Friday 22nd October 2010

Course OR202.1
2010-2011
Dr Alan Pryor & Dr George Zouros

Operational Research Techniques 03: Replacement Theory

3.1 Introduction
In general we can identify two types of decisions to be made on replacement:

• When a major single item of equipment such as a computer or private car wears out but does not
fail, maintenance costs are likely to rise and performance to fall. The decision to replace is
based on balancing these costs against the alternatives: replacement with an identical model, or
with a new improved version, or with an externally serviced / maintained model (effectively a
second-hand model). This is not a stochastic problem.

• Stochastic problems arise when items, either individual items or groups of items, are liable to
fail suddenly and need to be replaced, such as electric bulbs fusing, staff leaving an
organisation, or a seam of ore suddenly becoming not economically viable in a mine. In certain
circumstances warning signs of deterioration may become apparent, and a preventative
maintenance may be carried out instead of the formal replacement of the failing or failed item.
Most of the content of this lecture focuses on this second type of decision, although we will carry
out a brief investigation of the first type of problem in section 3.2 immediately following.

3.2 Replacement Strategies for Individual Systems or Items that Wear

Example 3.2 The owners of a transport firm observe from past records that the annual running
costs per year and the end-of-year resale price of a typical lorry are as shown in the
following table. All figures are in money of today, in £'000, and a new lorry can be
purchased for £70,000. What is the optimal frequency of replacement?
Year 1 2 3 4 5
Annual Running Costs 6.0 8.6 11.5 14.9 20.5
Resale Price 45.0 36.0 28.0 19.0 12.0
Solution The procedure is simple: try replacing the lorry after 1 year, or 2 years, or . . . ., and
in each case calculate the average net annual cost. Hence identify the frequency with
which the lorry should be replaced in order to minimise the (expected?) average net
annual cost. Note that we are assuming that replacement can only take place after an
integer number of years (for convenience!).
Replacement Frequency
If every year: Net annual cost = 70.0 (purchase) + 6.0 (running costs) - 45.0 (resale)
= £31,000 p.a.
After 2 years: Total net cost per cycle (i.e. over the two years)
= 70.0 (purchase) + (6.0 + 8.6) (running costs) - 36.0 (resale)
= £48,600 over 2 years. This averages at £24,300 p.a., which is better.
Now complete this solution via Qu 3.1 of the exercises!

These notes are copyright  to Dr Alan Pryor, and are not to be reproduced
in any medium, either partially or totally, without his explicit permission
OR202.1 Lecture 03: Replacement Theory

3.3 Replacement Strategies for Groups of Items that Fail

When considering groups of items which fail, such as the set of all the refrigerators in a hospital,
there are, in general, two problems:

(1) To predict when failures are likely to occur; and (2) to choose a replacement strategy.

We are going to examine four specific replacement strategies in this lecture:

• replace each item individually at the end of the time period during which it is recognised to
have failed. This strategy is known briefly as "individual replacement";
• replace the whole group periodically, including any individuals which at that time are still
functioning, with failures also being replaced as they arise. This strategy is briefly known as
"group replacement" or “planned group replacement”;
• carry out "preventative maintenance" (hopefully to make items as good as new); and
• replace the whole group when the first failure is observed, particularly when the group size is
quite small. This is often called "unplanned group replacement".
In all cases inspections must be carried out regularly (e.g. every day), so that the replacements
(group or individual) can take place at the end of that inspection period

3.3.1 Definitions and Notation

The life of an individual item is a random variable. Let it be named X, say, and let the operational
status of each item be examined every time period (e.g. at the end of each hour).
th
Let qj = probability of failure of this individual unit during the j time period.

Let Pj = probability of no failure up to and including time period j. It is the "survivor probability
∞
function", or "reliability function", and equals ∑ qi. Note that P0 is 1.0 by definition.
i = j+1
th
The probability that a unit has survived until the end of the (j-1) period and then fails in period j is
written λj, and is the "conditional probability of failure" or "age specific failure-rate".

Thus λj = qj / Pj-1 = ( Pj-1 - Pj ) / Pj-i = 1 - Pj / Pj-1.

