Question

In one of PLE’s manufacturing facilities, a drill press that has three drill bits is used to fabricate metal parts. Drill bits break occasionally and need to be replaced. The present policy is to replace a drill bit when it breaks or can no longer be used. The operations manager is considering a different policy in which all three drill bits are replaced when any one bit breaks or needs replacement. The rationale is that this would reduce downtime. It costs $200 each time the drill press must be shut down. A drill bit costs $85, and the variable cost of replacing a drill bit is $14 per bit. The company that supplies the drill bits has historical evidence that the reliability of a single drill bit is describes by a Poisson probability distribution with the mean time between failures is an exponential distribution with mean μ = 1 / λ = 1 / 0.01 = 100 hours. (Professor Cursio: see below.) The operations manager at PLE would like to compare the cost of the two replacement policies. Develop spreadsheet models to determine the total cost for each policy over 1,000 hours and make a recommendation. Explain and summarize your findings in a report

Answer 1