SYSTEMS-APPROACH TO EQUIPMENT REPLACEMENT IN WOOD PRODUCTS MANUFACTURING

This paper presents a new approach to equipment replacement analysis, which involves the use of system optimization and the discounted cash flow method of incremental investment analysis. This new approach ensu res that replacement alternatives are evaluated within the framework o f maximizing profit and that the selection of a replacement alternativ e will enhance the productivity of the entire production system, not j ust a given machine center. A computer program called REPLACE, which e mbodies this new approach to replacement analysis, was developed to fa cilitate the evaluation process and ensure the accuracy of the results obtained. The efficacy of REPLACE was demonstrated in a case study in volving an equipment replacement analysis for a southern pine dimensio n lumber mill. To improve mill profitability, the management at the st udy mill considered modifying (or upgrading) its existing chip-n-saw ( CNS) system or replacing it with another log breakdown system such as a twin bandsaw/reducer head with a sharp chain (SC) log feeding system or a twinband saw with end dogging log feeder (EDLF) system. Results of the study showed that the twinband with the EDLF system would be th e most desirable replacement alternative to the existing CNS. More spe cifically, it could enhance the ability of the whole production system to provide higher volume yield and throughput, which translates to ab out $796 of additional hourly net revenue for the mill, given the same type of log input and operating conditions prevailing at the time of the study. In this case, the incremental investment of $1,300,000 need ed for such a system was found to be justified by the expected additio nal net benefits, assuming a 10 percent minimum attractive rate of ret urn.