Example 3.3.1 A fast food company employs 1,000 helpers in its U.K. outlets. These staff
generally stay only a very short time with the company, and the probability qj
th
that someone leaves in the j month of their employment is given in the
following table. Calculate the values of Pj and λj.

j 0 1 2 3 4 5
qj --- 0.1 0.15 0.25 0.3 0.2

Solution j 0 1 2 3 4 5
qj 0.0 0.1 0.15 0.25 0.3 0.2
Pj 1.0 0.9 0.75 0.5 0.2 0.0
λj --- 0.1 0.167 0.333 0.6 1.0

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 OR202.1 Lecture 03: Replacement Theory

The q, P and λ values all contain the same information but often in operational replacement
problems in practice the failure rate, λ , is the most intuitive and the most useful. Failure rates
generally increase with time (this is known as 'positive ageing'), although sometimes early on they
decrease (‘negative ageing’), so that the graph of failure rate against time often is a 'bathtub' curve.
A typical example is with the human life cycle, where morbidity rates are relatively high in the first
few months, and much later again begin to climb steeply in old age.

3.3.2 The Renewal Process

If the individual units are replaced when they fail by units with identical and independent failure
time distributions, we have a renewal process. If we start with µ0 items we can forecast or calculate
the expected number of units, µj, that have to be replaced in period j. This process is illustrated
using the data of example 3.3.1 above, where µ0 = 1,000, q1 = 0.1, q2 = 0.15, and so on:

j E[Number Failing in Period j] Numbers of Leavers in Month j in Example 3.3.1

1 µ1 = µ0 q1 1000 * 0.1, = 100

2 µ2 = µ0 q2 + µ1 q1 1000 * 0.15 + 100 * 0.1, = 160
3 µ3 = µ0 q3 + µ1 q2 + µ2 q1 1000 * 0.25 + 100 * 0.15 + 160 * 0.1, = 281

The pattern here is then clear, so that µ4 = µ0 q4 + µ1 q3 + µ2 q2 + µ3 q1 , = 377.1, and so on. The
terms appear to be getting ever more complicated, but relief is at hand: when we try to calculate the
formula for µ6 in the above example, the first term, µ0q6, will be zero because q6 is zero. Similarly,
in the expression for µ7 the first two terms will be zero. Consequently, from µ5 onwards the
expressions will consist in each case of 5 products to be calculated and added.
This process can be illustrated in a failure tree. There are various forms of this, and the following
diagram shows one way, using the above data for the first three periods ( = months):

Month 1 Month 2 Month 3

µ0 = 1000 900 survive µ0 750 survive µ0 500 survive

100 fail 150 fail 250 fail

µ1 = 100 90 survive µ1 75 survive

10 fail 15 fail

µ2 = 160 144 survive

16 fail

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OR202.1 Lecture 03: Replacement Theory

3.3.2 Steady-State Age Distribution

In the long run (steady state), as j → ∞, µj will tend towards a constant value, = µ0 / µ , where
∞ ∞
µ = mean or E(life) of a typical unit = ∑ j qj = ∑ Pj , so that on average a proportion 1/µ of the
1 0
population will be replaced each period at that time. In Example 3.3.1 the value of µ is calculated as
follows:
j 1 2 3 4 5
qj 0.1 0.15 0.25 0.3 0.2
∞
∴µ = ∑ j qj = 1*0.1 + 2*0.15 + 3*0.25 + 4*0.3 + 5*0.2, = 3.35 (months)
1

∞ ∞ ∞
*** N.B. Verify that this is numerically equal to ∑ Pj , and prove algebraically that ∑ j qj = ∑ Pj
0 1 0
Now define: N ≡ Lim µj , so that N = µ0 / µ = 1,000 ÷ 3.35 = 298.5075 helpers per month.
j →∞
∴In the steady state 298.51 helpers need to be replaced on average at the end of each month.

In general can we say how many items are expected to be in their first period in the steady state,
how many will then be in their second period, and so on?
In their first period (i.e. they've just been replaced) will be: N units
In their second period (having survived their first period) will be: N P1 units
In their third period will be: N P2 units

Etc! This defines the (expected) age distribution of units in the steady state

3.3.3 Replacement Policies and Strategies

A "replacement policy" is a choice between replacing items before or after they fail. We are going
to consider a policy of replacing items before they fail with brand new items. This could be
worthwhile if group replacement is cheaper than individual replacements, perhaps if there are
quantity discounts or because of economies of scale. Initially we can identify two possible
"replacement strategies":

• Replace the individual items as and when they fail (i.e. at the end of that time period); and

• Replace the whole group every n intervals of time - this is a planned group replacement of all
items (or units), with individual failures being replaced as they occur in between group
replacements, in periods 1, 2, 3, . . , and n-1. N.B. No individual replacements in period n.

