SETTING THE LENGTH OF THE PLANNING HORIZON IN THE VEHICLE REPLACEMENT-PROBLEM

In some formulations of the vehicle replacement problem, in particular those leading to repair limit type models, the alternative policies a re evaluated and compared over a fixed planning horizon. Although it h as been widely recognised that the optimal policies derived under thes e formulations depend critically on the length of the horizon, no meth od has been presented so far to set appropriately this parameter. In t his paper. the authors describe a method which overcomes this shortcom ing. Once the best policy has been derived from a given finite horizon with length H, such a policy is repeated indefinitely over time and a n equivalent annual rent is computed. The parametrisation of H leads t o the definition of an annual rent function with a sequence of nearly equidistant local minima. It is suggested that in practice the second local minimum of this function leads to an adequate choice of the para meter H. The method can be applied both to stochastic and deterministi c cost modelling situations. The method was tested using both real dat a from large samples of different types of passenger vehicles and arti ficially generated data. (C) 1997 Elsevier Science B.V.