Months of equipment operation and parts replacement

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A plant has a piece of old equipment that has 9 identical parts that routinely fail and must be replaced. Analysis has shown the following trend.

No parts fail before three months.

Assume four parts will have lives of 4 months.

Assume four parts will have lives of 6 months.

Assume one part will have a life of 8 months.

The cost to replace one part before it fails is $8,900 (which includes part and labor). If the part fails it costs $15,000 to replace. If the plant uses a monthly interest rate of 1%, is it better to replace all of the parts every three months (before any failures) or replace the parts as they fail? Assume parts were new at the beginning of year one and base your analysis on 24 months of equipment operation and parts replacement.

Reference no: EM132387938

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