In the second strategy the best value of n has to be identified, so we’ll try doing it for the individual
cases n = 1, n = 2, n = 3, and so on, and seek the value of n for which the average replacement cost
per unit time is least. Is this then better than the first strategy? – we'll see!

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OR202.1 Lecture 03: Replacement Theory

3.3.4 Replacement on (Individual) Failure

Let the cost of an individual replacement be C1, so that the expected (i.e. average) cost of
replacements per unit time = cost of an individual replacement * expected number of units to be
replaced per unit time, = C1 * µ0 / µ .

For example if individual helpers can be replaced for £200 in Example 3.3.1, the expected cost per
month in the long run for this strategy = £200 * 298.5075, = £59,701.49 per month.

3.3.5 (Planned) Group Replacement

Let the cost of group replacement be C2 per unit, so that the whole group can be replaced at a total
cost C2 µ0 . Suppose the group is to be replaced every n periods, and any units that fail in the
interim (in periods 1 to n-1) are replaced individually at a unit cost C1. Clearly C1 > C2. Why?

Define Kn = the expected replacement cost per period of this planned group replacement strategy.

For example, using the data of example 3.3.1, with C1 = £200 and C2 = £140, say, consider the case
"n = 3":

At the start of month 1 (or end of month 0) the 1,000 helpers are “replaced” at a cost of C2 µ0,
= 140 * 1,000 = £140,000.

In months 1 and 2 the expected numbers of failures will be µ1 = 100 and µ2 = 160. They will be
replaced individually at the start of months 2 and 3 at a cost C1 (µ1 + µ2),
= 200 * ( 100 + 160 ), = £52,000.
This then brings the three-month cycle to an end because any failures discovered at the end of
month 3 will not be replaced individually but will be replaced as a part of the whole group which is
due (i.e. planned) to be replaced at the start of month 4 (or at the end of month 3 if you prefer).

The total expected cost of this strategy averaged over the three months is by definition K3, and so
K3 = £ (140,000 + 52,000) / 3, = £64,000 per month. This is worse than the expected cost of the
strategy of individual replacement on failure in section 5.1, which is £59,701.49 per month.

Define: expected cost per period of planned group replacement every n periods ≡ Kn, where
n −1
Kn = [ C2 µ0 + C1 ∑ µj ] / n , and we wish to minimise this expression. (3.5.a)
j=1

A necessary (but not sufficient!) condition for this is Kn ≤ Kn-1 and Kn < Kn+1. (3.5.b)
n n −1
From 3.5.a, Kn+1 = [ C2 µ0 + C1 ∑ µj ] / ( n +1 ), = [C2 µ0 + C1 ∑ µj + C1 µ0 ] / ( n + 1 )
j= 1 j= 1
so that Kn+1 = [ n Kn + C1 µn ] / ( n + 1 ).

We wish Kn+1 to be > Kn and we can deduce that Kn+1 - Kn = [ n Kn + C1 µn ] / ( n + 1 ) – Kn

= [C1 µn - Kn ] / (n + 1 ). *** Make sure you can prove this!

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OR202.1 Lecture 03: Replacement Theory

So, if Kn+1 is to be > Kn then Kn+1 - Kn is to be > 0, and thus [C1 µn - Kn ] / (n + 1 ) > 0. Hence the
necessary condition reduces to C1 µn > Kn . (Similarly we require C1 µn-1 < Kn-1).

Now, C1 µn is the marginal cost of individual failures in an extra (i.e. n+1th) interval, and Kn is the
average cost per unit time spread over the n intervals.

Hence identify the value of n so that the extra failure cost of not making a group replacement at n
(i.e. C1 µn ) is greater than the average cost to date, Kn.

∴Calculate the values of C1µ1, C2µ2, etc., until C1µn is first greater than Kn , and then STOP!

Now let's apply this principle to Example 3.3.1.

Let’s remind ourselves that C1 = £200 (unit cost per individual unit) and C2 = £140 (unit cost per
group replacement), and that µ0 = 1000, µ1 = 100, µ2 = 160, µ3 = 281, and µ4 = 377.1, etc.

