cs FUNDAMENTALS OF OrExATIONS RESEARCH ‘ANSWERS of game ~ 39/1 2 Vabeofeme=s713 gp“ of game = 15223 4. Value of game = 1377 LIMITATION OF GAME THEORY tis difficut for players to find the value of payoff matrix accur player have knowledge about thee payofT and payoff of other work. 2. The as layers are risk averse and have complete knowledge of strategies which do 3. The oss of sain of other person, 4. The real world station, there are likely tobe more than two patcpans. EXERCISE 14.10 1, For what types of business problems might game theory be sel. Explain with examples, [GNDU. 1993, 98) 2, ‘State the major limitations ofthe game theory. (Delhi Univ, M Com. 1989, 1990) 9 the gam theory. Explain the concept of dominance in game theory and ination dominance. / [GNDU Aprit 2000) 4. Discuss various methods of finding solution oa given game. [GNDU 1995} ‘5. Whats the game problem ? Explain is various [Punjab Unix, 2007) Daiowf 204 eos 15 PaRT (J REPLACEMENT MODELS ee ~ INTRODUCTION ~ REPLACEMENT PROBLEMS ~ REPLACEMENT POLICY OF EQUIPMENT WIIICH DETERIORATES GRADUALLY WHEN VALUE OF MONEY DOES NOT CHANGE WITH TIME WHEN VALUE OF MONEY CHANGES WITH TIME ~ REPLACEMENT OF EQUIPMENT THAT FAILS SUDDENLY ~ INDIVIDUAL REPLACEMENT POLICY ~ OROUP REPLACEMENT POLICY ~ _ RECRUITMENT AND PROMOTION PROBLEMS INTRODUCTION 5 Replacement problems ino afer Tn the ease of non-etrioratng items the problem involves determining ae lage vida involved in replacement problems may Be people. Iso, mintenance can be interpret ‘improvements in salary, stats, or fringe benefits. Fllure canbe interpreted as departure, conollable aspects of the envconment as location of work and working hours can have eflet on productivity and failure rates. In problems of this ype, the inputs ofthe behtvion particularly useful900, FUNDAMENTALS OF OPERATIONS RESEARCH FAILURE MECHANISM OF ITEM ‘The term failure’ here discussed are¢f tw types 2, Sudden Faitre 1. Gradual Failure : It meins progressive ey dese ich in the Al he beginning, ith the passage of time, the chances 0 Retrogressve Failire- lated with age. In this type flue, the constant is sssocited wi ems that fails Fom mom cause lite Physical Stcks. For the following Replacement problems etrorating gradually with use of time. Without change in money Problem 2. Replacement policy for items that dtiotes with ime but th money chogges ER ae ae Problem3, Replacement (0) Individuals epacement policy (i) Grgap replacement policy, down suddenly, includes Not ett cst of maintenance and repaid of capil items increases with time aad atone sage "hes cost becomes o high that itis mote economical to replace the item by a ew one sverage annual cost ofan capital item constant scrap value. As the time value of "2210 and the calculations may be based on equipment would be in use REPLACEMENT THEORY adi an (oon) 5 ¢-8) 4 so r )90 FUNDAMENTALS OF OPERATIONS Sua TALS OF OPERATIONS RESEARCH 4 1200 s 1800 ine, whose cost pri rupees ae fo 6 2500 12,200 and the fiom experience to Te 3200 4000 Cot 25007500 1000015 The frm want to determine afer how many year should Solution: © = 1,30,000-+ 36,000 Rs. 1,66,000, s eG (66,000 - 16,000, (Depreciton) Determination of optimal Replacement Period Year I. Total Cost | Avg. Cost i 152500 152500) 2 160000 3 170000 4 185000 5 206000 6 235000 i 125000 275000 39286 & 48000 173000 323000 9 0000 233000 383000 “Average annual cost A(n) is minimum inthe 6th year, Hence machiné should be replaced er every 6 A tsi Tc of racine 10 cl sp ee R10. The mac found from past experience are a follow Year 1 Bal ea 5 6 ra nat Maintenance Cost [1 300 | 4000 | e000 | 9000 | 12000 | 16000 | 20000) ‘When sould the machine be replace ? Solution: C= 61000, $ =1000 Depreciation Cost 1e. C- $= 60000,04 FUNDAMENTALS OF OFFRATIONS RESEARCH RerLAceneNT THEORY nA a Total Cost] Average Cost Determination of optimal Replacement Yer M. Cost Comm. M.Cost 3000 | 3900] 5000 ‘sso00 | $8000 | s0000 | 45000 opinion the machine be replaced? ton of Average Running Cost Year M. Cost ‘Comm. | Depreciation | Total Cost | Average Cost M.Cost Gai 3000 6000) 3000 5100) 10000 Year 1 2 3 Resile Value 42000) 20400) Cont of pares 4000) 4880 Costof Labour 14000 18000) ‘Determine the opimun prid for replacement ofthe machine Solution : Running cost per year is calculated as Yea 2 4 Rau Cost ve000 | 2070 [2 26700 (Spares + Labour Depreciation cost is calculated by sing the formula: Cost Minus Res | Year 1 5 no resle value when replaced. Then, for machine A, the Depreciation Cost 18000 | 30000 30350 ae Calculation of Average Running Cost pee Year ‘Comm. Total Cost | Avg. Cost R.Cost 7 18000 36000 36000 2 38270 68270 ij 3 61130 100750 4 87850 133450 5 119650 170000 ‘Machine should be replaced ater every 4th year96, FUNDAMENTALS OF OPFRATIONS RESEARCH RErLacement TuroRy 907 Catetaton af Average Running Cast for Machine B a x Year of] Running cost | Depreciation | Totalecost | Average cost ‘Operating | Comm] Depron a : et | orca _| "Cot . costs) |) i) 4 at bid ee aaa 1 2,000 50,000 52,000 52,000 : al a 8,000 30,000 38.000 29,000 7.0, 3 vea00 | sooo | aon | 260 4.000 a nom | sooo | e200 | 20500 24400 406 5 sao | S000 | nanaoo | _ano00 ald be replaced by muchne A Since he minimum average cot for mactne Bs Tower, 6 7am | soo | 12200 | 20am From above it concluded that the average running cost per year is lowest inthe ith year, Le Rs, 20,000. This cost