A model for parallel machine replacement with capacity expansion

This paper considers an environment where several identical machines are used to meet product/service demands. It is assumed that the product/service demand is growing over time and therefore new machines will be purchased for capacity expansion. Also, older machines are assumed to be more expensive to operate than newer machines; and at some time, it may be economical to replace older machines by newer ones. There may be economies of scale in purchase of new machines. This paper develops an integrated model to find an optimal purchase schedule of new machines to meet both the capacity expansion and the machines replacement requirements. An optimal algorithm and an effective heuristic are developed. Our computational results show that the heuristic is close to optimal.