A Descriptive Model of Capital Plant Replacement

Abstract

A descriptive model of the equipment-replacement decision process is presented which is based upon a survey of companies. Of particular concern was the form of any modelling employed, and the extent of its influence on the actual decision. It appears that, for more costly items, criterion modelling of some type tends to be undertaken but is not influential in the decision process. This contrasts with the less costly items, where the trend is to utilize cost-modelling which subsequently is influential in the decision process. Comments are made upon what appear to be lost modelling opportunities indicated by the survey. The OR and management science literature contain numerous papers addressing the issue of the replacement of capital equipment. These papers can be seen as either reporting on specific replacement problems,'-3 or adopting a prescriptive approach and proposing criteria and methods for making replacement decisions.'6 By way of contrast, this paper presents a descriptive model of the replacement process, as currently practised by some decision-makers. The model is based upon the results of a survey undertaken between February 1983 and May 1984, designed to investigate how replacement decisions are made in practice. Of particular interest to the authors was the process whereby a decision is actually made, the principal factors considered and their influences, along with the extent and nature of any modelling and its role. Plant studied ranged from fork-lift trucks to heavy-haul tractor units, from machine tools to computers, with the majority of per item costs varying between ?20,000 and ?1.2 million. It transpired that the descriptive model so derived exhibits little evidence of the application of, or the perceived applicability of, most of the prescriptive methods to be found in the literature. Possible reasons for this are discussed.