A Model for Equipment Replacement Decisions in a Manufacturing System

Poor decisions regarding equipment replacement can often result in costs that exceed the savings and reductions achieved in other areas of production and planning. The primary objective of this study is to present a method that minimizes the risks associated with making decisions about changing machines and establishes a rational basis for reaching optimal decisions. This study proposes an experimental design method integrated with a Net Present Value (NPV) analysis, which can help avoid the economic risks associated with machine replacement decisions. As equipment ages, the failure rate and corresponding maintenance costs increase significantly due to wear-related deterioration and component aging. Due to the nature of the investment, machine replacement decisions are a long-term process and are, therefore, subject to economic risks. Thus, it is believed that this model can greatly contribute to the development of an efficient and competitive production system. We propose a new risk-avoidance NPV analysis model using the Design of Experiments (DoEs) methodology. In our case study result, the minimum NPVs are 2,359,148 EUR (factor [Formula: see text] (cost increasing rate) [Formula: see text] 70%, factor [Formula: see text] (equity utilization rate) [Formula: see text] 35%, factor [Formula: see text] (cost of equity ratio) [Formula: see text] 40%) and 2,462,375 EUR ([Formula: see text] 70%, [Formula: see text] 50%, [Formula: see text] 30%), respectively. On the other hand, the maximum NPV is 3,664,505 EUR ([Formula: see text] 50%, [Formula: see text] 20%, [Formula: see text] 20%). We can say that if the cost of equity ratio increases from 30% to 40%, the decision-maker could make an investment (replacement) decision for the considered case study because the NPV value decreases mainly due to the impact of the cost of equity ratio. Although DoE was well established in the literature, we will adapt this method to the machine tool replacement model with the goal of minimizing financial risk.