
3.5 repair
Km (1000) “A” “B” “C” “D”
5 X
3 inspection
10 X
15 X total
20 X 2.5
25 X Downtime
30 X (% of total 2
35 X bus-hours/
40 X year) 1.5
45 X
50 X 1
55 X
60 X 0.5
65 X
70 X
0
75 X 4000 5000 6000 7000 8000 9000
80 X Interval Between Inspections (km)
Total 8 4 3 1 Σ = 16
Figure 11. Optimal Inspection Interval
Figure 9. Bus Inspection Policy
RF Jardine: page 8 RF
equipment is found to be in a failed state, it can be repaired or each defective valve. What is valve availability for different
replaced, thus returning it to the as-new condition. Inspection inspection intervals?
and repair or replacement takes time and the problem is to
determine the best interval between inspections to maximize To estimate the mean time to failure of a valve we can use the
the proportion of time that the equipment is in the available ratio of the total testing time and the number of failures. Thus,
state. 1,000 valves have been in service for 1 year, and during that
year 100 fail (10%). Therefore: mean time to failure is
The topic of this section is to establish the optimal inspection estimated from 1,000/100 = 10 years (520 weeks).
interval for protective devices, and this interval is called the
failure finding interval (FFI). Since the inspection time and replacement time are very small
compared to the 12 month period (8,760 hours) it is
4.3.2 Construction of Model reasonable to assume these times are zero. If we further
assume that the valves fail exponentially the above availability
Assume that: model can be simplified and we obtain Table 7.
(1) f(t) is the density function of the time to failure of the
equipment. Thus, it is seen that at present the practice of inspecting the
(2) Ti is the time required to effect an inspection. It is valves annually provides an availability level of 95%. If an
assumed that after the inspection, if no major faults availability of 99.5 % is required then the FFI would be 5
are found requiring repair or complete equipment weeks.
replacement, then the equipment is in the as-new
state. This may be as a result of minor modifications Failure Finding Interval Pressure Valve
being made during the inspection. (Weeks) Availability (%)
(3) Tr is the time required to make a repair or 1 99.9
replacement. After the repair or replacement it is 5 99.5
assumed that the equipment is in the as-new state. 10 99.0
(4) The objective is to determine the interval ti between 15 98.6
inspections in order to maximize availability per unit 21 98.1
time. 52 95.0
104 90.0
Figure 12 illustrates the two possible cycles of operation.
Table 7. FFIs for Pressure Safety Valve
4.4.1 Introduction
Figure 12. Maximizing Availability While much research and product development in the area of
condition based maintenance (CBM) focuses on data
The availability per unit time will be a function of the acquisition, such as designing tools and acquiring data, and
inspection interval ti. This is denoted as A(ti), A(ti) = Expected signal processing to remove “noise” from the signals, the
availability per cycle / Expected cycle length. Therefore focus of this section is to examine what might be thought of
as the final step in the CBM process – optimizing the decision
ti
making step.
t i R (t i ) + ∫ tf (t )dt
A(t i ) = −∞
In this section we will present an approach for estimating the
t i + Ti + Tr [1 − R (t i )]
hazard (conditional probability of failure) that combines the
age of equipment and condition monitoring data using a PHM.
This is a model of the problem relating inspection interval ti to We will then examine the optimization of the CM decision by
availability per unit time A(t i ) . blending in with the hazard calculation, the economic
consequences of both preventive maintenance, including
4.3.3 An Application: Pressure Safely Valves in an Oil and complete replacement, and equipment failure.
Gas Field
4.4.2 The Proportional Hazards Model (PHM)
There are 1,000 safety valves in service. The present practice
is to inspect them annually. During the inspection visit 10% of A valuable statistical procedure for estimating the risk of
the valves are found to be defective. The duration of the equipment failing when it is subject to condition monitoring is
inspection is 1 hour. It takes an additional 1 hour to replace the proportional hazards model (Cox, 14). There are various
RF Jardine: page 9 RF
forms that can be taken by a PHM, all of which combine a failure replacement cost, Q(d) represents the probability that
baseline hazard function along with a component that takes failure replacement will occur, at hazard level d, and W(d) is
into account covariates that are used to improve the prediction the expected time until replacement, either preventive or at
of failure. The particular form used in this section is known as failure.
a Weibull PHM, which is a PHM with a Weibull baseline, and
is: The optimal risk, d*, is that value that minimizes the right
hand side of the above equation , and the optimal decision is
β ⎛t⎞
β −1
then to replace the item whenever the estimated hazard, h(t,
⎧m ⎫
h(t , Z (t ) = ⎜⎜ ⎟⎟ exp⎨∑ γ i z i (t )⎬ Z(t)), calculated on completion of the condition monitoring
η ⎝η ⎠ ⎩ i =1 ⎭ inspection at t, exceeds d*.
RF Jardine: page 10 RF
as being three times the cost of replacing it preventively and
the economic benefit of following the optimal replacement Vibration Monitoring Decision
strategy was an estimated cost reduction of 22% . Fuller
details are available in Jardine et al. (18).