isles than the lowest average running cost (Rs. 26,000) per year for machine A. Hence machine A shouldbe replaced by machine B. eq ing Tus, we should keep machine ‘and subsequent sume that oth 46,000 57,000 ~46000 _78,000~$7,000 _1,90,000 - 78,000, neared (Rs.) = =11,000 21,000 = 31,000 t Ave al ing cot (2,00 machine An he hid soso eg ost ing pe yea dig he Me fn Aad Be soe in i eae petal ees ac A te Respective Tables, ‘machine B after two years [41M (Dip. in Mego, 1990) Calculations of Average Running Cost for Machine A Example 8. The data on the running cost per year and resale price of equipment A whose purchase Year of | Running cot [ Commutative] Depreciation | Totalcat | Aveageon ices Re 0,00) ae flows service running cost | Cost (Rs.) (Rs) "4 aa fa (Rs) 1 2 3 4 s 6 7 1 vow [6000 | aso00 | esom0 300m 38000 46000 58000 72,000 91,000. 1,0000 2 ra00 | <0 | sia | 28500 1oma6o s9am0 25000 12080 8O00 $000 80 3 33,000 “45,000 78,000 26,000 (i) What is the optimum period of replacement ? 4 4,000 “45,000 1,09,000 27,250 ‘i (i) Whea equipment A is two years old, equipment B which is a new model forthe same usage is 7 Tae ae 5 * ble. The pina period frre i years with an average cnt of Rs. 72.000 Sid ee wad ‘equipment A changed with equipment B ? If so, when ? 6 1.56900 45,000 | 201,000 x0 | woe From above it is concluded that the average running cost per year is lowest in the third year ce. ‘ stint tener ee cee ES The cael of average runing cat et ya ring te ie of be equpmest Aare shown table,FUNDAMENTALS OF OPERATIONS RESEARCH T Depreciation | Total cost Cost (Rs) Bs) 39,000 50,000 67,000 67,000 of yea ew auto-ickshaw of large Depreciation | Total cost cost (Rs)one FUNDAMENTALS OF OPERATIONS RESEARCH Fenner ats on Orexarions Reseanca the next year of running the the average annual cos of the two new ones. ost of one smaller auto-ickshaw during fist year ~ Rs, $0,000 ‘ut-rckshaw during second year = Rs, 78,000 ~ Rs. $0,000 = 28,000 ulo-ickshaw during third year = Rs. 22,500 ulo-ickshaw during fourth year = Rs. 22,250 “RErLacenenr THEORY ou Sst 3 10000) 18000) 50000) 68000 4 14000) 32000 $0000 3 18000 ‘50000 50000) 6 22000 72000 50000 7 26000 50000) Machi the end of Sd ‘minimum in Vh year end 26,000 where as that of ld be replaced by B ot sikh ding Ch year Rs 2850 Example 11. The dita on the operating costs per year and resle price of equipment A whose sates oe sete ne re purchase price is Rs. 10000 are given below tsa daring sinh ear= RS. 29,000 and soon. : year fr two smaller vehicles aged two years fone vehicles aged one year Ss zl a a « 5 e Z Opetngcon(Rs) | 1500 | 1s00__| 2300 | 2900 | 3000 | ss00 | 00 * 22,180 + 22500 = Re, 6,000 Resale vale (Rs) [$000 [2500 | 1250 | ago [300] 00] «00 = 225780 + 22,80 Rs, 74250 (© Whats the opium period for replacement? 2900+ 25,750 = Rs 88,750 and so 02. (i) Wea equipment Ais wo years old equipment B which sa new mode for the ut, minimum average cost fortwo new vehicles =2« 38.200 © Rs 76400 available, The optimum peed for replacement is 4 years with an average cost of Re iis ao hace equipment A wit that of B? 130 when? (ca 4) old tosh Solution: A y Bee Determination of Optimal Replacement Period Equipment A ample 10. Machine A oss Rs, 45000 andthe operating oss ar ested at Rs. 1000 forthe ist = = 7 increasing by Rs. 10000 per yea ond and subsequent years Machine B costs Rs. S000 and Me rem t | Comma | Depreciation ] Total Coot] Average Con opeatng cot are Rs. 2000 for the fist. ing by Rs, 4000 in the second and subsequent year. IF u at ‘we have a machine of type A, should we: [Delhi Univ. M.Com. 1985) 1,500 1,500, 5,000 6,500 6300 Solution : 1.900 3400 7.300 10,900 530 tPerica 2300 5700 8750 14450 aai7 Year ‘Commutative Total Cost] Average Cont 2500 5,600 9400 18,000 500 i Be 3,600 12,200 9,600 21,800 4.360 3 ou sae) 4,500 16,700 9,600 26,300, 4,383, 5 uae) a) am: 5,500 22,200 9,600 31,800 4543 33000 78000) oa wverage annual cost is minimum in Sth year. Hence optimum period for replacement of 4 000 75000 709000 230 guipment Ais Vi year at Average Cost = 4360 3 705000 73000 iso00 7 (G)_ Machine B shouldbe replaces atthe end of St yea. Since machine A i 2 year ot it sould be 6 156000 45000 201000 33500 es eiee Te tea umple 12. A new tempo cots Rs 80,000 and maybe sold at the end of any yeat at the fllowing 7 217000 45000 [26000 | sreas7 8 Machine i 2 3 4 3 é Year] Operating | Commutative | Depreciation | Total Cast] Average Cow 30000 [33.000 [20000 [1000 [6000 | 1.000 Cost 0.Cont Cost 1 2000 2000 50000 $2000 52000 2 6000 8000 50000 58000 29000rere FUNDAMENTALS OF OPERATIONS RESEARCH REPLACEMENT THEORY. a. first year and then inreases by Rs. 2000 ever ; ry a 5 which to replace the tuck, T 000, | 20,000. | 30,000 _| $0,000 ¢ by Re, 800 every year. The truck owner now has tuck iniy a second hand tempo. Dewees. A 00 24000 | 1600 | 19.000 Denon | To on ot a? : 9,000 9,200 2 7200 a (SWANIA Uni, MBA 199 I Mo 2 3 4,200 3,000 s 6,200 of OptinatReplacerent Period for New Tempe 2 0 me 5 9, Yer Commutative | Depestation | ToalCent_ | Average Cost z Main.Cost_| Cost 6 10200 9000 7 10,000 30,000 000 7 12200 7 Sa 2 72,000 | 47.00 == - cca Yer] Oring | Commanre| Drrehe | TosiCot | AvwatsCo Cost 4 57,000 7 Op a 5 #700 2 I 6 137000, 2 10,000 is aerge sonal ost sini inte th : 1000 of hear, aint i e 10,000 i [year 6 ania 7 “Tek A sold be eplaedby tacktype Bathe end of secede, ee 1 —— 2 ' 7 3 # 1. A truck owner from his past 5 ‘owe purchase rice i Rs Year “The tempo may be replaced by the second hand tempo on th annual costs minimum. 