Motor Vehicle Replacement Theory

2.2. THEORETICAL FRAMEWORK

This study will be a reflection of theories which support fleet replacements in parastatals. These include Motor Vehicle Replacement Theory which according to Bartlett (1998) states that it determines what age units should be considered for replacement ideally before costs rise, before reliability or safety is reduced and before major capital expenditure is incurred. Coetzee (1994) says Replacement Theory in Operations Research is used in the decision making process of replacing a used equipment with a substitute, mostly, a new equipment of better usage. The replacement might be necessary due to the deteriorating property or failure or breakdown of particular equipment. Sullivan, (2004), states that the 50% Rule

2.1: Source: Motor Vehicle Replacement Model: Bartlet, (1998).

Bartlet, (1998), states that vehicle replacement should be based on the economic theory of optimal vehicle replacement, which is illustrated in figure 2.1. As the vehicle ages, its capital cost diminishes and its operating costs such as maintenance, repair and fuel increase. The combination of these two costs produces a U-shaped line called Total cost curve that reflects the total cost of ownership of the asset. Ideally, a vehicle or piece of equipment should be replaced around the time the rise in annual operating costs begin to outweigh the decline in annual capital costs – that is, when the two cost curves intersect and the total cost of ownership begins to increase.

Bartlet, (1998), further explains that, the total cost curve is different for every type of vehicle and indeed, for every individual vehicle of a given type. This variability is caused by differences in the design and engineering of different types of vehicles, the operating environments they work, the quality of care the vehicles receive from owners and a variety of other factors. In recognition of this fact, most organizations develop recommended replacement cycles for a class or type of vehicles, which will approximate the optimal replacement cycle for most of the units in that particular class. Historically, this was most often accomplished in an informal manner based on discussions with mechanics

Replacement theory is a useful tool in modeling many systems. The quantity-based replacement policy and time-based replacement policy for a single machine problem has commonly been used. These two kinds of policies have also been applied to inventory management problems and has worked very well. In a fleet management, an organization should determine the expected optimal workload a particular fleet can handle depending on usage before it can be taken for repair and maintenance and then finally replaced. This should be done considering factors such as cost of running the fleet, repair and maintenance cost among other things. It is important to note that these costs should not be higher than the cost of service provided by the