The following table shows in column 4, for example, the value C1µ2 = 32,000, and this is the
replacement cost incurred at the end of month 2 if n is larger than 2.

n C2µ0 C1µ1 C1µ2 C1µ3 C1µ4 Total Cost Kn

1 140,000 140,000 140,000
2 140,000 20,000 160,000 80,000
3 140,000 20,000 32,000 192,000 64,000
4 140,000 20,000 32,000 56,200 248,200 62,050
5 140,000 20,000 32,000 56,200 75,420 323,620 > 62,050!

Here we can see that when n = 5, the expected additional replacement cost at the end of month 4 is
C1µ4 = £75,420, and this is the first time that the marginal replacement cost has exceeded the
previous value of Kn, which is K4 = £62,050 per month.

In this example, therefore, the lowest value of Kn is when n = 4: K4 = £62,050 per month. After that
the values of Kn begin to increase, at least initially. Consequently, when n = 4 the value of Kn
reaches a local minimum value, which may or may not be a global minimum value.

Experience shows in practice that this (first) local minimum value is usually the global minimum
value. Furthermore, where an improvement can be found, the relative size of the improvement is
usually very small. Hence, as soon as the first local minimum value is found, STOP! Any extra
effort – particularly in hand calculations – is unlikely to reward you.

Finally, in this example, note that this best expected group replacement cost, £62,050 per month, is
still larger than the expected cost of individual replacement on failure, which was £59,701.49 per
month.

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OR202.1 Lecture 03: Replacement Theory

3.3.6 Preventative Maintenance

Here individual items are scheduled to be maintained or refreshed (at a cost) when they reach a
certain age, but only if they haven't failed at the time of reaching that age. Preventative
maintenance is also known as preventive maintenance, and is abbreviated p.m.

Let C3 be the cost of p.m. This is assumed to be independent of the age of the (still working) unit
when it receives p.m. (possibly not a very sensible assumption, as we saw earlier!).

Define Jm to be the expected cost per unit time if items which haven't failed are replaced when they
attain the age of m units of time.

th
If a unit is due to receive p.m. at the end of its m time period of life and if it fails during that
last time period it cannot be maintained, but must be replaced individually at a unit cost C1.
Hence in the derivation of the formula for Jm below, the term involving the expected cost of
those that need to be replaced individually is summed over time periods j = 1 to m, and not
(as in the case for planned group replacement every n periods) over t = 1 to m-1.

Either a unit will have failed before the end of time period m, and must be replaced individually at a
cost C1, or it will have survived so far (with probability Pm) and so can receive p.m. at a cost C3, so
that the expected cost per unit is:

• C1 * (1-Pm) + C3 * Pm, and this is accrued over the expected life of the unit; and
• Hence Jm = number of units * E(cost per unit) ÷ E(life per unit), where

E[life per unit] = 1*q1 + 2*q2 + 3*q3 + . . . + m*qm + m*Pm

= 1*q1 + 1*q2 + 1*q3 + . . . + 1*qm + 1*Pm ( = P0, = 1)
+ 1*q2 + 1*q3 + . . . + 1*qm + 1*Pm ( = P1 )
+ 1*q3 + . . . + 1*qm + 1*Pm ( = P2 )
. .
. .
+ 1*qm + 1*Pm ( = Pm-1 )
m−1
= ∑ Pj
j= 0

m−1
Hence Jm = µ0 * [ C1 * (1-Pm) + C3 * Pm ] / ∑ Pj, for m = 1 to (maximum age -1).
j= 0

The value of C3 must, like C2, be less than C1 (can you see why?), but it is not possible (or sensible)
to state in general whether C3 is less than C2 or vice versa.

Note also that if the maximum age of a unit is N, say, so that PN = 0, then the policy of p.m. at age
N is equivalent to strategy (A), because no unit would ever survive to receive p.m., and every unit
would therefore be replaced individually on failure.

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OR202.1 Lecture 03: Replacement Theory

Now let's apply this to the data given in example 3.3.1. Here we have N = 5 (so that we only need to
evaluate J1, J2, J3 and J4), and we will require the values of Pj, which we calculated on the bottom
of page 3: P0 = 1.0, P1 = 0.9, P2 = 0.75, P3 = 0.5, P4 = 0.2, and, of course, P5 = 0.

