A Discrete Maintenance and Replacement Model under Technological Breakthrough Expectations

Abstract

Two cases of the discrete time finite horizon technology replacement problem are solved. The first deals with two available machines, one in use and a better one that can be purchased to replace it. The second case considers, in addition, a third machine of future technology that will be available at some random future time. The maintenance level of each used machine is chosen for each period in order to economically control performance deterioration. For solving the model, we first derive an optimal preventive maintenance policy by showing that “bang-bang” (i.e., full or non), non-increasing, maintenance efforts are optimal. Employing the optimal maintenance policy, we reformat the problem and conduct a numerical search in order to derive the replacement policy that will maximize the expected net present profit. Numerical examples demonstrate that management may improve profitability by delaying (but not necessarily foregoing) replacement with an available better machine.