Replacement theory

• 1. Made By -: Sumit PachauriKarishma SinghUniversity -: MangalayatanUniversity, Aligarh.Course -: M.B.A. IInd SemesterReplacementTheory

2. Content Introduction Sudden Failure Regular Failure Depreciation Cost Why is Replacement is required? 3. Introduction Replacement Theory is Concerned with thePrediction of Replacement Costs anddeterminations of the most economicreplacement Policy. The Problems of replacement are encountered incase both Men & Machines. The Replacement Theory is an equally Importantaspect of O.R. In case of Items who efficiency goon decreasing according to their AGE, we have toSPEND MORE MONEY on account of increasedoperating cost, increased REPAIR COST, etc. In Such Cases the replacement of an old itemwith a new One is the only alternative to preventsuch increased Expenses. 4. Why Replacement isRequired? Due to New developments the Currentequipments has become technologically obsolete. The Current Equipment has become unusable i.e.it has failed and does not Work at all. For Ex The Electric Light bulb has failed and as suchmust be replaced. This is a case of SuddenFailure. The Current Equipments has deteriorated onaccount of its long use over time and as suchdoes not function efficiently. In other words itrequires expensive maintenance. This is calledregular failure. 5. Model-I: Aging of Machines Items that deteriorate with time e.g.machine tools,vehicles, equipment buildings . 6. Model-II: Availability of Similar NewMachines with Better Usages Items becoming out-of-date due to newdevelopments like ordinary weaving looms byautomatic, manual accounting by tally,computers, cars ... 7. Model-III: Time Value of MachinesConsidered-Depreciation of Money or Present Worth Factor Items which deteriorate with time The depreciation of money is consideredin calculations 8. Model-IV: Group Replacements Items which do not deteriorate but fail completelyafter certain amount of use like electronic parts,street lights... Illustration: An office has 1000 bulbs installed of which20% bulbs keeps on failing each week. Individual Bulbreplacement costs Rs 3; while Group Replacement costsRe 1 per bulb. It is decided to replace all the bulbssimultaneously at fixed interval & also to replace theindividual bulbs that fail in between. Decide a suitablereplacement policy.