Multiple asset replacement analysis under variable utilization and stochastic demand

The economic life of an asset is dependent on a variety of factors, including deterioration and obsolescence. While obsolescence is generally a result of changes external to the asset, such as technological change, deterioration is generally a result of how the asset is utilized over its lifetime. If multiple assets are available to meet demand and the assets must not continually operate at maximum capacity, then a decision-maker may have some control over asset utilization patterns by allocating workload. These utilization patterns directly impact operating costs and salvage values and thus have a strong influence on the optimal replacement time of the assets. In this paper, we examine asset replacement decisions, based on age and cumulative utilization, under variable periodic utilization with multiple, parallel assets under various cost and demand assumptions. We provide an efficient optimal solution procedure through the use of stochastic dynamic programming, illustrate a threshold optimal policy under common cost assumptions and provide a method to easily examine solutions for the two-asset case. Extension to the n-asset case are also discussed.