Integrating equipment investment strategy with maintenance operations under uncertain failures

A. Bensoussan (), Q. Feng () and Suresh Sethi
Additional contact information
A. Bensoussan: The University of Texas at Dallas
Q. Feng: Purdue University

Annals of Operations Research, 2022, vol. 317, issue 2, No 3, 353-386

Abstract: Abstract This paper studies the issue of coordinating equipment maintenance operations with capital investment strategy in the presence of random equipment failures. The traditional approach, developed by Kamien and Schwartz (KS) in their celebrated paper published in 1971, is to formulate the problem as a deterministic optimal control problem with the probability of machine failure as the state variable. With this approach, the optimal policy is deterministic. As a major departure from the KS approach, we explicitly model the underlying stochastic process of machine failures. Our analysis of the stochastic dynamic programming model offers new insights into the problem. Under a long planning horizon with a limited replacement opportunity, each individual machine serves as a revenue generator and contributes a significant amount to the profit of the system. In contrast, when the replacement budget is quite generous over a relatively short planning horizon, adding one extra machine only helps as a backup for unexpected failures of the machines purchased before it. An interesting result derived from this comparison is that a deterministic policy turns out to be optimal for the former, while a state-contingent policy must be applied to the latter. In other words, the deterministic KS approach does not work in general when a chain of machine replacement is considered. We further characterize the effects of the discount rate, productivity deterioration, learning, decision delay, and technology advancement on the optimal policy.

Keywords: Machine maintenance and replacement; Equipment investment; Stopping time; Variational inequality (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10479-015-1862-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:annopr:v:317:y:2022:i:2:d:10.1007_s10479-015-1862-0

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1007/s10479-015-1862-0

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().