We know that C1 = £200 per unit (i.e. per helper in the fast food outlets), and the period of time is
'month'. Suppose we take C3 to be £150 per unit. For example, this could mean that every m
months each helper and a companion are taken to Calais and back, and receives vouchers to buy
wine, at a total cost of £150 per helper. Such a 'maintenance' might persuade the helper to stay on
within the company, in which case p.m. will have worked – provided it is expected to be cheaper
than the best replacement strategy so far (which was for individual replacement on failure (i.e. when
the helper left), and was expected to cost the company £59,701.49 per month).
m−1
In general Jm = µ0 * [ C1 * (1-Pm) + C3 * Pm ] / ∑ Pj, for m = 1 to (maximum age -1), so that
j= 0
m−1
Jm = 1000 * [ 200 * (1-Pm) + 150 * Pm ] / ∑ Pj, for m = 1 to 4
j= 0
∴ J1 = 1000 * [ 200 * (1-P1) + 150 * P1 ] / P0, = 1000 * [ 200 * 0.1 + 150 * 0.9 ] / 1.0
= £155,000 per month.

J2 = 1000 * [ 200 * (1-P2) + 150 * P2 ] / ( P0 + P1 )

= 1000 * [ 200 * 0.25 + 150 * 0.75 ] / 1.9, = £85,526.32 per month.

J3 = 1000 * [ 200 * (1-P3) + 150 * P3 ] / ( P0 + P1+ P2 )

= 1000 * [ 200 * 0.5 + 150 * 0.5 ] / 2.65, = £66,037.74 per month.

J4 = 1000 * [ 200 * (1-P4) + 150 * P4 ] / ( P0 + P1+ P2 + P3 )

= 1000 * [ 200 * 0.8 + 150 * 0.2 ] / 3.15, = £60,317.46 per month.

As a check only, J5 = 1000 * [ 200 * (1-P5) + 150 * P5 ] / ( P0 + P1+ P2 + P3 + P4 )

= 1000 * [ 200 * 1.0 + 150 * 0.0 ] / 3.35, = £59,701.49 per month.

This is equal to the cost of individual replacement (see section 5.1).

The best p.m. strategy is when m = 4, but this is still not as good as the expected cost of individual
replacement on failure, which we now see to be the best strategy in this example.

Finally, a fourth popular replacement strategy (illustrated in Qu 3.1 in the exercises) is described in
section 3.3.7 following, though it is usually only really worth investigating when the initial group
size, µ0, is small, perhaps in the region of 2 to 5 only. Consequently it is a sensible strategy to
investigate if you are considering replacing the tyres on your car, for example.

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OR202.1 Lecture 03: Replacement Theory

3.3.7 Group Replacement on First Failure: Unplanned Group Replacement

In this strategy the whole group is replaced whenever the first item fails, on the basis that the others
may be due to fail quite soon after. Let the unit cost be C4, so that if this unplanned group
replacement takes place after T time periods on average, then all µ0 units would be replaced every T
periods. Hence the expected number of units to be replaced per unit time would be µ0/T, and the
expected cost of this strategy would be L, say, = µ0 * C4 /T .

Let k be the batch size here (i.e. not the usual value µ0 because it is small).

Note that C4 < C1 (because of economies of scale). However, C4 probably exceeds C2 because the
second strategy is planned, whereas this fourth strategy is unplanned so that, probably, the
economies of scale in the former will not be as easily planned (and therefore available) in the latter.
The logic behind the calculations this time is that, if this group replacement on first failure takes
place at the end of period j, all units must have survived up to the end of period (j-1) but at the end
of period j at least one has failed.
k k
Hence the required probability of the first failure being in period j is [ Pj-1 ] - [ Pj ] .
N −1
k k
so E[life] = T = ∑ j*{ [ Pj-1 ] - [ Pj ] }, and L = µ0 * C4 / T.
j=1
Example 3.3.7
Motor cyclists who enter their machines in certain monthly mountainous cross-country trials find
that 20 percent of tyres have to be replaced after one race because of wear and tear, 50 percent are
good for only one additional trial, and the remaining 30 percent cannot be used for a fourth trial.
Alan's motor cycle has two tyres, of course, and new individual tyres can be bought and fitted for
£120 each, whereas there will be a total discount of 20 percent if two are bought together on an
unplanned basis and a further £10 off if a pair of tyres can be ordered at least six weeks in
advance. What is Alan's best strategy for tyre replacement?
Solution

C1 = £120 per tyre, C4 = £120 * ( 1 – 0.20) = £96 per tyre, and C2 = £96 – ½ * £10, = £91. C3 is
unknown (so we will not investigate the strategy or preventative maintenance). Also k = µ0 = 2; q1
= 0.2, q2 = 0.5, q3 = 0.3; and the maximum life is N = 3 trials.

