In the modern competitive world with
continued technological developments, the
replacement of machines and equipment
has emerged as a continuous and complex
problem. For tapping the cost advantages
with a view to strengthen the competitive
abilities, the replacements
transformation of the installed capacities
assumes the strategic role in the modern
manufacturing management.
Reasons for Equipment selection and
Replacement?
(1) Deterioration:
It is the decline in performance due to wear
and tear
or misalignment indicated by;
(i) Increase in maintenance costs.
(ii) Reduction in product quality and rate of
production.
(iii) Increase in labour costs, and
(iv) Loss of operating time due to
breakdowns.
(2) Obsolescence:
Technology is progressing fast, newer and
better equipment are being developed and
produced every year.
The equipment gets obsolete due to
advancement in technology and
unwarranted manufacturing costs arising
from such obsolete equipment will:
(i) Reduce profits.
(ii) Impair competition.
(iii) Cause loss in value of machinery.
and
(3) Inadequacy:
When the existing equipment becomes
inadequate to meet the demand or it is not
able to increase the production rate to
desired level, the question of replacement
arises.
(4) Working Conditions:
It may be thought of replacing the old
equipment and machinery which creates
unpleasantness i.e. give rise to unsafe
conditions for workers and leads to
accidents, making the environment noisy
and smoky etc.
(5) Economy:
The existing units/equipment have outlived
their effective life and it is not economical
to continue with them.
Factors to consider when replacing
equipment
(1) cost:
The total cost of installation including
the
time, material, infrastructure, and
opportunity costs must be evaluated.
(2) Ease and cost of operations and
maintenance:
Do the evaluated equipment-selection
aspects account for how preventive
maintenance technicians will access the
equipment?
(3) Redundancy and failure risk:
Evaluate areas where weakest-link
scenarios arise. There may be value in
robust equipment in areas where a failure
could lead to difficulties in the facilities.
(4) Technical Factors:
Whether the present equipment has become
obsolete due to technical changes, is it
adequate in meeting product demand,
damage done by wear and tear.
Types of Equipment Replacement
The replacement situations are categorized
Replacement Planning Process:
into the following four types:
1. Replacement of capital equipment
whose performance decreases with
time.
2. Group replacement items that fail
completely: Some system usually
composed of a large number of low-
cost items that are prone to failure
with age such as failure of a resistor
in television, radio, computer etc. In
some cases, the failure of a
component may cause the complete
failure of the system. In such cases,
the cost of overall failure will be
quite higher than the cost of
component itself. In such situations,
two types of replacement
procedures must be considered.
First is Individual replacement. In
this policy, an item is replaced
immediately after its failure.
Secondly, Group replacement in
which, decision is about the age
when all the items should be
replaced, irrespective of whether the
items have failed or not. In this
policy, the items that fail before the
optimal time, will be replaced
individually.
3. Problem of mortality and staffing.
4. Miscellaneous problems.
1. Assess clinical needs
2. Use multidisciplinary approach
3. Assess
technical/maintenance/safety/regul
atory needs/indicators
4. Review equipment database
5. Review maintenance criteria and This method of equipment
calculations. replacement studies is to compare
the annual costs of obtaining service
6. Budget
from different equipment’s.
Methods used for Equipment
replacement: -
4.MAPIMethod:
1. Pay-Back Period Method:

This method of equipment

replacement studies determines as
to how long it will take (in years) to
pay back invested capital. This
method is not much reliable as it
does not take into account its
insurance, interest and
The term MAPI stands for
maintenance. Further, in the
Machinery and Allied Products
beginning the return is generally
Institute of Washington, who has
less, which increases gradually but
developed this method. This IS a
here it is considered to be constant.
method developed by George
This method does not consider
Terborgh, the Director of this
depreciation and obsolescence.
institute.
2. Total Life Average Method:
The method is described as follows:
In this method of equipment
Almost all the equipment’s are
replacement studies, all the costs
subjected to deterioration and
involved in buying, operating and
obsolescence in varying degree with
maintaining an equipment or asset
the passage of time. Thus, with the
are added together into one total
passage of time operating inferiority
figure and this sum is divided by the
increases. Hence the old machine
total estimated life to get an average
has his operating inferiority high
annual cost.
and book value as low.
3. Annual Cost Method:
While a new machine will have
operating inferiority minimum and
cost, at a minimum. Hence the
problem before manager is to
choose between more capital cost
and less imperfection, on one hand
and less capital cost and more
imperfection, on the other.
The MAPI has developed a new
approach which helps in deciding
this problem. The existing
equipment which is to be replaced is
known as DEFENDER and the new
which will replace the old one is
known as the CHALLENGER.
For estimating as to whether the
proposed replacement is profitable,
the “adverse minimum” of the
defender and the challenger are
found and compared. “Adverse
minimum” of the defender or the
challenger is the lowest sum of the
time adjusted average of capital cost
and operating inferiority (expressed
in terms of money) obtainable from
a machine. The calculations can
easily be done with the help of
MAPI charts.
Advantage of MAPI Method:
Following are some of the
advantages of MAPI method:
1. Calculations are simple.
2. Management knows as to when a
machine is to be replaced.
3. This method can be applied to a
single as well as a combination of
several machines for replacement.
4. It aids in budgeting equipment
expenditure.
5. There is full provision for future
deterioration and obsolescence on
the new machines.
(5) Rate of Return Method:
In this method average annual net
income (after tax and depreciation
deductions) is expressed as
percentage of capital investment.
The formula used for this purpose
is:
Percentage rate of return Earnings
per year/Net investment × 100
For example, a new equipment with
net investment of Rs.20,000 gives
an average earning of Rs.4000 per
annum after deducting taxes and
depreciation, then
Percentage rate of return = 4000 ×
100/2000 = 20%
But this method has a drawback that
earnings of all the years cannot have
the value equal to that of today
(present worth). Hence the method
will be more useful and practical if
the earnings of all years are first
converted to present worth and then
calculations are made for rate of
return.

Maintenance of Equipment

It is a routine and recurring activity

of keeping a particular machine or
facility at its normal operating
condition so that it can deliver its
expected performance or service
without causing any loss of time on
account of accidental damage or
breakdown.

a machine was used as long as it

worked. When it stopped working,
it was either repaired, serviced or
rejected. The high cost modern
machines need to be properly
maintained/serviced during their
entire life cycle for maximizing
their availability.