1 te existing tempo wih that of second hand tempo and seve Rs. 1250 2 his (61500 ~ 30250) ine one. ' 3REPLACEMENT THEORY, ie FUNDAMENTALS OF OPERATIONS RESEARCH 6 A al ower purse pce when 1 2 \ Mainemace Coa Re nla 036 | Resale pre Raines 200 | 2 | ‘ Year | ost) 27500 sooo 75000 105000 1400 mmn00 240000 300000 | Ra MIE sig Re ips «how many year shoul the machine be repbeaon ronnie cos ee ee the mache element cin bone olathe yearns | eae i eh he th nn Te | = ae | r Lc (ite (ars emcee i Resale ve 2000 9500 75005700 42003500 21002000 | ‘Anal mineance 600 $00 1050 14002100 3800 S080 on: % ing in Rajsian fas a et of 20 socks Det opin epacemest peri gare hn va of money and inion anpring company i flog informs CMA, Joe 1389) Bowie 0S s geri comiring element pole fora new machine, Me estima: te lowing coat nies) 20000 270m som 850005800 1 a 3 4 3 . gso00 = 88000 = 70000» 6000045000 100 bd % We \o 10 ‘What is the optimum replacement period ?- (G.N.D.U. B.Com Il ore 10, A fetownerhas he tacks of which evo yall nd hd one year its eM Meee cot for male ick Rs, 68,00; Rs 6410; Rs. 64:00; Rs. 64500 and R66. fn eon hi, orth and ith year eapesvely He coming anew te of sick cS 30 ah * 6 © ‘with 50% more capacity than one of the old ones at a purchase price of Rs. 4,00,000. The Find an optimal replacement policy and corresponding minimum cost, [CWA June 1987) es of running cost and resale pice forthe new truck re as given belowae ee | a7 ne FUNDAMENTALS OF OPERATIONS RESEARCH Renacemexr TusoRy Yer ities Rescind Reatle Pie Replacement period at the end of very 3d years, average anal cos is Rs, 9867 @) 1 24000 a 28000 3 32000 4 40,000 5 48,000 6 56000 : a 2 The maintenance costae incurred at he starting of various time periods A ee Replacement decision analysis must be based upon an equi Assuming tht the loss of flexibility due to fewer tucks is of no importance and he continues to ra ave suficent wok for these thes trucks, what shoud be his placement 411, A machine shop has a pross whichis fo be replaced a it Wears ut A new res isto be installed ‘now. Further, en optimum replacement plans tobe found for next 7 yeas afer which the press s olonge quired: The following data are ven, ee a a a Year Costofinsaling anew Operating cont uring res at bepinningof' year the year ine) (aks) cE 7 200 100 @ 2 210 50 %0 3 20 0 100 ‘When we drop this assumption, we have to dscou alin ems of presen vac, Now, ithe at of 4 240, 20 120 on a ee ote s 20 ts fe of ropee pai at the end of one year would 6 20 0 10 and toon. The presen vale of one rupee pa 1 220 ° 230 fac (Vf eco at pe Find an optimum replacement policy and Wr coresponding minimanlcoen PV discounted table from which values for different Find an optimum replacement policy andthe conesponding minima os. read off dzelly. Any paymnens made at diferent times be converted (CWA. Jae 1986) tmulipying them by appropriate PV facto. ‘ANSWERS 1. Replacement period i attend of every 4 years it wl be impacticl to replace the rack athe of every year, average anmul east R37 500. "eT Te of count andthe tne). 2. Replacement period Sip 2: Asuna pres als in ie / peak te eu 2, Ad uot 3. Replacement periods ‘the equipment to each of these Values 4 atthe end of every 4 years, everage a ‘Step 3. Accumulate present value factors upto each ofthe years 1, 2, 5s. end of every 2 years, average annual cos is Rs. $7.50. ‘Step 4. Divide the cost plas cumulative sec oe Si yom, tae . comesponding cumulive ERENT VNC HCN ey 3. This ives the annua e Ate ead of every years average annul casts R, 16000. years, Itmay be noted that the annualized cOaT weighted average of 1 the end of every 3 years, average annual costs Rs, 32000, ‘weights hee and the average is calculated, sin the usually way, by dividing Ls ‘of the costs and their respective weights by the summation ofthe weights. ‘Replacement period is at the end of every Sth years, average annual costs Rs, $400.Sn REPLACEMENT THEORY Solution: 7 sw veh sn danny aogie wav ane ioe yotws pet ub Yer Tanning eos Comm Total Com. FV ‘Weighted ace CTY W YES where A, rage of costs for n ye ig equipment A. A is purchas ce cost are estimated for each ofthe fit S years and ‘and subsequent years. The company expects a etur of (Pb: Univ, MBA. 1998) oof Opti! var [| oo 1 10000 i a cn ethene ceri stun A cox Re, 20 il ne renin —— = |The Utperyeartrsn enrsnenng by Rs 200 pr er eres it noory worth 1% per ya, wich machine shouldbe pace, Aue a vey lor scrpata neil pee) (ara ae Solution: Tae (tachne A) C= S00 manne Tar] Ome | ew |g [Oma + [awe | 7 fa aia [me 9 2200 | z 300 9091 Tat sm? 10 25,000 | 3 00 08264 66 u 28000 0 | < 700 | 07s wor | ‘Weighted costs minimum atthe end of th year, hence te equipment shouldbe replaced afer every a v=) if ae | o Ta i 986 | 7 os | | & sii? 718 sample 18 A mache ot 150, The amin oto he ire jes een | ; a Nout : ieee 4 - é S J, \ 10 0-424 763 Rumning cost(Rs) | 2500 | 3000 | 4000 | 000 | 6500 | sooo _| 10000. | (wu, aa apron, | Cot mae |e eva | 7 CD am[REPLACEMENT THEORY ou no FUNDAMENTALS OF OPERATIONS RESEARCH cama Taian ar xanple 18. A company bis be option to buy one of the mini computers MINICOUP and ‘CHIPCOUP. Minicou costs Re. 00000 and runing and rintenance cost are Rs. 60000 for each ofthe $8259 21S