RF Jardine: page 11 RF
n
Optimum replacement age
C ( n) ∑C r i
i
+ r n ( A − Sn )
Total cost C ( n) = 1 n = i =1
Annual Cost
1− r 1− rn
Fixed cost
5.2.3 Application: Internal Combustion Engine
Assume that:
(1) A is the acquisition cost of the capital equipment.
(2) Ci is the operation and maintenance cost in the ith
period from new, assumed to be paid at the end of
the period, i = 1, 2, …, n. Figure 15. EAC Trend for Combustion Engine Type A
(3) Si is the resale value of the equipment at the end of the
ith period of operation, i = 1, 2, …, n. The data for Engine B was: Purchase and installation cost:
(4) r is the discount factor. $14.5 million. Similar to Engine A the O & M cost trend and
(5) n is the age in periods (such as years) of the resale value information was obtained, the same interest rate
equipment when replaced. was used and the resulting EAC trend is provided in Figure
(6) C(n) is the total discounted cost of operating, 16, which shows a pattern similar to that for Engine A. The
maintaining and replacing the equipment (with EAC at 15 years is $3.17 million.
identical equipment) over a long period of time with
replacements occurring at intervals of n periods.
(7) The objective is to determine the optimal interval
between replacements to minimize total discounted
costs, C(n).
RF Jardine: page 12 RF
utilization trend is shown in Figure 17.
Usage (km)
Figure 16. EAC Trend for Combustion Engine Type B
Bus Number
The conclusion: For both engines their economic life is
greater than 15 years, the limit of available data. However a Figure 17. Bus Utilization Trend
major benefit of the economic life analysis is the identification
of the fact that, based on the data used, Engine type B is a The economic life was calculated to be 13 years with an EAC
“better buy” since its EAC is $2.19 million lower than Engine of about $120,000. The practice in place within the transit
type A. Over a 15 year period the total discounted economic authority was to replace a bus when it became 18 years old.
benefit is 15 x 2.19 = $32.85 million. The company’s plan Changing to a replacement age of 13 years provided a useful
was to purchase 4 new combustion engines, so the economic economic benefit. It also would have the benefit of the transit
benefit would be substantial. The solution was obtained by authority being seen to operate a rather new fleet of buses
using a formal data driven procedure. compared to the previous practice, but this intangible benefit
is not incorporated in the model used.
5.3 Optimal Replacement Interval for Capital Equipment
whose Planned Utilization Pattern is Variable: A similar study conducted for the fleet of 2,000 buses in
Minimization of Total Cost Montreal, Canada, is presented in detail in Appendix 19 of
Campbell and Jardine (20).
5.3.1 Statement of Problem
5.4 Optimal Replacement Policy for Capital Equipment taking
Equipment when new is highly utilized, such as being on into account Technological Improvement: Finite
base-load operations, but as it ages its utilization decreases, Planning Horizon
perhaps due to being utilized only when there are peaks in
demand for service. This class of problem is usually 5.4.1 Statement of Problem
applicable to a fleet of equipment, such as a transportation
fleet where new buses may be highly utilized to meet base- When determining a replacement policy there may be, on the
load demand while older buses are used to meet peak market, equipment which is, in some way, a technological
demands, such as during the rush hour. In this case, when an improvement on the equipment currently used. For example
item is replaced the new one does not do the same work that maintenance and operating costs may be lower, throughput
the old one did, but is put onto base load operations, and the may be greater, quality of output may be better, etc. The
one(s) that was highly utilized is then less utilized as new problem discussed in this section is how to determine when, if
units are put into service. at all, to take advantage of the technologically superior
equipment.
To establish the economic life of such equipment it is
necessary to examine the total cost associated with using the It is assumed that there is a fixed period of time from now
fleet to meet a specified demand. A model will be developed during which equipment will be required and, if replacements
to establish the economic life of equipment operated in a are made using new equipment, then this equipment will
varying utilization scenario such that the total costs to satisfy remain in use until the end of the fixed period. The objective
the demands of a fleet are minimized. is to determine when to make the replacements, if at all, in
order to minimize total discounted costs of operation,
5.3.2 An Application: Establishing the Economic Life of a maintenance and replacement over the planning horizon.
Fleet of Buses
5.4.2 An Application: Replacing Current Mining Equipment
A local authority wished to establish the economic life of its with a Technologically Improved Version
fleet of 54 conventional buses. The purchase price of a bus
was $450,000; the trend in resale values was estimated In a mining company there was an expected future mine life
and the interest rate for discounting was also known. The of eight years, that is, a fixed planning horizon. A fleet of
RF Jardine: page 13 RF
current, highly expensive, equipment called a shovel was in
use and, under normal circumstances they would be used
throughout the life of the mine. However, a new
technologically improved shovel came on the market and the
decision had to me made: Should the current equipment be
used for the remaining 8 years, or should there be a change-
over to the technologically superior equipment.
