Repair vs Replace - Part 2

Key concepts for better decision-making

This is Part 2 of a paper was presented to the Asian Maintenance in Mining Conference, Lombok, Indonesia on 15 March 1999

Author : Sandy Dunn

2. Life cycle costs - Example 1

Consider this situation - we have an oil leak on a transmission on a haul truck. The transmission has been in service for 8,000 SMU hours compared with an expected life of 12,000 SMU hours. We have two alternatives. The first is for us to do an in-situ repair on the transmission to repair the oil leak - however the transmission will still require replacing at 12,000 hours. The second is for us to replace the transmission with a rotable spare, which we would expect would last a further 12,000 hours. The truck is expected to work approximately 6,000 hours per year, and will be scrapped once it reaches 42,000 hours. Some other data regarding the in-situ repair and the component replacement are as follows:

In-situ repair

Component replacement

Remove and Install Cost

$0

$3,000

Repair Cost (Labour)

$6,000

$0

Repair Cost (Materials)

$9,000

$30,000 (Service Exchange)

Downtime

80 hours

40 hours

Assuming that the downtime does not lead to lost production, the approximate downtime cost associated with each option is as follows:

In-situ repair

Component replacement

Downtime Cost

$4,000

$2,000

Based on these costs, the costs of the two options then are:

In-situ repair

Component Replacement

Year 1 (6,000 - 12,000 hrs)

$19,000

$35,000

Year 2 (12,000 - 18,000 hrs)

$35,000

Year 3 (18,000 - 24,000 hrs)

$35,000

Year 4 (24,000 - 30,000 hrs)

$35,000

Year 5 (30,000 - 36,000 hrs)

$35,000

Year 6 (36,000 - 42,000 hrs)

$19,000

Total

$108,000

$105,000

Assuming a discount rate of 15% gives the following present values.

In-situ repair

Component Replacement

Year 1 (6,000 - 12,000 hrs)

$19,000

$35,000

Year 2 (12,000 - 18,000 hrs)

$29,750

Year 3 (18,000 - 24,000 hrs)

$25,288

Year 4 (24,000 - 30,000 hrs)

$21,494

Year 5 (30,000 - 36,000 hrs)

$18,271

Year 6 (36,000 - 42,000 hrs)

$8,430

Total

$78,674

$78,559

In this example, it has been assumed for the in-situ repair that a similar, minor repair will be required in Year 6 to see the transmission through until the end of the equipment life.

In this instance, the decision whether to repair or replace the item is line-ball - there is not a significant cost difference either way - but note that the materials cost in this example is only 33% of the cost of a replacement component.

3. Rebuild Quality - a key issue

Now let's look at another example. In this instance, let's consider that we have removed a transmission at its scheduled replacement interval, and have replaced it with a rotable spare. However, we now have to make a decision whether to repair the transmission we removed (in an in-house rebuild facility), or replace it with a new transmission.

In this instance, let's assume that the costs of repairing or replacing the component are as follows:

Transmission repair

Transmission replacement

Repair Cost (Labour)

$20,000

$0

Repair Cost (Materials)

$32,000

$60,000

Total

$52,000

$60,000

If all other things are equal (the reliability of the new component, the downtime for remove and install etc.), then in this case, it would be preferable to repair the component, rather than replace it.

However, what if the repaired transmission is not as reliable as the new item? Let's assume that the repaired component will only last 8,000 hours before failure, compared with 12,000 hours for the new item. Let's also assume, in both cases, that it will cost $3,000 of labour to remove and replace the transmission when it fails, and it will require 40 hours of downtime (costing $2,000) for the replacement.

In this instance, the costs of the two options then are:

In-situ repair

Component Replacement

Year 1 (6,000 - 12,000 hrs)

$57,000

$65,000

Year 2 (12,000 - 18,000 hrs)

Year 3 (18,000 - 24,000 hrs)

$57,000

$65,000

Year 4 (24,000 - 30,000 hrs)

$57,000

Year 5 (30,000 - 36,000 hrs)

$57,000

$65,000

Year 6 (36,000 - 42,000 hrs)

Total

$228,000

$195,000

Assuming a discount rate of 15% gives the following present values.

In-situ repair

Component Replacement

Year 1 (6,000 - 12,000 hrs)

$57,000

$65,000

Year 2 (12,000 - 18,000 hrs)

Year 3 (18,000 - 24,000 hrs)

$41,183

$46,963

Year 4 (24,000 - 30,000 hrs)

$35,005

Year 5 (30,000 - 36,000 hrs)

$29,754

$33,930

Year 6 (36,000 - 42,000 hrs)

Total

$162,942

$145,893

Clearly, now, it although the cost of the rebuild itself is cheaper, the additional downtime and component repair costs associated with the lower reliability from the rebuilt component outweigh this saving. This indicates that the quality of the rebuild is a critical issue.

Do you measure the quality of your component rebuilds?

4. Estimating Accuracy and Labour Productivity - other key issues

Another key issue is estimating accuracy. The decision regarding whether to repair or replace a particular component depends on realistic estimates regarding the quantity of labour and materials required to restore it to an acceptable condition. One of the major areas where estimates can vary significantly is in the area of labour productivity - if we rely on manufacturer's estimates for the quantity of labour required to perform overhaul tasks, we may find that the actual quantity of labour required is significantly greater than this estimate.

How often do you measure labour productivity compared with comparable external benchmarks?

Previous Page Next Page

Repair vs Replace - Part 2

Key concepts for better decision-making

2. Life cycle costs - Example 1

3. Rebuild Quality - a key issue

4. Estimating Accuracy and Labour Productivity - other key issues

Copyright 1996-2009, The Plant Maintenance Resource Center . All Rights Reserved. Revised: Thursday, 08-Oct-2015 11:54:38 AEDT Privacy Policy

Copyright 1996-2009, The Plant Maintenance Resource Center . All Rights Reserved.
Revised: Thursday, 08-Oct-2015 11:54:38 AEDT
Privacy Policy