REPLACEMENT OF MACHINERY
Application of Cost Analysis Techniques
Submitted By SAMARTH ANAND
All equipments used in industries, military, and even at homes have a limited life span. By passage of time, these equipments fail suddenly or wear out gradually. As these machines or equipments are wearing out, the efficiency of their functions continues to decrease and in effect affects the production rates or economic/social benefits of the system.
Also at the old age or the wearing-out stage, the equipments will definitely require higher operating costs and more maintenance costs due to repairing and replacement of some parts.
The essential reasons for the study of replacement analysis are:
(a) To ensure efficient functioning of the equipments; and
(b) To know when and how best the equipments can be replaced in order to minimise the total costs of maintaining them.
The reasons for considering replacement are numerous. Firstly, the machinery may have number of deficiencies including high set-up cost; excessive maintenance, declining production efficiency energy consumption, and physical impairment. For example, when you are confronted with a car that is expensive to operate and maintain, or one soon to need a major overhaul, you being to consider replacing the car.
Secondly, potential replacement assets (challengers) may take advantage of new technology and be easily set up, maintained at low cost, high in output, energy efficient and possessing increased capabilities, perhaps at a vastly reduced cost. For example, some new generation computer-controlled manufacturing equipment has rendered many old machines economically obsolete.
Finally, the environment affects replacement decisions. Consumer demand preferences change, and present equipment may be unable to adapt to the new designs dictated by consumers. Demand levels may also cause equipment capacity to be relatively high or low, resulting in inefficiency