The expected life is µ = Σ j*qj, = 1*0.2 + 2*0.5 + 3*0.3, = 2.1 trials or 2.1 months, and so the
expected cost of individual replacement is C1*µ0 / µ, = £114.29 per month. In the planned group
replacement strategy, the value of n must be at least 2 (since tyre can be ordered six weeks in
advance).

We can verify that µ1 = 0.4 and µ2 = 1.08. In this example K1 doesn't exist, but we can calculate K2
= C2µ0 + C1µ1, = ( 91*2 + 120*0.4 ) / 2, = £115 per month. Now, C1µ2 = 120*1.08, = 129.6, and
this is greater than K2, so that the best planned group replacement policy is every 2 months, at an
expected cost = £115.00 per month, which is worse than individual replacement.

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OR202.1 Lecture 03: Replacement Theory

For the unplanned group replacement strategy, the probabilities of first failure in time period 1, 2 or
3 will be 1 – 0.64, 0.36; 0.64 - 0.09, 0.0.55; and 0.09 – 0.0, = 0.09 respectively, as shown below.

j 0 1 2 3
qj 0.0 0.2 0.5 0.3
Pj 1.0 0.8 0.3 0.0
2
Pj 1.0 0.64 0.09 0.0
2 2
Pj-1 – Pj --- 1.0 - 0.64 0.64 – 0.09 0.09 – 0.0

Hence E[time to first failure] = T = 1*0.36 * 2*0.55 + 3*0.09, = 1.73 months. Hence the expected
value of L = 96 * 2 / 1.73, = £110.98 per trial, which is the best solution so far, so that the optimal
strategy is to wait until the first tyre needs to be replaced, and then replace both.

3.3.8 Reading

Most modern MS/OR books tend to overlook Replacement Theory these days, but you will find a
very full description of how it was viewed in the early days in Churchman CW, Ackoff RL &
Arnoff EL (1957), Introduction to Operations Research, Chapter 17. Wiley.

An easy-level introduction is provided in Makower MS, Williamson E (1967). Operational

Research, Chapter 3. English Universities Press ("Teach Yourself Books"). Note that later editions
of this book are available - this was the first edition. In general these days this subject is treated in
many books on Operations Management, because it is of great operational interest.

Exercises

Try questions Qu 3.1, Qu.3 and Qu.6 in that order for the class. The remaining questions you can
try as revision questions during the year.

Qu 3.1 Complete the solution to Example 3.2: i.e. try replacing lorries after 3, 4 or 5 years.
Briefly discuss the solution.

Qu 3.2 A civil service department is to be maintained at a level of 50 people. Staff who

leave are replaced at the end of the year in which they leave. The relative
frequencies, qi, with which recent staff members have left during the last few years
are as follows:

i years 1 2 3 4 5 6 7 8 9 10
qi 0.05 0.31 0.20 0.07 0.05 0.05 0.06 0.08 0.10 0.03

(a) What should be the annual intake of recruits?

(b) There are 8 senior posts for which length of service is the sole criterion. How long
can a new entrant expect to wait before gaining promotion to one of these senior
posts?

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OR202.1 Lecture 03: Replacement Theory

Qu 3.3 A university of dubious reputation manages to cram 1,000 students into it. It is noted
that students leave (for various reasons) after j years with the following probabilities:
j: 1 2 3 4 5
qj 0.1 0.15 0.3 0.25 0.2

The university employs a Recruitment Manager for £30,000 per year whose job is
simply to recruit students for the following year. He has set up links from which he
can recruit an individual student for £100 (including incentive payments) or he can
recruit a whole batch of 1000 students at an average cost of £60 per student. He can
also recruit any individual student for only £50 if he is able to plan more than a year
ahead. Which of the following three recruitment policies is best?

