Replacement Decisions

Prof. (Dr.) R. R. Jaware

 Introduction
It is concerned with equipment and machinery
that deteriorates with the passage of time.
Over the time, equipment ages so every part of
equipment, machinery in an industry is a
candidate for replacement.
With increase in maintenance, the productive life
of an equipment can be increased but the
maintenance cost goes high.
Replacement reduces maintenance cost, but it
requires a high average capital cost
 Reasons for replacement
1) Deterioration: It is a decline in performance of
an equipment as compared to a new identical to
the present one.
It may occur due to equipment wear and tear.
Deterioration,
Increases maintenance cost
Reduces product quality
Decreases rate of production
Causes loss in operation time
Reduces efficiency of the equipment
 Continued
2) Obsolescence: Replacement due to advanced
technology.
It causes loss in value of machinery
Reduces profit
3) Inadequacy: It is the replacement of an
existing equipment as it becomes inadequate
to meet the challenges of making new
products or existing products in large
quantities
4) Working Conditions: It may be thought of
replacing old equipments and machinery
which create unpleasant and hazardous
working conditions causing worker unsafety
leading to accidents
 Factors to be considered in
replacement:
1) Technical factors: Functioning, obsolescence,
inadequate, maintaining tolerance or not,
required surface finish, emission norms, user
friendliness, maintenance and repair cost
2) Financial factors: The initial cost of new
equipment, Operating expenses, expected
salvage value at the end of service life