The manager of Cheryl’s hospital is determining how often to perform preventive
ID: 459127 • Letter: T
Question
The manager of Cheryl’s hospital is determining how often to perform preventive maintenance. When the testing machine fails, it costs the company $15,000 in lost production. However, the cost of preventive maintenance is somewhat expensive. The cost of performing preventive maintenance is $3,000.
Weeks between Preventive Maintenance
Average Number of Breakdowns between Preventive Maintenance
1
0.039
2
0.110
3
0.131
4
0.151
5
0.176
a) Which interval (weeks between preventive maintenance) do you recommend for performing preventive maintenance? Base this recommendation on the economics as presented.
b) Suppose that the company has outsourced the preventive maintenance work. The cost of the preventive maintenance work is negotiable. With everything else being the same as provided above, what is the preventive maintenance cost that makes the manager indifferent between a one week and a two week preventive maintenance strategy? Assume that the preventive maintenance costs the same regardless of the weeks between preventive maintenance.
Weeks between Preventive Maintenance
Average Number of Breakdowns between Preventive Maintenance
1
0.039
2
0.110
3
0.131
4
0.151
5
0.176
Explanation / Answer
a) Which interval (weeks between preventive maintenance) do you recommend for performing preventive maintenance? Base this recommendation on the economics as presented. Weeks between Preventive Maintenance Average Number of Breakdowns between Preventive Maintenance Cost of production loss between Preventive Maintenance Cost of Preventive Maintenance 1 0.039 585 3000 2 0.110 1650 3000 3 0.131 1965 3000 4 0.151 2265 3000 5 0.176 2640 3000 Cost of production loss between preventive maintenance is calculated as $ 15000*average number of breakdowns between preventive maintenance. As clear from the above table, Cost of preventive maintenance is the closest to production loss for 5 weeks interval. So 5 weeks interval is recommended from economic perspective. b) Suppose that the company has outsourced the preventive maintenance work. The cost of the preventive maintenance work is negotiable. With everything else being the same as provided above, what is the preventive maintenance cost that makes the manager indifferent between a one week and a two week preventive maintenance strategy? Assume that the preventive maintenance costs the same regardless of the weeks between preventive maintenance. The manager will adopt 1 week maintenance strategy if the preventive maintenance cost is less than the cost of production loss for corresponding interval, alternatively if the preventive maintenance cost is more than the cost of production loss, then the manager will adopt preventive maintenance at interval, which yields lower preventive maintenance cost than cost of production loss. Accordingly, if preventive cost is less than $ 585, then he will go for 1 week strategy and if it is more than $ 585, then he will go for 2 week trategy. He will be indifferent if preventive maintenance cost is equal to $ 585
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