STOCK CONTROL AND MAINTENANCE/REPLACEMENT THEORY

Stock control and maintenance/replacement theory



Stock control and maintenance/replacement theory

Problem 1

The purpose of this section is to design a bulb replacement policy for the battery of a shop floor. The firm is running a business of manufacturing bicycles. If we look into the case study presented, we can easily find out that there are two options for Kilian to replace the bulbs of the battery. Before the appointment of Kilian, the replacement strategy adopted by the firm was replacing the bulbs individually when they fail. But Kilian is tempted to design and implement a strategy which can change all the bulbs efficiently without loss of production of bicycles.

The key to a well-formed technology replacement strategy is knowing when it will be necessary to start replacing the technology. Most organizations have enough data to make educated guesses about when technologies will need to be replaced. The dollars and cents of this estimate is a relatively simple equation which calculates the cost of support compared against the acquisition cost. The support cost equation adds the costs associated with:

Reduced productivity -- How much will be lost in a given year due to the lack of speed in the existing solution?

Down time -- How much will it cost to have an outage in the component multiplied by the probability that the down time will occur in a given year?

Support Agreements -- If the device is beyond its warranty period, and it is necessary to maintain a support agreement for it, the cost of the agreement should be added in.

Support Calls -- If the device is beyond its warranty period, and you elect to pay for service calls, the cost of those calls multiplied with a best guess estimate on the number of calls should be added in.

Staff support time -- If your production staff will have to invest time in supporting the solution, it should be added to the overall support costs.

This is compared with the costs associated with the acquisition of a replacement:

Acquisition cost -- the actual cost of the device. This should include any taxes or freight.

Setup cost -- the cost to get the device set up on the network to replace the existing device. This should include any fees, as well as staff time, multiplied by a reasonable rate.

Learning curve -- The time that your staff and the users will need to understand the new device multiplied by a reasonable rate to convert it to a cost.

Risk -- Some assignment of a dollar value to the risk that the new system will not work or will not work as intended. Every new device has some risk. The newer the device being proposed for acquisition, the more risk is associated with it.

Support costs -- the cost of supporting the item for the first year. This should include agreement costs, support call costs and staff time costs.

Kilian can implement a replacement strategy in which the bulbs are replaced at night when the production plant is shut ...