Equipment Replacement Behavior Under Innovative Technological Advances

Abstract

In considering cost reductions, it is natural to postpone equipment replacement until innovative equipment is made available, if it will appear in the near future. On the other hand, if new equipment with these characteristics is not made available in the near term, existing equipment is upgraded with similar products. This study discusses equipment replacement where innovative technological advances occur together with gradual technoiogical advances. It aims to clarify theoretically and experimentally the above equipmellt replacement behavior by using "Control Limit Policy". Next, we give apractical replaK:ement decision method using centro} Iimit policy when the appearance time of innovative equipment is forecasted. This study is significant in the sense of being able to show that control limit policy can propose not only a convenient metho d in actual replacement decisions, but also an effective method to explain the qualitative aspects of equipment replacement behavior.

Fleet replacement under technological shocks

“…Technological shocks appear in Yatsenko and Hritonenko (2009) at given instants and cause the direct anticipation effect (the increase of asset lifetime before the shock instant) and the anticipation echoes. A similar direct anticipation effect was earlier discovered by Kusaka and Suzuki (1990) in a discrete-time replacement model. All the above works analyze the one-machine case, that is, the serial replacement of single asset.…”

“…Discrete-time replacement models assume that the unknown lifetime of assets is integer (Hartman 2000;Kusaka and Suzuki 1990;Mehrez et al 2000;Regnier et al 2004;Rogers and Hartman 2005;Sheu et al 2011). The continuous models (e.g., Bethuyne 1998;Grinyer 1973;Yatsenko and Hritonenko 2008) are not restricted to this requirement.…”

“…The optimization over a finite horizon is more complex than the infinite-horizon optimization because of accompanying end-of-horizon effects (e.g., Kusaka and Suzuki 1990). The OR replacement theory uses both finite and infinite horizons.…”

“…Several models (Hopp and Nair 1991;Mehrez et al 2000;Rajagopalan et al 1998;Sheu et al 2011) assume the stochastic appearance of such shocks (with random instants or sizes). The shocks can positive as the arrival of new better assets in Kusaka and Suzuki (1990), Hopp and Nair (1991), Mehrez et al (2000), Rogers and Hartman (2005) or negative as system failures in Sheu et al (2011). The deterministic replacement with periodic shocks on the background of continuous technological development is considered by Rogers and Hartman (2005).…”

“…Due to mathematical complexity, replacement models under technological development usually consider the serial replacement, that is, the analysis is restricted to onemachine settings Bethuyne 1998;Cheevaprawatdomrong and Smith 2003;Grinyer 1973;Kusaka and Suzuki 1990;Mehrez et al 2000;Regnier et al 2004;Rogers and Hartman 2005;Yatsenko and Hritonenko 2008).…”