ai fist 5 years, increasing by Rs. 20000 per year in the 6” year. CHIPCOUP = [MINICOUP bt cos ony Rs. 25000, However is runing and nsntennce eh in the first 5 years and increase by Rs. 20000 per year thereafter. If the mone} ‘omic sould be purchased, What are the opti replacement period foreach one of the comps resuming hat here no salvage vale fr iter of the compute, {C4 May 1990) Solution: MINICOUP Computer be. Year Running | PV factor ‘Comm. R. Total | Comm. PV | Weighted ra Cos | ‘eon Cost | Com Cont et Tf stm00 [100 no ro | si000| a ee Ta566 1909 | 32908 year | wom |e | see [tao ans | 2 aaa Pst | acorn | ca 3a beter o replace machin B afer yer 5 [oon “oom | sores | rs0iee | ess od the weighted cost ine B in 8 years = purchase machine B. Ce 7 [sooo | sess | seaso | ssosio | asein | sacte [ree | sise | caste | arvene [ orron [ates > [wooo [sees | exsvo [cranes | same 0 | tome [ear |_ ost Tes100) 15505 s CHIFCOUP Computer ar | Meow wr 7 x sor | CURIS Cumulative [” Weied Yer | Rumsing | Pvincor] PV.ofR | Comm | Tol | Comm PV | Weighed 7 Loa! = Cost @10% Cost Cost | Com. Cost 7 t 2m 1 120000 1-000, 120000 120000 370000 1-000, 000 952 a6 ia 205 2 | raooo0 | som | ooo | zoo [ arwo [ toe | 25s wll bal ze = 3 120000 8264 328260 378260 2755 211391 804 1296 7679 3m 2063 - 5 4 é a = a es ee vaome | 7518 sae] ors [sans [0 ea al RE = = [00 [<0 soosre | sone | _ateon [ress ae Ree ee © [ete | 0p | ame | smn | om | sam | Han 7 ai cS = 7 | coon | seas | somo | orem | orm | seces | 1sto7 a roe [ m0] race | 208 = [revo | sive] one | oopoon | toro [caves | oi ws 00 | 21s | eo |r 9 [2000 | aces | onoo | estos | viisme | oro | 1am replete machine by anew one at tc end of Sth year, 10 | 2200 [aan | osm | osecon | v206em [rue | torre Assumption: We assume that operating costae incurred inthe beginning ofeach year.Both machines are equally ood. The total expenditure for both machines in tree yeas is 42.000, Ass loney valu is not taken into consideration, ny} “The present valve ofthe maintenance cos in3 years for both machines ae show as But, when money is worth 10% year th REPLACEMENT THEORY x3 4 300007513 = 5 4000-6830 = 6 500% 6209 = assumed tobe 10% per year and suppose that machine Ais nete as machine B is replaced after every sx yeas. The yearly costof both Machine & (/ Machine B 1 90001 = 19000 14000 «1 = ostly than machine A. But itis not tre, Since 2 6000-9091 = 5455 10000 «9091 coneeee 3 17000 » 8264 = 18000 x 8264 = Now the total discount cs ‘Year Discount cost ‘expenditure for machine B in tree years is less than that of Machine A 4 10000-7513 = 7513 3 2000-6830 = 1366 ‘cost are incurred in the beginning of each year, 6 4000-6209 = 2484 Cost fo ist 3 years Determine which machine shouldbe purchased ? i 2 3 4 3 6 ‘0000 [2000 | 4000 [10000 | 2000] _ao00 Now, itis clear that PV of the otal expenditure on Machine A (in 6 years) bless than machine B. 17000 [1000 | 2000 [3000 [4000 | ~s000 Borbaa FUNDAMENTALS OF OPERATIONS RESEARCH EXERCISE 15.2 1. Am engineering company is ofered two types of material handing equipments A and BA is 60 including cast of astallation and the costs for operation and maintenance are increasing every of 10% on ll its investments, Neglecting the scrap value of the equipment at the end of its economic life, determine which equipment the company should buy. ore Unit. MB.A. 1989) 2. The orginal cost ofa machine is Rs. 4,000. Operating cost varies as follows ' ee er aster 3400 4500750010000 12500 18000 21000 1 10% is the discount rate of money what should be the optimum replacement i [GNDU. B.Com. 11 (Apri, 2001 3. An etre generator costs Rs. 1,00,000, operating and maintenance costs are Rs 5,000 per year for the first five years In the sixth and subsequent year these costs increase by Rs. 1000 per year. tof money per yea, find the optimum length of time to keep the machine egligible price.) S.A machine X cost Rs. $000, t maintenance cost is Rs, 1000 inthe frst four yeas and then it increases by Rs 200 in each successive year another Machine X. Machine Y Maintenance ~ Rs. 10000 in frst 4 years and increases. Rs, 200 in fis S years and increases Cost by Rs. 200 incach successive yeat. by Rs. 400 in evry successive yea. CostPrice Rs. $000 Rs. 000 ‘Assume 1. Time vale of money is 10% pa. 2. Maintenance cost is incurred inthe beginning of each year ‘What isthe optimal replacement policy ? And which ofthe two machines shold be preferred, 6 Anau coss Rs. 60,000 when new. The running cost and salvage valu a the end of the yest are ven below, Ifthe interest rate is 109% pr year and running coss are assumed to have occured at mid year, find when the auto shouldbe replaced. Year 1 Beier sold SONIA GH ASD Running cost 12,000 14000 16000 18,000 20,000 24,000 30,000 Sahage Value 40,000 26,660 20.000 15,000 10,000 6.000 6.000, [REPLACEMENT THEORY 2s 1. The cost of anew car is Rs, 10000, Compare the optimum tine fr replacement Age of Car Cost Salvage Value 1 000 8000 2 10000 6400 3 10000 5120 Assume 1. Rate of discount is 10% 2. Repair is made atthe end Find the replacement poi. ANSWERS 1, Equipment A - Replacement period 8th ye pment B ~ Replacement period 6th -onomial eee Replacement period 19h year with weighted average cost Replacement period 10h ear with weighted average cost Rs. 18000, X machine is prefer to Y machine. Replacement period Sth year with weighted average cost Rs. 30566, 1. Yearly replacement is optimum. ith weighted average cost ith weighted average cost Rs.