(a) Replace each student individually, at the start of the academic year following the one
in which the student left;
(b) kick out all the students every n years and replace them all, with students who leave
before this time being replaced as in (a) above, where 1 ≤ n ≤ 5; and
(c) insist that no individual student can stay more than m years, where 1 ≤ m ≤ 5.

(d) Before the Recruitment Manager joined the university, students were only recruited
when individual vacancies arose in the previous academic year, at an average cost of
£125 per student. Is his job cost effective?

Qu 3.4 MRL is the abbreviated name of Metro-Route limited. This is a company which
manages the transport system of a large city. A key problem in recent years has been
one of keeping its fleet of buses running, specifically because there has been a high
turnover of bus drivers (who can easily be tempted to become long distance lorry
drivers, etc., for more pay). The following table shows the percentages of bus drivers
who left in the last year, during their first, second, third, fourth or fifth months of
employment (no-one survived five months):

Months of Employment (Rounded Up): 1 2 3 4 5

Percent who Left by Month End: 10 20 30 30 10

MRL replaces leavers at the end of each month, so that at the start of each month the
number of bus drivers it employs is brought up to its full strength, which is 100.
MRL can recruit an individual driver at a cost of £1,000, including advertising,
training, and so on.

(a) What is the expected monthly cost of recruiting bus drivers to replace individual
leavers?

(b) As an alternative MRL can recruit a whole batch of 100 new fully-trained bus
drivers from an agency, at a total cost of £63,000. A second strategy is thus to
replace the whole group of 100 bus drivers every n months, with individual leavers
being replaced in months 1 to n-1. What is the best value of 'n' and what is the
corresponding expected monthly cost?

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OR202.1 Lecture 03: Replacement Theory

Qu 3.5 Mark Tryon is a very successful boxing champion who is also, unfortunately, so
vicious towards the sparring partners who are employed to give him essential
practice in the boxing ring before major contests that none of them ever manage to
survive more than five such practice fights before 'failing'. That is, either they get
knocked out or seriously injured (e.g. having their ear bitten off) during a practice
fight with Tryon (which lasts for a maximum of five minutes without a break) or, at
the end of the five minutes, it is clear that they will not be able to take part in their
next scheduled practice fight with Tryon on the following day. Either way, failure
has taken place. On any day, Tryon's full practice session consists of individual
practice fights against a total of 20 different sparring partners, with a short break of 1
to 2 minutes between successive fights, so that Tryon's full session is usually
completed within a couple of hours or so.

The table below shows the survival patterns of the last 100 sparring partners: the
first row identifies the number of practice fights each took part in before being
forced to retire for good. For example, 20 sparring partners failed during or at the
end of their first practice fights. When sparring partners need to be replaced a new
individual sparring partner can be obtained for $10,000, including a 'signing on'
incentive. Alternatively George W Bruisers Inc can supply a group of 20 for only
$120,000 in total. Each sparring partner who survives then has 24 hours to recover
before their next session. Each sparring partner is paid $2,000 per practice fight.

Number of practice fights 1 2 3 4 5

Number of sparring partners 20 20 30 20 10

(a) Calculate the expected daily cost of the policy of individual replacement on failure.
(b) Calculate the expected daily cost of the policy of group replacement after one day, or
two days, or three days, etc., as appropriate, with individual replacements on failure
in the interim.
(c) Sketch the failure tree corresponding to the first three full practice sessions if group
replacement takes place every four days.

Qu 3.6 A hard driving car owner believes that the probability qj of a tyre needing
replacement exactly j months after it was bought is given by the following table:
j 3 4 5 6 7
qj 0.1 0.15 0.3 0.25 0.2

The tyres wear out at rates which are independent of each other. A new tyre costs
£30, but he can buy a complete set of four new tyres for £87.50. Should he take
advantage of the reduction by replacing all the tyre at fixed intervals, such as every
five months, while replacing individually any tyres which fail in earlier months?
Note that in practice he only bothers to inspect his tyres once a month, at the end of
the month but, if necessary, he then immediately buys a new tyre or tyres if
appropriate. Note also that he doesn't concern himself with the tyre on the spare
wheel, and is not interested in holding a stock of tyres. He is happy to fit the tyres
himself, and any other costs may be ignored. Can you suggest an alternative
replacement strategy?

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