Component based life cycle costing in replacement decisions

Abstract

Purpose – The purpose of this paper is to assess life cycle costing (LCC) of the equipment in a more realistic, precise, and applicable manner, and to apply it to a real industrial problem. Design/methodology/approach – Based on the failure rates of the components of a machine, the LCC is assessed, mathematically modeled, and incorporated to the parallel machine replacement problem with capacity expansion consideration. The problem is modeled as mixed integer programming which intends to minimize the total costs incurred during a planning horizon of several periods for the machines of the same type with different ages. The decision variables are the number of machines to be purchased/salvaged in each period. A genetic algorithm (GA) is developed for solving the problem and its efficiency is verified. Findings – In conventional models presented for calculation of LCC, corrective maintenance (CM) costs of the machines are incorporated to the model as a whole which may result in inaccurate calculations. Obtaining this value is also very difficult and it can be different for machines with different ages. By calculating the CM costs of a machine based on the failure rates of its components, the LCC can be properly estimated in a realistic and precise manner. The presented GA is also proven to be efficient for solving problems of almost any size with different number of machines, components, and planning periods. Practical implications – The presented model and GA are applied to a real case of a construction company that needs to determine a purchase/salvage schedule for its loaders in the next ten years. Results of the calculated schedule imply that employing new loaders rather than maintaining the aged ones generally results in the minimum LCC. Originality/value – This paper presents a novel approach for precise, meaningful, and practical LCC calculation. The mathematical model and its solving method can be utilized by both the manufacturers and buyers of equipment as a tool which determines a parallel machine purchase/salvage schedule for a planning horizon of several periods which incurs minimum overall cost. The presented material can be also applied to other industrial problems and cases.