© RerLaceMenr THEORY 927 06 FUNDAMENTALS OF OPERATIONS RESEARCH There assumption have been taken to make aalysis more easy. Later, such problems ca also be where ‘The following "Mortality Theote "umber of survives at any 1)= numberof survivors at any time ‘r— 1° and ‘n> intial numberof equipment, : ‘Therefore the probability of failure during time period rs given as Itmake the conception more cleat. Important : |. Group replacement should be done atthe end of the ‘th perio petiod” is more than average cost per unit ime though the end of 2 Group Replacement should not be done atthe end of ‘th ptid period” is Less than average cost per unit time through the end of ost of IR forthe ‘th ods cost of IR for the “ah +The total umber often inthe system nan 0 in eects fixed intervals, wheter they have bart ou rot and to oat ‘The total cost of group replacement after aime“ they fal At what intervals should al the bulbs be replaced ? Average cost per unit is [Delhi MSc. (Mats) 72, Meerut 73 () Shivaji 85, Robil Khand 88) ase: t wttanea let P,=Probabiliy of fare of nw bul inthe th week hen Cie ‘ ne Bae oe K() = KN +K/IN tN HM. No) 15 rg pein = BO apy = ROR MN 4 Nad n= Bite on as-t0s1y ne ee eee pe bigs rates unit ime,ne FUNDAMENTALS OF OPERATIONS RESEARCH r= © ie 030 (80-50-30) m= 2 te 020 (100-80=020) We known total of Probability must be equal to | ie, PtP, tR+Pe+ P=] "= Number of bulbs replaced at the end of th week. Then different value of N can be calculated as [Ny = Namber ofl i the beginning = 1,000 Ny = Number ofburnt out bulbs replaced at the end of fist week = NyPj= 1000 «0:10 = 10 N; = Number of burnt out balbs replaced at the end of second week = NPL; P)=1000» 015 +100 010, = 160 [Ny = Number of burt out bulbs replaced atthe end of third week = = 1000 «0.25 +100 «0-15 + 160 «0-10 = 281 N= bulbs replace = NoPN PsN P,+N Py = 1000+ 030-+ 100 « 025+ 160 «015 +281 x001 “an Nz. = Number of burnt out bulbs replaced at the end of fith week = NoPs+N, Pet Nos 4 NSPLANAP, = 1000 « 020 + 100 0:30-+ 160 * 0.25 +281 x015 +377 «010 = 350 [Ng = Nunber of burnt out bulbs replaced atthe end of sith weck = NaPG+N, Py tN s+ Ns Pa #NGPy+NsPs+ NP = 0+100% 020+ 1600.15 +281 x 025 +377 x 045 +350 0:10 = 20 Ny = Number ofburnt ou bulbs replaced atthe end of seventh week: = NGPy-+Ny Pe+Ns Ps #Ny Py tNGP) #NSPat Ne Py = 040-160 x 020+ 281 x0:30+377%025+350x015+230«010 = 286 Ne = Number of burnt out batts replaced a the end of eighth week = NPs + Ni Py+ Ns Bo #Ny Py + NePat N5P,+ Ne Ps +Ns Py = 040404281 0.20+ 377 «030+350%025 +230» 015 +289<010 = 320 and soon, From the above calculations we sen that N, the expected numberof bulbs filing each week increases ‘po fourh week and upto Gth week and then increases ag way N, oscillates til the system stiles down a steady state REYLACEMENT THEORY on ‘The average expected life of «bulb = EX,P, where Xi the week and P, the probability offsite in the ith week, + 2P,43P, 440,45, 010+2%015+3x025+4x030+5 «020 338 Average numberof faire every weckis N___ 1000 = = 100 299 (Manage) 3-35 Average cost of weekly 3 replacement policy = Rs. 299 (Since cos of individual replacement ofa bulb costs Rs 1) [Now_we consider the cas of group replacement. End of week ‘Total cost of group Replacement in Rs. | Average ost per week ins. r 1009 » 25+ 100% = 350 350) 2 100% 25+(00+16)x1 = 510 255, 3 ‘Since the minimum e weeks and this costs also ‘minimum monthly Example 22. A group of Process Plans in an oil refinery a ‘he failure pater of there 400 vale has been observed Month Bae) 9 SAAR RES daidg cn 3a gs ra No.ofvaesfiling 8 2048 10h- D560 Tt cost Rs, 10 0 replace each vale individual replaced at tine it oss Rs $0 per vale ‘The maintenance department is considering following replacement policies. 1. To replace all values simataneously at fixed Intra in addon o replacing values as and when they 2. Toreplce flues a and when they fi sugges an optimal replcement policy ‘ [MBA, Banglore ne 1998} Solution: Let P, = Probabily of failure ofa value in the th month then 8 ae oe 400 me 2% Pe #005 4 He as onFUNDAMENTALS OF OPERATIONS RESEARCH REPLACEMENT THEORY, 0 p ~ 5 Rt, 1380 . x22 258050 | Under the group replacement poiy alongwith individual replacement, he cost of replacement is (300-+709 + 2042 +4171 «2030)x1+10000%035 = 12752] 258040 shown in ble 6 | 00709 + 2042-4171 + 2030-2590» 110000035 = 1540] 288700 End of week | Cost ofndividual “Tota cot ofrepacenent ‘eee Sins the avery replacement Individual + Group rene gt cost pee month of RE. 21866 obtained inthe tid month, is optimal to bavea troup replacement er every thd month Sons = 250 3x54 1000125 = 1500 1500 Example 24. The flowing morality rts have been observed fr erin ype of ie | Toes = 510 02x54 12501760 wo Week 1 2 3 4 s 0x5 = 1050 oxs+ 1280 = 2300 7166-66 age fling by heendof week 5 1s s 0x5 = 2150 0x5 1250 = 3400 500 “Thera 100 fe in use and its cots Rs. teplace en individual se. ! Bas = 165 maxs7nas = 215 38 seas wold ot Rs 125 pre, hs opened ele ‘ether cot ty av burt! dtc pcg bot ae te np epee tal be made Als por that opal poi ei fr poy orp eth only wen bd, TC My 189 replacement inthe third week (Rs. 1050) is more than the cal to replace all the after every two weeks, otherwise theg File have been observed for a cerain type of transi up replacement price pt nt become prefeable othe