Replacement of Randomly Deteriorating Equipment

M. Eisen and M. Leibowitz
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M. Eisen: International Business Machines Corporation, Yorktown Heights, New York
M. Leibowitz: International Business Machines Corporation, Yorktown Heights, New York

Management Science, 1963, vol. 9, issue 2, 268-276

Abstract: The replacement of a machine which deteriorates at a random rate is considered. We measure this deterioration in terms of a cost per unit time--i.e., a cost-density \gamma (t) where t is the age of the machine. Given the probability distribution of \gamma (t) and the replacement cost R(c, t) when \gamma (t) - c, we discuss optimal replacement using two different procedures: (1) replacement at a fixed age (2) replacement when the cost-density reaches a given value Expressions are derived for the resulting costs incurred in using either procedure over a long period of time. Method (2) is in general preferable.

Date: 1963
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:9:y:1963:i:2:p:268-276

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