Rather than solve the mathematical models for capital 5.5.4 Example Problem
equipment from “first principles” software that has the models
programmed in provides a very easy way to solve the models. Canmade Limited wants to determine the optimal replacement
Two such packages are PERDEC and AGE/CON age for its turret side- loaders to minimize total discounted
(www.banak-inc.com). In this section, use will be made of the costs. Historical data analysis has produced the information
educational versions of these two packages that can be (all costs in present-day dollars) contained in Table 4.9.
downloaded freely from the book publisher’s web site
www.crcpress.com. Average Operations and Resale Value at End
maintenance Costs of Year
PERDEC (an acronym for Plant and Equipment Replacement Year ($/year) ($)
Decisions) is geared for use by the "fixed plant" community;
AGE/CON (based on the French term “Age Economique”) is 1 16,000 100,000
designed for use by the "fleet" community. 2 28,000 60,000
RF Jardine: page 14 RF
6. REFERENCES 11. A. Birolini, (1999), “Reliability Engineering”, 3rd
Edition, Springer, Berlin
1. A.K.S. Jardine and A.H. Tsang, “Maintenance,
Replacement and Reliability: Theory and Applications”, CRC 12. J.Y.F. Wong, D.W.C. Chung, B.M.T. Ngai, D. Banjevic,
Press, 2005 and A.K.S. Jardine, A.K.S. (1997) “Evaluation of Spares
Requirements Using Statistical and Probability Analysis
2. A.K.S. Jardine, (1979) “Solving Industrial Replacement Techniques”, Transactions of Mechanical Engineering,
Problems”, Proceedings, Annual Reliability and Maintenance IEAust. Vol.22(3 & 4), 77-84
Symposium, pp 136-142
13. A.K.S. Jardine and M.I. Hassounah, (1990), “An Optimal
3. N.A.J. Hastings, (2004), "Component Reliability, Vehicle-Fleet Inspection Schedule”, JORS, Vol. 41, 1990
Replacement and Cost Analysis with Incomplete Failure
Data", Ch 16, in Case Studies in Reliability and Maintenance, 14.. D.R. Cox, (1972), “Regression models and life tables
Ed. Wallace R. Blischke and D.N. Prabhakar Murthy, Wiley (with discussion)”, J.Roy. Stat. Soc. B, 34, 187-220
4. H. Ascher and H. Feingold, (1984), “Repairable Systems 15..J. D. Kalbfleisch, J.D., and R.L. Prentice, R.L., (2002),
Reliability’, Marcel Dekker “The statistical analysis of failure time data”, Second Edition,
Wiley
5. M.A.K. Malik, (1978) “Reliable preventive maintenance
scheduling”, AIIE Transactions, 16. V. Makis, and A.K.S. Jardine, (1992), “Optimal
Vol R 28, pp 331-332 Replacement in the Proportional Hazards Model”, INFOR,
Vol. 20, pp 172-183
6. C.R. Cassady, and E.A. Pohl, “Introduction to Repairable
Systems Modeling”, Proc. Ann. Reliability & Maintainability 17. A.K.S. Jardine, T. Joseph and D. Banjevic, D, (1999),
Symp., (January) 2005. “Optimizing condition-based maintenance decisions for
equipment subject to vibration monitoring” Journal of Quality
7. D. Lugtigheid, D. Banjevic, and A.K.S. Jardine, A.K.S., in Maintenance Engineering, Vol. 5. No. 3, pp 192-202
(2004) “Modeling Repairable Systems Reliability with
Explanatory Variables and Repair and Maintenance Actions”, 18. A.K.S. Jardine, D. Banjevic, M. Wiseman, S. Buck, S,
IMA Journal of Management Mathematics, Vol.15, pp. 89- (2001), “Optimizing a mine haul tuck wheel motors’ condition
110. monitoring program", Journal of Quality in Maintenance
Engineering, No 1, pp. 286-301.
8. D. Lugtigheid, D. Banjevic, and A.K.S. Jardine, (2005)
“Component repairs: when to perform and what to do”, 19. A.K.S. Jardine, A.K.S. and D. Banjevic, D, (2005),
Annual Reliability and Maintenance Symposium “nterpretation of inspection data emanating from equipment
condition monitoring tools: Method and software”, in
9. W.B. Nelson ,(2003), “Recurrent events data analysis for Mathematical and Statistical Methods in Reliability, Armijo,
product repairs, disease recurrences, and applications”, Y.M. (Editor), World Scientific Publishing Company.
ASA-SIAM
20. J.D. Campbell, and A.K.S. Jardine, A.K.S., (2001),
10. D.Louit, D. Banjevic and A.K.S. Jardine, A.K.S., “Maintenance Excellence: Optimizing Equipment Life –Cycle
“Optimization of spare parts inventories composed of Decisions”, Marcel Dekker
repairable or non-repairable parts”. Proceedings, ICOMS,
Australia, 2005. 21. B. Buttimore, B and A. Lim, (1981), “Noranda Equipment
Replacement System”, in Applied Systems and Cybernetics,
Edited by G.E.Lasker, Volume II, Pergamon Press, pp 1069 –
1073.
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