adopted policy ? Solution: stor would a policy of strictly individual [Guwahwpi MCA 1992) Suppose there are 1,000 transistors in use. Let p, be the probability that a transistor, which was new n for use, fais during the th week ofits life, Ths, we have = 005, ‘when placed in post re NSP + Nop +Nsy Nr=Nopr +Ni p+ Ns 95+ Ns pat Ney +Nepa+ Nap Na NoputNi prt Napa Ny pst Nepat spat Nope Nopi From the above calculations, we observe thatthe expected numberof transistors 'ncreses il $* week and then stars decreasing and later again increasing from 8* week, ‘The expected life of ech transistor is 1054208431244 x 1845%-25+60.247%.08+8"-04 = 462 weeks, Average numberof ales per week = 22 - a6 svoxinaely Therefore, the cos of individual replacement = 2161.25 = Rs, 27000 per week, pr= 013-05 =008, =018, = 025-013-012, P42 043-025 © 068-043-025, P= 088-068 =020, = 096-088 008, a8 100-096 = 0.04 amber of replacements made atthe end ofthe th week. Then, we have as = 195 ling each week Total eost (Rs) Individual + Group 1 0 125+ 1,000*030 = a 2 1B 132«125+1000*030 = 465 3 260 260% 128+1,000%030 = 25 4 19 = Since the average cost is lowest agaist week 3, the optimum interval bet 3 weeks. Furter, since the average cst is less than Rs. 270 ‘r0up replacement i better. Example 26, The following mortality rates have been observed fora certain ype of| End of week 1 2 3 4 5 6 Probability offeluretodste 009 «025.049 8S. 7 0 There area large numberof such bulbs which are to be kept in working onder. If bulb to replace but fal the bubs are replaced in the same operation it can be don for fixed intervals, whether or not they have bunt out and Wh ‘between group replacement? individual replacement become Let the total numberof bulbs in use be 1,000. Let p, be the probability that «new lightbulb fils ring the ith weck ofits ite ‘Thus we ave 1=009, 2=025-0.09-016, P1=049-025=024, i= 085 -049=036, P:=097-085= 0:12, P= 100-097-003, Since py + p2 + Ps + Pa + Ps + Peis unity, all probabilities then mist be 2er0 Le. p;= px =p ete = 0. Thus all light bulbs are sre to burn out by the 6th week: ‘Let N represcat the numberof replacements made atthe end of th week when all the 1,000 bubs are new initially. Then we haveFUNDAMENTALS OF OPERATIONS RESEARCH 935, Nopr+Nipi = 168 - = ae = mM ae, 0244214 «04164260009 = 291 each week increases ill the 4th weck, the Cost ofiividual replacement of bulbs = Rs.3 «299 = Rs 897. End of week ‘Cost of Group Replacement 1 1000 * 070+903) : 970 ‘Average Cost REPLACEMENT THEORY a ibaa a Top 8a i be NN i AR "og | Solution : ‘Consider each Block of 200 hous a5 Let Ny be the number of replacements inl. Thus the expected numberof fale End of period (hrs) 1 2 +270 «026+ 403 x 010 = 430 © Ny = Np: pst Ne: putNe:pyt Ny pe = /1000 «0.07 + 100« 0.22, a OES en ee SO From Table, it may be oblerved thatthe number of tubes ‘petiod and then starts dereating Expected ofa tube= 1 x 010 +2* 0.26 +3 «035 +4 «022 +5 » 007= 290 periods 1000 pe pein = Om a5 (Cost of individual replacements per period = 345 « 60= Rs. 20700 “The average cot per period duc to group replacement at fixed intervals i shown in Table Group Replacement Caleulations Expected mmber off 1000 0-70 +2883) = ‘Total cost of replacement Individual + Group period nd week, itis optimal to have a group replacement after every 0 ‘Example 27. A computer has large number of electronic tubes. They ae subject to mortality as ven below: Probability of falure 010 6 035 on oot [Gujrar, MBA Oct. 1989) 100* 604100015 = 21,000 270% 60+1000%15 = 37,200 probability of failure a different periods oft hours) Age338, FUNDAMENTALS OF OPERATIONS RESEARCH REPLACEMENT THEORY, 939 3 035 Group replacement policy is optimal because itis minimum i. Rs. 18,600 as Replacement Cost ie. 20700, The Average Cost is minimum ja Und Period 4 on replacement should be made after: 007 Probability of fallure Xj 10 10 06 3 (b) Af qoup replacements economical at caent css, then asses at what cost of individual replacement 03s 195 ‘ould group replacgment be unecononsial on 88 (0 Hohhot operat nem repent to ake oo as ee pat From be given probabil sibuson the distribution indicating the flrs of component in ech Expected No.of fire = 1000 months derived and provided and the average life of component cbained. Month Probability gf Fllrep ns Individual placerat Cot een tr pe N= NP, 010 oo = 1000 «-10=100 2 os 030 % 3 02s ons 4 0x0 120 % 5 o20 100 Toul 335 ‘Average Number of Replacements per month = ——N°-OTSOMBORETS — = Te = 597 With the policy of individual replacements the average cost per month would be equal to $97 » 3 = Bs. 1,791 ‘When the policy of group replacements, alongwith individual replacements, is followed, the cos nd the optimal policy can be determined a follows, Expected Number of Replacements EI A) ea eee A SS ET 200 Nr = 2000 «010 = 4 Net Nips = 2000018 +200 : Nem Nips Mer += 2000025 + 200» “i940 FUNDAMENTALS OF OPERATIONS RESEARCH Se _ IRAE ALS OF ORR ATONE RESEAIC, Nope Ni pit Nap Nips 2000 030+ 200 «025+ ee (0) rom ove (on Nops*Nipet Nest Naps*Nep) =2000%0-20+-200 x 030+: = oon wis aa rn Con of GN Poy [>| Av Contf i otey_[___PVae wt ee P> oo ‘Now we can determine the average ¢nt group replacement policies. Bea) Delernation of Average Cost - Foro Seas (2000 P + 1560) ld Fe Teaco | Average cont ind. Rep. | Group Rep. cr (ao00P +3246) | > ree 7 200 Cn 20 [0000 2 320 1560 2000 3560 1780.00 1 (2000 +55086) | > id Dasa 2 ioe a6 2000 1 peace 4 18362 5508-6 2000 1 (2000 P + 7607-6) be te aa 5 253592 760776 72000 ane REPLACEMENT THEORY oa led that preference to IR Policy means that avg, cost pm. of a GR. Since the av. cost is lowest (Rs, 1749) in 3" month hence optimal ime between group ‘Smonths and obviously, group replaceinent is beter. > KValve > Ke S04 (2000+ 320K) | > 3K Ke297 (@oo+ 108K) | > wk Kone (2000+ 18362) > 37K Ka (2000 +253592K) | > IK Kees 1, K=Cost of Individual Policy 2. Value of K can be determined as Ymonth —2000+20K > S9TK or 2000 > $97K-200K 2000 re Ko K< soe Since we conclude that when cost of IR shouldbe ls than 282, the GR Policy is uneconomical TR oly wold fel GR Poy Po whe P "ale shows he largest vale EXERCISE 15.3 1, Following mortality rates have been observed fra certain typeof fises Week 1 2 3 4 5 hfuling by the endofweek: 5 15 ‘There are 1000 fase in use and replaced simultaneously it would cost Rs. intervals of time, whether or not they have burt out they fll At what intervals the group replacement shouldbe made ? Also pro policy is superior to the staight forward policy of replacing each fase only whe 1. is pon he Ft Cy ea ey of 0, Se et vegeubi a bes ty ae pepe fr eigF on eS ttm pcos fo ot mye tym ‘oS maui canng Schr pone ie freon emit ct mute espe try fn am he pstn e efae emir eet te sir weeds Dao ip pot i se seer cong ply of rp epee Wha MaSeeicm spe nea he mera ing pine eho Eee 1 2 3 4 s 6 Probability of fae: 00S 00S 0.10010 0.30oa FUNDAMENTALS OF OPERATIONS RESEARCH St —__________Funbaentais oF Orenarions Reseancut Replacement Cost Purchase Installation Per Unit Individually Rs. 50 Rs. 175 Rs, 225 Group Rs. 50 Rs.25 R15 ([Dethi Univ. B.A. De. 1987) replaced. The cost of replacing a the same time the cst pe resistor ee i a he end ofthe month. and the probability of failure during the month are gi i Seal Au eae see ie Per cent survi 1 96 ooces cae SP the end of Probability of fi - 004 006 025030 ous. 20 daring the month ¢ ‘What isthe opium replacement plan? (Patna Univ. MBA. Jan, 1989) ‘4 The probability Pu of failure jut before are ‘n’ is shown below. IF individual replacement costs Rs. 1.25 and group replacement cost Rs. 0-50 per item, find the optimal group replacement Di 2) Saket Neogene she ag Probability P(a) 001 003 00S 007 019 015 020 015 O11 008 005 otal items are 1000, [Bombay M. Com. 75} 5. XYZ engineering company is sudying a replacement strategy fr is metal cuting tools thas colleeted the fllowing data on to! life lating to normal lad and operating conditions Month after replacement ee ee Per cen of original tol which have faled by 1025S 50, 8).S00 the end ofthat month ven time, The could be replaced by new tools on mass ternatively they may be replaced individually as they fils at cost of £ 4 pet tol, In each cae the actual cast ofthe tool itself is $0 pence, the remeindes "representing labour and overhead charges. At present, the company replace ool a they fad, You are required to ‘ument tol replacement system with allemative of replacing all tools altogether with individual replacement ofthese tools which have (@) State the best strategy forthe company to follow, CMA Now. 1980 Indian Bleetric company operates three large booking ovens used fo manufctre electric motors and generators. Each oven contins 2400 heating re all resistors are epic time regardless of ag. Statistical data provided by the research department of Indian Blas company provide the following probability distribution for resistor failure : REPLACEMENT THEORY. a ee ee Week 1 2 3 4 ete Probability offuilue 0208s 0302800 [Is individual or group replacement more desirable? (Dethi Uni Ba 99} ANSWERS: cheapest o havea group replacement afer every 2 weeks. cheapest o have a group replacement afer every 4 moi 3. Ihischeapest o have a individual replacement 44 Group replacement policy shouldbe followed aftr every 5 yeas 'S.__Replacement tool every two months 6. Wis cheapest o have a individual replacement ‘There are many other replacement problems which are discuss Recruitment and Promotion problems Life dustrial eplacement problems, Prt ‘eeruitnent and promotion of staf. In staffing ‘Promotion age and conversely. of the service of the staff in the or make the principle more cla Cpl teats) 6: yearend 1000 940 §20 $80 400 280 190, Solution: Let = Total number of staff members inthe (9) =Total numberof staff member in the system at the end of th year Here | N= 1000 | N() = 1000 N{6) =190 940 820 580 N@) = 30 400 Na) = 0 280» % Probabiliy that a staff wil resign in Ist yeqr 1000-940 1000 Probability that staff will esgn in 2nd year 060 024 taf wil resign th year 380-400 ae Os Probability that staff wll resign in Sth year {UR Poiy- Morality Tales} REXLACEMENT THEORY. oS eo Boe R= = 230 _, Tao = 004 Ply = Probabiy that a staff wil resign in 10h year ‘Age No. inservice 206 Age 6 No. inservice 6 Age i No. in sevice » Age No. inservice» Ase y Solution: ‘The total number of girs recruited at age 21 and those serving upto of woman recruited in arin ae 200 + 300 + $0 = $50 1000 agp * 580 SPPOX. 85 per yearFUNDAMENTALS OF OPERATIONS RESEARCH [REPLACEMENT THEORY. a 946, we need 200 assistant tw pom aint sees af eg he Zs, ngth of 1,000 there will be ostenso Among $80, ther te 200 asistant hostess. Therefore, oto 1000 90 = 364 $50 5, then we stall require , Hence, the numberof hostesses and assistant hostesses na reruitment of 1,000 wil be = 91 supervisors, whereas at he age of 46 only 86 will survive ors willbe due in 46th A research team is th of $0 chemists and then to remain a that ‘of recruits depends on their length of service whichis follows Tl2]3]4[s]el]7]#]9] Hence promotion of ho “oval percentage who have Jefiuponthe end ofthe year | 5_| 36 | 36 ‘What isthe recruitment pr yar necessary to maint for which length of service is the main critenan What entrant expect his promotion to one ofthese posts. ‘scitie os | 68 | 3 | 79 | 87 | 97 | 100 required strength ? There ae & senior posts overage length of service after which new ous of thr cones nserver mee tas 1 yer, We eae ey Yo clear from the anaes Sa aan eel 6 i aio Spake ieee 2) 1 5 (10-5) = 95 09s 2 6 (100-36 = 64 0.64 ( (is) ; at Preacan = ane ficou ( (100-43) = 37 037 5 oe (100-68) = 32 6 a (100-73) = 27 7 (100-79) = 21 8 87 (100-87) = 13 9 77 (100-97) = 3 10 10 (100-0 = 0 000) Total 564 86 Trom the table we conclude that there are 436 chemise inthe organisation 7100 are recited every year, Therefore inorder o maintain strength of SO chemists, one mast rect “9P%5? 12 tei every year, If py = the probability ofa person tobe in service a the end of year, then out of 12 recruits the total no, of survivals at the end of year x willbe equal 1012p, [Now we construct a table showing he total numberof chemists in service atthe end of each year Table 1 09s = u 2 Roe = 8 3 xo = 5 4 x03? = 4 3 nx03 = 4 6 nxo2 = 3 7 neo = 2 8 Rxo13 = ai ’ x36 = 0 ao = o ‘There are & senior posts for which the length of service is the main eriterion, As here are 7 chemists (+242) inservice whose lengths of services vary from 6 years to 8 years which i ess than the total umber of senior posts. Hence the proportions of the new entrants will stat by the end of Sth yea.Niner 5 [sane [FUNDAMENTALS OF OPERATIONS RESEARCH (Total 200) ahh 18 (Toal300) | ao 4 4 4 4 8 Ans ay 3. 5 On FN 55, 56 Sta 4a to ae (Tout 50) for one year at each age as shown inte following table pected numberof survivals from supervisions (for one year) by making use ofthe Prob. of beingin ] Expected ‘New age service for one | survivals after year hence fone year a a 0947 4735 a a $ 942 3768 “4 a 3 0936 4-680 45 4s 3 09236 2790 46 6 3 ois 2769 a a 8 0906 274s 48 a 6 0906 5436 “9 0 2 0896 192 30 so o oss ° 1 st 0 0873 0 2 2 4 0860 3440 3 2 3 0-846 2538 4 4 5 oss 455 55 + ‘Banacommnr Twvont ss ° oss ° ‘ % 3 ome 204 5 ” 2 ono 1360 ss s 0 o761 ° 9 9 2 om as © supervisors after one ye basis of sia. Since, there are only 6 hostesses of age 41 and ‘one year being 9.57, 8x0987=76560r8.. / ‘of,age 42 and 41 yeas and the need ist promote 12 out of them. ‘one of age 40) wll be promoted as supervisors afer the expiry one EXERCISE 15.4 1. Whats replacement problem ? When does it arse ? (SK: Ananpur M Se: (Moth), 1990 ; Meeru Se (Math) 1990), 2. Deserbe various types of replacement situations [Delhi B.E. (Prod) 1990; Madras B.E. (Comp. Se) 1990; Calicut MSc. (S 3. Dis ef replacement procedure forthe items tat deteriorate 4. Develop # model forthe replacement of items whose maintenance costs increase ‘val of money remains ame durin the period. [Delhi B.S. (Stae) 1997) 5. What is“pround replacement”? Give an example [Kerala M.Com. 1991) 6 Explin how the theory of replacement is used inthe following problems 2003 short note on group replcement and individual replacement policies. [Madras B. (Mech and Prod) 1991)a 0 8 B. M4, FUNDAMENTALS OF OPERATIONS RESEARCH ‘A larg population is subject toa given morality curve for Tnmediately replaced by births and there are no other {tribution becomes stable and that the number of deaths per ‘Do not replace ifthe next period's costs es than the Replace if the next priod’s cost is pester than the we dows te problem of replacement aise ? What sindvidual and groupnent reacerent ? Which economical? Explain |. Explain 1) Capital cost and operating cost of an asset i) Discounted valu of etun on asset What are the tnee strategies of replacement of items which follow sudden failure mechanisms ? Explain each of them wih examples {CA. May 1986) Explain various types of replacement models. ‘Explain the O.R. Methodology of solving replacement problems [CA. Mey 1987] 951 ‘Renacewenr Turon,FUNDAMENTALS OF OPERATIONS RESEARCH ns20 16 INVENTORY MODELS ~ INTRODUCTION ~ TYPES OF VENTORY ~ INVENTORY CONTROL, = CLASSIFICATION OF INVENTORY MODELS ~ ECONOMIC LOT SIZE MODEL ~ PRODUCTION LOT SIZE MODEL PURCHASE INVENTORY MODEL PRICE BREAKS MODEL FIXED ORDER QUANTITY MODEL ABC ANALYSIS INTRODUCTION rials, pars, subassemblies 1. Raw materials and supplies inventories : These nd kept and suples wich the company purchase fom ouside source {a stock befor snd during production of goods, “>. Prodvetion inventories : Raw materials, pars and components which become ps uring the production are calle production inventories. ‘3. M.RO. inventories: These are maintenance, repair and operation are sed inthe production process but do not become pat 5 a ‘4In process inventories: These are processed or se stages dutng the prodaetion cycle. For example ina bieyele frocessinvestres, These are alo called as workin progres inventor Finished product inventories: Finished goods o stocks ar completed products ead 6 tt vay he man reasoner Tene roduc have been absicated or manufactured or assed fom production and in process inventories